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Taking on Coke
A Chinese beverage maker fights back against the multinational giant.
By Suzanne McGee, MSN Money
It's hard to imagine a greater contrast to Coca-Cola's gleaming Atlanta headquarters than the executive offices of Wahaha Group on a bustling street in Hangzhou, a prosperous city in central China. Outside, the Wahaha building is resolutely down-market, a nondescript gray block; inside, a single noisy elevator wafts visitors upstairs to meeting rooms heated only by fuel-burning stoves and space heaters.
But big plans are brewing in these offices.
"The boss had the goal of building China's No. 1 drinks company," says Yang Xiuling, director of marketing for a company that is already one of China's biggest domestic success stories. "Every year we have new products; our goal is to offer a complete range of products so that when our customers are thirsty, they automatically think about Wahaha."
Then, she says, it will be time to take Wahaha to the world's consumers -- and repeat the process. Video: Conquering China
Such ambitions pit Wahaha against the world's largest beverage company, Coca-Cola. A casual stroll through a supermarket in Hangzhou shows just how tough a fight this will be. Even in Wahaha's hometown, the supermarket shelves are dominated by bottles and cans of Coke, Coke Light (as Diet Coke is known in
China) and other products bottled and sold locally by Coca-Cola. While Wahaha's milk and yogurt drinks are also on display, its new cola products, Future Cola and Coffee Cola, are nowhere to be seen.
Wahaha has a growth rate that Coke CEO Neville Isdell would envy -- its pretax profits soared 39% in 2006 over 2005, while Coke's operating income rose only 6%. But of course, Wahaha is still dwarfed by the U.S. giant: The Chinese company's annual sales of just over 15 billion yuan, or about $1.7 billion, are a fraction of Coke's worldwide sales of $24 billion last year.
The faceoff between Coke and Wahaha may seem like a David-and-Goliath struggle -- with David deprived of his slingshot. But then this is China, where newly minted consumers have yet to develop unshakable brand loyalties and even the strongest international brand will struggle to deal with the country's vast scale and diverse culture.
"Nothing can be taken for granted here, and everything changes rapidly," says P.T. Black, a partner at Shanghai marketing firm Jigsaw International. "You have to prove yourself to consumers again and again and again. While many global brands are strong enough to do that, they have to take it as a serious challenge."
Wal-Mart Stores may dominate in the United States, but in China the chain is duking it out with rivals that range from France's Carrefour to local chains that are adapting Wal-Mart's store layout, product range and even its name (one wannabe Wal-Mart is busily opening "Wu-Mart" stores nationwide). Graphic: Foreign vs. local brands in China
In the fast food arena, Yum Brands outlets like KFC and Pizza Hut currently dominate the scene, introducing the locals to the delights of fried chicken and pizza, but domestic and foreign rivals are expanding at a rapid clip. Zhang Lan, a Beijing native, has launched South Beauty, an upmarket chain of restaurants offering regional favorites. After opening her doors in Hong Kong, she is now mulling a New York outlet. At the other end of the cuisine spectrum are a variety of local restaurant chains, such as a hot-pot outlet in Chongqing.
Coming on fast is Papa John's, the Kentucky pizza chain, which opened its first Chinese outlet in 2003 and by the end of 2006 had more than 50 pizza palaces spread up and down China's affluent eastern coast. For Myles Felt, vice president of the company's Asia Pacific operations, that's just the start. Pizza Hut may have arrived here first, but Felt says that won't matter, because Chinese consumers don't have any strong brand loyalties when it comes to pizza. "With
better ingredients and better pizza, I think we are going to be able to overtake them," he says. Ultimately, "we want every Chinese person to have tried Papa John's and become a loyal customer." Video: Get married, go for pizza
Felt is overseeing an aggressive expansion plan. This year, Papa John's will open 40 more outlets, nearly doubling its China footprint. By 2015, Felt expects to have as many as 1,000 outlets. He hopes to break out of consumer strongholds in China's giant eastern cities and to start selling pizza throughout the nation's far-flung second- and third-tier urban communities -- although that will require a secure supply chain to maintain quality, he notes.
Garrison Chu, general manager of Papa John's Chinese business, is already focusing on the hinterlands, following the example set by Chairman Mao Zedong -- who built his political base in the countryside before tackling the national stage. In the pizza chain's case, Chu says, the strategy involves building business gradually, through word of mouth and strategic public relations, such as sponsorship of local sporting events and visits by Papa John's founder to China. Video: Right place, right time?
