Wahaha has been criticised in the past for failing to move with the times. Its brand ambassador Wang Leehom, for instance, had been promoting its products since 1998. The beverage giant only recently terminated the partnership because it deemed the 43 year-old singer “very old,” Kelly Zong Fuli, the daughter of Wahaha founder Zong Qinghou, admitted in an interview.
But in late December, netizens were shocked to find that the new brand ambassador is 65 year-old Hong Kong actress Angie Chiu. She now endorses Good Sleep, a yogurt drink said to aid slumber.
It is against this backdrop that the aging brand finally made a long-delayed foray into e-commerce. Even though Zong had once declared that, “No matter how powerful e-commerce becomes, it will not impact Wahaha,” the move online was much needed. The beverage firm’s sales declined from Rmb78 billion ($11 billion) in 2013 to Rmb47 billion in 2018. Zong saw his own ranking slip too: he was China’s richest man in 2010, 2012 and 2013 but by 2018 was ranked only 31st.
In comparison, Jack Ma, the founder of Chinese internet giant Alibaba, has been topping the wealth ranking in recent years thanks to the exponential growth in e-commerce. Perhaps finally getting some inspiration from his neighbour – both Wahaha and Alibaba are based in Hangzhou – news surfaced last month that Wahaha had quietly set up a new subsidiary called Wahaha E-commerce with registered capital of Rmb200 million, which suggests that it is finally getting serious about its own online sales platform (it already operates virtual storefronts on all the major e-commerce platforms like Tmall and JD.com).
The outlines of a digital strategy have also been hinted at. In 2018, Wahaha started selling special edition products on its own WeChat and Sina Weibo accounts. However, the results were underwhelming. “We don’t boycott e-commerce but we don’t embrace it either,” was Zong’s verdict at the time.
The reason Wahaha has been reluctant to sell more of its drinks online is because of its own distribution system, which Zong has developed over 30 years. In the past, each dealership head was in charge of a specific market (and had to comply with Wahaha’s pricing system). Between the dealers and the wholesalers there are other smaller distributors, ensuring Wahaha products could reach into the farthest corners of the country (Wahaha has nearly 10,000 dealers, hundreds of thousands of wholesalers and more than three million retail terminals nationwide).
But as shoppers began to shift online, Wahaha’s extensive network started to look obsolete. “At a time when logistics and information was not perfectly developed, the system was very effective. However, as e-commerce took off, online sites could distribute products all over the country with their own highly efficient logistics,” commented Cosmetic Business. “The only way for manufacturers to make money was to have a lot of products and gain economies of scale.”
To be fair, Wahaha wasn’t the only company to shy away from e-commerce. Drinks brand Nongfu Spring and dairy giant Mengniu haven’t invested much in their own e-commerce platforms either (both relying more on third-party sites for online distribution). “It is difficult to support a whole e-commerce platform with just a single brand and a single category. That is common sense,” another commentator told Gingko Finance, a financial news blog.
With a longstanding distribution network in place, Wahaha may see its new e-commerce unit more as a way of using the existing system more efficiently (i.e. cutting out some of the layers) rather than junking it entirely.
“The bottom line is that Wahaha wants to rely on Zong Qinghou’s own creation for distribution,” reckoned Gingko Finance.
Wahaha also hopes to seize back some of the pricing power enjoying by the largest e-commerce platforms. Shenzhou Computer, a domestic computer maker, got into a row with JD.com after the online retailer slashed prices without consulting the brand during last November’s Singles’ Day shopping season (Shenzhou has since started building its own e-commerce site). There are also rumours that Wahaha will use its own platform to sell products other than beverages (it won’t be the first time that Wahaha has tried to diversify, see WiC457).
The counterargument is that Wahaha’s conversion to digital channels may be too little too late. “E-commerce is not just about the ability to sell goods. You also have to consider your competitive advantages. For Wahaha, this means that the competitors are already flying the plane, while it is scrambling to assemble a car,” concluded Gingko Finance.
© ChinTell Ltd. All rights reserved.
Sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.