---
title: "Zong Qinghou Reflects on Wahaha's 30-Year Peaks and Setbacks Amid New Transformation"
description: "Zong Qinghou, chairman of Wahaha Group, recently discussed the company's future direction in an interview with Xinhua Net, stating that since Wahaha has already grown significantly in the food industry, further expansion would be detrimental to the sector, making diversification necessary. The company is venturing into biotechnology, sensors, and intelligent manufacturing, with Zong acknowledging that while developing a successful food product could yield billions, the effort might not be worth it for just tens of millions, so they are partnering with experts in other fields."
author: "鱼多多"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2017-03-11"
language: "en"
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# Zong Qinghou Reflects on Wahaha's 30-Year Peaks and Setbacks Amid New Transformation

> Zong Qinghou, chairman of Wahaha Group, recently discussed the company's future direction in an interview with Xinhua Net, stating that since Wahaha has already grown significantly in the food industry, further expansion would be detrimental to the sector, making diversification necessary. The company is venturing into biotechnology, sensors, and intelligent manufacturing, with Zong acknowledging that while developing a successful food product could yield billions, the effort might not be worth it for just tens of millions, so they are partnering with experts in other fields.

**Click the image for details**
Zong Qinghou, chairman of Wahaha Group, recently stated in an interview with Xinhua Net that regarding the company's future direction, "For Wahaha, having already grown substantially in the food industry, excessive further development could be detrimental to the entire sector. If we are to expand scale, diversification is necessary."
Venturing into biotechnology, sensors, and intelligent manufacturing are Wahaha's cross-industry directions. Zong commented, "In food and beverages, if a product succeeds, it can generate billions, but if you invest so much effort and only earn twenty million, it's not worth it, so we gave up. However, each industry is like a different mountain; by collaborating with insiders, we still have opportunities."
This marks another cross-industry transformation led by Zong Qinghou.
Starting in 1987 as a school-run enterprise with three people borrowing 140,000 yuan to sell popsicles and soda on commission, Wahaha built a renowned domestic brand, and Zong once topped the Hurun Rich List. But after 2010, when Zong announced diversification attempts, Wahaha's performance declined year by year. Zong admitted, "Although Wahaha remains the industry leader, we have seen negative growth."
**Before 2013: Glorious Achievements**
Zong Qinghou became famous overnight with Wahaha Children's Nutritional Liquid, creating a sales myth of hundreds of millions, and won national acclaim through a "national defense battle."
In the 1990s, cola swept the world, and China's soft drink market witnessed the tragedy of "seven armies drowned," with Tianfu Cola from Sichuan and Zheng Guanghe from Shanghai falling under Coca-Cola and Pepsi.
At that time, Zong launched Future Cola, with the slogan "Chinese people's own cola," avoiding the central cities of the two giants and shifting the battlefield to towns. Within four years, it captured 12% of the national carbonated beverage market, forming a tripartite balance with Coca-Cola and Pepsi.
**The key to Zong's success in towns was the "joint distribution system" (where manufacturers and distributors share risks and benefits).**
Wahaha had multiple layers of distributors, implementing a tiered profit strategy and clarifying price differences across sales channels. Distributors were required to pay deposits in advance, and the company would ship goods accordingly. Upon meeting targets, deposits were returned with interest higher than bank deposit rates; otherwise, deposits were deducted to cover breach losses.
This deposit system was effectively prepayment, eliminating accounts receivable pressure and ensuring ample funds. It was said that Wahaha's customer deposit balance reached tens of billions of yuan, enabling various capital advantages. It also tightly bound distributors to the factory, motivating them to sell Wahaha products wholeheartedly. Reportedly, each new product could reach all distribution channels nationwide within three days, showcasing remarkable speed.
Wahaha cleverly leveraged the "joint distribution" momentum to form a dense sales network, driving the market at low cost and penetrating the market gaps left by the two cola giants.
Wahaha's niche battle was won brilliantly. At the 2012 distributor annual meeting, distributors from across the country shouted "Long live Wahaha! Long live Boss Zong!" in a spectacular scene.
The "joint distribution" model was naturally praised to the skies and was the only Chinese channel innovation case cited by Harvard Business School.
That year, Zong Qinghou became the richest person in mainland China for the second time, setting a sales target of 100 billion yuan for 2014!
On April 28, 1992, Zong Qinghou cried when he received a 100,000 yuan award from the Shangcheng District Committee (for economic pioneers).
**After 2014: The Pain of Cross-Industry Ventures**
However, 2014 was Wahaha's worst year, with overall sales dropping 7%, representing a loss of 5.6 billion yuan, and 2015 saw a further 10% decline.
In 2002, Wahaha's first year of diversification, it entered the children's clothing market. Zong declared, "Wahaha children's clothing will establish 2,000 franchise stores within three months, with annual sales exceeding one billion yuan." Ten years later, public sales were only 200 million yuan.
In 2010, when Edison奶粉 initially entered the Chinese market, Zong set a goal of achieving 100,000 tons in sales and 10-20 billion yuan in sales within two years. Today, this imported formula milk is still far from that target.
In 2012, Zong also loudly proclaimed that Wahaha would invest in international boutique malls, children's specialty malls, and urban commercial complexes combining dining, entertainment, and shopping. However, the failure of commercial projects caused an uproar, provoking Zong's anger.