Wahaha likes the Mao strategy, too."Second- or third-tier cities are a better place for us to promote Future
Cola; there we are not competing head to head with Coke," says Yang.
Wahaha now has 36 subsidiaries in the provinces, producing and distributing everything from Wahaha's bottled water and milk-based drinks to Future Cola. In many of these areas, local residents have never been able to buy Coke's products -- or can't afford them.
"We do a lot of research and look for areas where opportunities are missed," Yang explains.
While Coke and Pepsi dominate trade with large retailers, Wahaha deliberately targets smaller outlets. It doesn't bother Yang that Future Cola can't be found on the shelves of the big stores in Beijing or Shanghai. She points out that most of China's 1.3 billion people live outside the narrow band of prosperity along the country's eastern coast.
"Success is not just a matter of serving today's affluent customer in Shanghai and Beijing," she says.
Besides, Yang says, Beijing and Shanghai residents can -- and do -- buy Wahaha water, along with yogurt drinks and children's nutritional products. The company believes that expansion of its product line will be the key to expanding its market share. "Now the name of
Wahaha is known nationwide, so people are curious about our other offerings," Yang says.
These offerings now include Coffee Cola, a product dreamed up by Wahaha founder Zong Qinghou on a trip to visit joint-venture partner Danone (which has stakes in many of Wahaha's operating subsidiaries, but not in the parent company).
"Other companies didn't think that the Chinese people would like this, because we drink mostly tea," says Yang. The concept relies not only on a new flavor combination, she says, but on new technology.
"There are lots of bubbles; lots more than other cola drinks, and they even spray backwards," she explains. "They express the (exuberant) feelings of young people."
Launched last August with the slogan "When coffee meets cola, romance meets passion", the product vanished from store shelves as rapidly as retailers could stock it.
And Wahaha executives see Coffee Cola's success as a taste of things to come. The better they get at tapping into China's unique consumer market, the greater the odds they will be able to beat Coke in the country's giant urban markets -- and even overseas.
Already, Wahaha is exporting some of its drinks to Southeast Asia, and its children's protein and vitamin beverages can be found in Asian specialty stores in the United States. And if Wahaha succeeds, Chinese consumers will be cheering it on.
Robbie Blinkoff, a consumer anthropologist who conducted an extensive study of Chinese consumer attitudes in late 2005, found that the average Chinese consumer was intensely proud of homegrown brands. Blinkoff mentions electronics company Haier and computer manufacturer Lenovo, which acquired IBM's personal-computer business in a 2004 deal that made Lenovo the world's third-largest maker of PCs.
"They are excited that Chinese companies are now competing with the likes of General Electric and Sony, at least within China," Blinkoff says.
Tom Doctoroff, head of greater China for advertising agency JWT, has been surprised at the recent strength of the Chinese brands.
"They are true brands; they are becoming increasingly viable," Doctoroff says. "Five years ago, we had no (advertising business) from local brands; now 50% of our revenue is coming from local brands, and the majority of our growth. It is a major shift." Chart: Chinese stocks to watch
Published June 29, 2007
A Chinese beverage maker fights back against the multinational giant.
By Suzanne McGee, MSN Money
It's hard to imagine a greater contrast to Coca-Cola's gleaming Atlanta headquarters than the executive offices of Wahaha Group on a bustling street in Hangzhou, a prosperous city in central China. Outside, the Wahaha building is resolutely down-market, a nondescript gray block; inside, a single noisy elevator wafts visitors upstairs to meeting rooms heated only by fuel-burning stoves and space heaters.
But big plans are brewing in these offices.
"The boss had the goal of building China's No. 1 drinks company," says Yang Xiuling, director of marketing for a company that is already one of China's biggest domestic success stories. "Every year we have new products; our goal is to offer a complete range of products so that when our customers are thirsty, they automatically think about Wahaha."
Then, she says, it will be time to take Wahaha to the world's consumers -- and repeat the process. Video: Conquering China
Such ambitions pit Wahaha against the world's largest beverage company, Coca-Cola. A casual stroll through a supermarket in Hangzhou shows just how tough a fight this will be. Even in Wahaha's hometown, the supermarket shelves are dominated by bottles and cans of Coke, Coke Light (as Diet Coke is known in
China) and other products bottled and sold locally by Coca-Cola. While Wahaha's milk and yogurt drinks are also on display, its new cola products, Future Cola and Coffee Cola, are nowhere to be seen.
