Danone & Wahaha: a bittersweet partnership

Danone – French; Wahaha – Chinese state-owned enterprise

2007 – Wahaha & Danone  joint statements agreeing to temporarily suspend all lawsuits

Joint venture  Danone helped establish Wahaha

Originated in school-owned enterprise

Hangzhou Wahaha – Zong Qinghou school employee aged 42

Wahaha Nutritional Food Factory: first product – Oral Liquid

Capacity of Wahaha difficult to meet rising demand for Oral Liquid for children

Supported by Hangzhou city government  acquiring state-owned factory Hangzhou canned food
factory [negative net worth, only 2000 employees]

Diversification

Wahaha: one of first 9 joint-stock companies in Hangzhou and labour union held the employees
shares in the company  construction delayed for 6 years due to cash flow problem resulting from a
lack of experience in project management  missing the opportunity for an IPO

1992 – 1994: Shifting from health drinks to other products  launching a series of new products like
sour plum drink, alcoholic beverages and pseudo medical potions [ALL FAILED]

Geographic expansion

Supported by central government to invest the inland China  support development of Three
Gorges Area:

- 3 insolvent local companies, setting up a subsidiary in Fulin , Chongqing municipality 

reduce distribution costs by having manufacturing base in Inland China
 Wahaha Fulin Company: important contributor – ’15 Leading Corporations in Chongqing’

Expanding to poor rural areas by setting up about 20 subsidiary companies – one-third of the group
total production

Strategic partnership

1996: signed joint venture with French-based Danone  enabled the company to use foreign
investment and technology to further grow its business

Danone – gained access to Wahaha’s distribution network + foothold in Mainland China market

Joint venture: 5 subsidiaries covering manufacture of different product categories: food, health food,
beverages and quick frozen food

Subsequently, Wahaha launched Wahaha purified water  huge success + Most Famous National
Brand

Challenging Coca-Cola and Pepsi

First Chinese Cola: Future Cola [taste like Pepsi but packaged like Coca-Cola]

 Marketing in vast rural areas – influenced by price than brand + limited knowledge
  Leverage its extensive distribution network in areas where Coca-Cola and Pepsi had little
presence

After Dominating rural  promote Future Cola in big cities by stepping up its advertising
[direct competition with Coca-Cola and Pepsi]

Restructuring and further diversification

Managers of the SOE  receiving incentives if meeting certain performance indicators

1999: Hangzhou city government issued an interim measure on how to implement the policy in
Hangzhou

2003: finished restructuring from state-owned to majority owned by Zong and the employees –
employee shares held by employee union

 Hangzhou Wahaha Guangsheng Investment Co. was established with a registered capital
of RMB 50 million, which is raised to RMB 80 million the following year.

Zong held 60% if Guangsheng shares + 40% employee shares held in employee union

Guangsheng made 9 major investments:

- Hanzhou Wahaha Children’s Clothing Co

- Changsha Wahaha Beverages Co
- Harbin Shuangcheng Wahaha Food Co
- Jina Wahaha Beverages Co
 With Guangsheng’s shareholding ranging from 39% to 65%

Guangsheng transferred 65% share of Wahaha children’s clothing Co to Zong and 3 other individual
shareholders (passing share to Zong as well)  65% owned by Zong, 10% Zong’s wife and 25%
platinum Net Ltd

2 decades of achievement

Almost 20 years  growing in to the largest beverage manufacturer in China

2006: reached RMB 18.7 billion revenue  5th largest beverage company in the world

 After Coca-Cola, Pepsi, Cadbury, Gatorade

 Main products: bottled water, fruit milk, adult milk enriched with calcium and mixed
congee  leaders in Chinese beverage industry
 Wahaha’s milk products and bottled water  direct competition with international
rivals, e.g. Unilever and Nestle
 Highly valued by the state  “520 Nation Quality Benefit Corporation” and “Outstanding
Contribution of Management Chinese Corporation” awarded

Zong Qinghou