In 2013, as the entire baijiu industry entered a deep adjustment period, Wahaha announced an initial investment of 15 billion yuan into the struggling baijiu sector, claiming it would go public within three to five years. But within just six months, its flagship product, Lingjiang Guojiu, was embroiled in a scandal of internal quota pushing.
Wu Xiaobo's "The Great Defeat" noted that any enterprise that grows large will move toward diversification or specialization. In the past decade or more of China's economic development, there were many market gaps; with capital, one could invest anywhere and grow, leading to many diversified enterprises and a bandwagon effect. But this is not a path to success, as market competition is necessarily specialized.
Luo Jianxing, who served as Zong's personal marketing secretary for four years, also said that Wahaha's continuous decline had both accidental and inevitable causes. Without diversification diverting Zong and management's time and energy, the beverage core business would have performed better in recent years.
Peking University's Senior Property Management Training Program later summarized three main reasons for Wahaha's failures:
> **● Channel dependence, not suitable for cross-industry specifics**
>
> Wahaha is indeed the leader in food and beverages, but Zong later reflected that apart from capital, Wahaha's advantages in brand, channels, and talent in new industries would be zeroed out.
>
> Taking children's clothing as an example, although Wahaha started with children's beverages, clothing belongs to the infant and toddler market, which has entirely different attributes. This industry has high brand dependence, and Wahaha can only be considered a second-tier brand. "The positioning of high-to-medium quality and low-to-medium price becomes void in the face of high prices; brand power and price cannot match," said Luo Jianxing. "Moreover, Wahaha has a dense beverage sales network nationwide, but these salespeople, though battle-tested in beverages, are not professional in selling children's clothing."
>
> Additionally, the production model was questioned. Wahaha children's clothing used OEM production, with cooperative relationships with processing plants and no direct management involvement. Furthermore, product design, production, and sales were disconnected in Wahaha's clothing process, with lagging design and production plans compressing reasonable production time for factories. All this made quality unassured, and quality is crucial for children's clothing success.
> **● Focusing only on profits, ignoring competitive strength**
>
> In diversification choices, Wahaha overemphasized industry profits while neglecting competitive factors and market changes. The failure in the baijiu industry is a typical example.
>
> First, ignoring market conditions. When Wahaha entered the baijiu industry, the sector was under policies curbing "three public consumption," causing the baijiu stock sector to plummet. Wahaha's attempt to "bottom-fish" inevitably led to being mired in difficulties.
>
> Second, ignoring competitors. Although baijiu is highly profitable, it is a mature industry with giants like Moutai, Wuliangye, and Luzhou Laojiao forming a landscape of established brands. A beverage giant entering baijiu with the intention of creating "a national liquor affordable for the people" is misguided; in fact, the people's national liquor is only Moutai. If any liquor from Moutai Town could be considered national, Moutai Town would already be full of national liquors. Lingjiang Guojiu could only be a low-tier Moutai follower, with no market.
> **● "Dictatorship," limiting team performance**
>
> The success of cross-industry diversification depends on resource allocation surpassing key competitors and having a professional team to manage or reform the enterprise according to industry rules.
>
> Wahaha's team inadequacy appears to be unfamiliarity with new industries initially, but the essence is a problem of corporate management and culture.
>
> It is known that Zong has always adopted a centralized model of "handling everything personally." Luo Jianxing pointed out that Zong's hands-on personality led to a lack of talent advantage. "Wahaha has no strategy department, no vice president positions; all decisions are made by Zong alone. He doesn't trust consulting firms, relying only on obedient ministers and managers. No one dares to suggest or contradict Zong, not even his daughter Zong Fuli."
>
> For cross-industry development, recruiting external talent is an effective way to quickly compensate for team deficiencies, but Wahaha's management genes become a barrier to talent integration.
**2017: Strengthening Chinese Brands**
Shuanghui has focused on its main business for years, centered on agriculture, laying out a global industrial chain around meat products, becoming the world's largest animal protein company. Its investments in feed and breeding ensure stable growth even during industry downturns. Nestlé, through acquisitions of Hsu Fu Chi, Yinlu, and Gold Monkey, entered new markets faster and completed local layout.
**There has long been a saying in the food industry: "Those who control the source control the world." Whether dealing with food crises, industrial transfer, or environmental protection, extending upstream around the core food and beverage business is a key move for agricultural and food enterprises to find new growth drivers.**
Industry insiders suggest that from this logic, Wahaha should not build its own malls but rather take stakes in (or acquire) Yihaodian, JD.com, RT-Mart, Yonghui, or Bubugao to establish new channel advantages; not invest heavily in building baijiu, but seize opportunities in food industrialization and lay out upstream supply chains.
Previously, Wahaha kept its head down, making money quietly. When there was no benchmark to imitate, cross-industry moves became blind. Now Wahaha is transforming into biotechnology, sensors, intelligent manufacturing, and robotics. Whether it will succeed remains to be seen. But this time, at least Zong admits that "each industry is like a different mountain," and collaborating with insiders is what Wahaha will do in the future.
Moreover, this year marks Wahaha's 30th anniversary. As a former industry leader, it is time to explore and set an example for the upgrade and leap of Chinese brands.
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