Wahaha’s Zong Qinghou and China’s richest businessman: work, tea and cigarettes

April 21, 2013 2:27 pm

Zong Qinghou: work, tea and cigarettes

By Simon Rabinovitch

Drinks king: Zong Qinghou’s products range from bottled water to milk

Despite being one of China’s most prominent businessmen, Zong Qinghou still uses the gritty metaphors that bear the mark of a youth spent tilling rural fields during the Cultural Revolution.

When discussing the succession plans at his multibillion-dollar Wahaha empire, he notes that Kelly Zong, his 31-year-old daughter, has already taken over some of the corporate responsibilities, before adding: “If she has any problems, I’ll go and wipe her butt.”

However, with or without the earthy Chinese phrase, talk of succession is much too premature for the 67-year-old beverage tycoon. Ranked as China’s wealthiest man, with an estimated fortune of $13bn according to the Hurun Rich List, Mr Zong has no desire to let go of the company he founded in the near future. Outside of work, he says with a raspy laugh, his only hobbies are drinking tea and smoking cigarettes.Yet it has been a tough six months for Mr Zong. In November he began a strategic shift in his business, branching into retail operations with the opening of WAOW Plaza, a boutique shopping mall in his home town of Hangzhou, near Shanghai. He plans to open 100 malls over the next five years, with a view to bringing affordable luxury to middle-class Chinese in the form of less well-known European brands such as Groc from Spain and Gregory from Italy.

But WAOW has had a bad start. The name, which is short for Wahaha Europe, has been mocked, few customers have passed through the mall’s doors and analysts have questioned the wisdom of entering bricks-and-mortar retail when online shopping is booming.

If Mr Zong is worried, he is not showing it. “It’s no problem,” he smiles. “It just takes time to build a brand. I like this kind of thing. After all, I got my start selling ice cream and I built a brand through the hard work of selling my product.”

The start of his career in commerce came after enduring Mao’s Cultural Revolution. In 1966, Mr Zong’s high school closed its doors and he, like millions of students, was sent to the countryside to work alongside peasants.

When he returned to Hangzhou 15 years later, it was in the throes of a very different kind of revolution: China had begun to roll back the powers of the state in the 1980s and the city was a hotbed for private enterprise. He began in business in 1987 with a licence to sell snacks at schools. Mr Zong sold ice cream and soft drinks, and nearly a decade later hit upon mineral water as his prized offering when many Chinese still lacked running water in their homes.

The experience of going from survival mode to richest man in China perhaps explains Mr Zong’s supreme self-assurance. It has also coloured his views of the world.

For 11 consecutive years he has attended the annual session of China’s parliament as a delegate. Within the parameters for free speech that exist, he relishes the opportunity to make his voice heard. “You’ve got to cut taxes to make room for ordinary people,” he says between drags of cigarettes in a hotel suite that doubles as his office during the two weeks of this year’s parliament in mid-March “The government is taking too much money and leaving too little for the ordinary people.”

The CV

● Born: 1945
● Education: Hangzhou junior high school
● Career: 1963 Begins 15-year period in countryside during the Cultural Revolution
● 1987 Starts as drinks and ice-cream distributor at schools in Hangzhou
● 1989 Founds Hangzhou Wahaha Nutritional Foods Factory, which produces Wahaha Children’s Oral Nutrition, a health drink; acquires insolvent Hangzhou Canned Food Factory and forms Hangzhou Wahaha Group
● 1995 Launches Wahaha Pure Water
● 1996 Partners with Danone, in joint venture
● 2007 Dispute with Danone begins
● 2009 Settles dispute, buys out Danone’s stake
● 2010 Tops Hurun China Rich List
● Interests: Smoking and drinking tea
● Family: Married with a daughter who is being groomed as his successor

As much as a multibillionaire can, Mr Zong tries to maintain a modest image. In the past, he has worn a $48,000 Vacheron Constantin watch, but when we meet he is not wearing it. After a series of scandals in which government officials were exposed as corrupt simply because of their expensive watches, bare wrists are suddenly de rigueur in Beijing.

His hotel is comfortable but hardly luxurious, he wears a simple jacket with a zipper front and he chain-smokes Davidoff cigarettes – a midrange brand in China.

He wags his finger disapprovingly as he extols his view of the state’s role in business. “Europe has high social benefits and high tax, and this has led to no one working, it has created your economic problem,” he says. “We need to maintain equality of opportunity here, to let people pay their way through their own hard work.”

Wahaha, which means “laughing baby”, established itself as China’s top drinks company after it formed a joint venture with Danone of France in 1996. Their partnership soured in 2007 when Danone accused Mr Zong of running parallel companies that competed directly with the joint venture, in which Danone had a 51 per cent stake, under the same trademark. Mr Zong denied all of Danone’s allegations and said Wahaha’s success was thanks to his understanding of the market.

Some of the rhetoric used by Mr Zong and his supporters during the dispute brought to mind his formative years in the tea fields and rice paddies during the Cultural Revolution. In one public letter to Danone, employees calling themselves “Chairman Zong’s army” said the French directors were “rascals”, and Chinese who co-operated with them were “traitors”.

settlement was reached in 2009 after a partial award in Danone’s favour. Under the terms of the deal, Mr Zong bought Danone’s stake for about €300m ($440m at the time).

The fight with Danone appears to have put one lasting dent in his otherwise formidable confidence. Wahaha has plenty of cash – its net profits last year were Rmb8bn ($1.3bn) – and Mr Zong says he has asked advisers to recommend overseas acquisition targets. But he is wary of trying to sell into foreign markets.

“I’ve told them to find me companies making products that China is unable to produce,” he says. “I’ll buy the companies and then bring the products into China. Otherwise I’d be buying companies that are still just competing in their own countries, and sooner or later others will catch up.”

Wahaha did make a foray of a kind into Britain this year. In January it signed a three-year sponsorship deal with Manchester United, paying for the right to use the football club’s name and images in its soft-drink advertisements in China. Wahaha’s adverts now feature pictures of Wayne Rooney next to cans of Qili, an energy drink. “Chinese people love football, but the quality of Chinese football itself is very poor, so the deal made sense,” Mr Zong says.

For the super-rich in China, gaining the government’s blessing is essential for continued success. Academic studies have found that those who make it on to China’s rich lists are more likely than ordinary entrepreneurs to face investigations and arrests because their high profile attracts greater scrutiny. Mr Zong, however, has been spared any such trouble.

A sign of his established position within the country’s corridors of power came during China’s parliament: Wahaha beverages, from milk drinks to mineral water, were being dispensed for free on the sidelines of the meetings.

Mr Zong also knows how to flatter those in power, another essential survival skill. So it is hardly surprising to hear him heap praise on Xi Jinping and Li Keqiang, China’s new leaders. But his choice of compliments is telling – he brings it back to their hard-working youths as students who, like him, were sent to toil on farms.

“These are guys who have been up mountains and down to the countryside,” he says. “They have also eaten bitterness.”


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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