Wahaha needs a new business model, says Kelly Zong

Wahaha needs a new business model, says Kelly Zong

Staff Reporter


Kelly Zong, the daughter of Hangzhou Wahaha chairman Zong Qinghou, has said the beverage empire that has made her father one of China’s richest men is gradually losing its advantage in terms of business model and product lines. Her father’s anointed successor, Zong has rarely discussed in the past the management issues and future development concerns of the company, worth an estimated 32 billion yuan (US$5.2 billion). She revealed her apprehensions about the company’s business model recently however in an interview with ifeng.com, the news website run by Hong Kong’s Phoenix TV network.Zong has dramatically different ideas to her father, which may be a result of her overseas education. She studied in the United States for eight years and obtained a bachelor’s degree in international business from the University of Southern California.

She joined Wahaha in 2005 and is now the president of subsidiary Hangzhou Hongsheng beverage group and Hangzhou Wahaha export and import company. She was named a member of the Zhejiang committee of the Chinese People’s Political Consultative Conference in 2011.

“Wahaha is at a dangerous stage. If it made it, then it made it. If it didn’t, then it’s gone,” Zong said of the distributor-based business model formerly key to the beverage group’s success and the fact that it has not produced a bestselling product in recent years.

Zong Qinghou established a nationwide distribution system in early 1994 which includes over 10,000 wholesalers and retailers across the country.

“I thought it was our advantage but it has gradually became a disadvantage,” Kelly Zong said, noting that China’s society and market today are very different from the past. Today, convenience stores and supermarkets are commonplace and distributors do not have much control as before; furthermore, they rarely come up with new sales packages. Zong believes Wahaha should sell its beverages through e-commerce platforms and provide delivery services.

She made it clear that she does not agree with her father’s plan to expand into retailing. Zong Qinghou pledged in 2010 to open 100 shopping malls in the following three to five years in 2010. “It has nothing to do with me,” Kelly Zong said. “I have no idea why he opened the stores. I did not support the idea.”

The momentum that maintains the group’s growth is its various new products, she said. Most of these have a short lifespan of around six to seven months, however. Nutritional products provide longer-term returns, contributing 10 billion yuan (US$1.63 billion) of sales in 2009, one quarter of the group’s total revenue for that year.

Asked to comment on when she will take over her father’s empire, Kelly Zong said, “I hope my own company will be a professional beverage maker but I have no idea about Wahaha.”

The reason for Kelly Zong’s concerns stems also from the group’s management style and personnel structure. The group’s 30,000 employees have been accustomed to awaiting Zong Qinghou’s instructions every day by fax after the chairman had been through the tons of reports he received at hotels every evening. The management system drew concerns as to whether the company could operate smoothly without him.

Zong Qinghou has maintained this management style since he registered his company in 1989. Kelly Zong says this is the way her father prefers and is what his employees are used to. Her father has recognized the problem as the group’s employees grew from 2,000 to 30,000.

“I hope he would consider hiring managers but I doubt anyone can fit the group’s corporate culture,” said Kelly Zong. “I think everyone should understand what went wrong and make changes. Wahaha group is already 25 years old. I think it needs to experience and be responsible for such a process.”

Zong Qinghou’s daughter is on the same page with her father in terms of financing, however. Both of them insist that Wahaha will not go public or expand overseas via acquisitions or joint ventures.

The most problematic issue for Kelly Zong is dealing with the government. “I think the government needs to realize that people of my generation will never be like my father’s generation,” she said, stating that she would not be unwilling to relocate the entire business to another country if necessary. “It is really possible. Do you know [Hong Kong property tycoon] Li Ka-shing has already relocated his? Why is it impossible for me to do the same in the future?” she said.

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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