Wahaha has a growth rate that Coke CEO Neville Isdell would envy -- its pretax profits soared 39% in 2006 over 2005, while Coke's operating income rose only 6%. But of course, Wahaha is still dwarfed by the U.S. giant: The Chinese company's annual sales of just over 15 billion yuan, or about $1.7 billion, are a fraction of Coke's worldwide sales of $24 billion last year.
The faceoff between Coke and Wahaha may seem like a David-and-Goliath struggle -- with David deprived of his slingshot. But then this is China, where newly minted consumers have yet to develop unshakable brand loyalties and even the strongest international brand will struggle to deal with the country's vast scale and diverse culture.
"Nothing can be taken for granted here, and everything changes rapidly," says P.T. Black, a partner at Shanghai marketing firm Jigsaw International. "You have to prove yourself to consumers again and again and again. While many global brands are strong enough to do that, they have to take it as a serious challenge."
Wal-Mart Stores may dominate in the United States, but in China the chain is duking it out with rivals that range from France's Carrefour to local chains that are adapting Wal-Mart's store layout, product range and even its name (one wannabe Wal-Mart is busily opening "Wu-Mart" stores nationwide). Graphic: Foreign vs. local brands in China
In the fast food arena, Yum Brands outlets like KFC and Pizza Hut currently dominate the scene, introducing the locals to the delights of fried chicken and pizza, but domestic and foreign rivals are expanding at a rapid clip. Zhang Lan, a Beijing native, has launched South Beauty, an upmarket chain of restaurants offering regional favorites. After opening her doors in Hong Kong, she is now mulling a New York outlet. At the other end of the cuisine spectrum are a variety of local restaurant chains, such as a hot-pot outlet in Chongqing.
Coming on fast is Papa John's, the Kentucky pizza chain, which opened its first Chinese outlet in 2003 and by the end of 2006 had more than 50 pizza palaces spread up and down China's affluent eastern coast. For Myles Felt, vice president of the company's Asia Pacific operations, that's just the start. Pizza Hut may have arrived here first, but Felt says that won't matter, because Chinese consumers don't have any strong brand loyalties when it comes to pizza. "With
better ingredients and better pizza, I think we are going to be able to overtake them," he says. Ultimately, "we want every Chinese person to have tried Papa John's and become a loyal customer." Video: Get married, go for pizza
Felt is overseeing an aggressive expansion plan. This year, Papa John's will open 40 more outlets, nearly doubling its China footprint. By 2015, Felt expects to have as many as 1,000 outlets. He hopes to break out of consumer strongholds in China's giant eastern cities and to start selling pizza throughout the nation's far-flung second- and third-tier urban communities -- although that will require a secure supply chain to maintain quality, he notes.
Garrison Chu, general manager of Papa John's Chinese business, is already focusing on the hinterlands, following the example set by Chairman Mao Zedong -- who built his political base in the countryside before tackling the national stage. In the pizza chain's case, Chu says, the strategy involves building business gradually, through word of mouth and strategic public relations, such as sponsorship of local sporting events and visits by Papa John's founder to China. Video: Right place, right time?
Wahaha likes the Mao strategy, too."Second- or third-tier cities are a better place for us to promote Future
Cola; there we are not competing head to head with Coke," says Yang.
Wahaha now has 36 subsidiaries in the provinces, producing and distributing everything from Wahaha's bottled water and milk-based drinks to Future Cola. In many of these areas, local residents have never been able to buy Coke's products -- or can't afford them.
"We do a lot of research and look for areas where opportunities are missed," Yang explains.
While Coke and Pepsi dominate trade with large retailers, Wahaha deliberately targets smaller outlets. It doesn't bother Yang that Future Cola can't be found on the shelves of the big stores in Beijing or Shanghai. She points out that most of China's 1.3 billion people live outside the narrow band of prosperity along the country's eastern coast.
"Success is not just a matter of serving today's affluent customer in Shanghai and Beijing," she says.
Besides, Yang says, Beijing and Shanghai residents can -- and do -- buy Wahaha water, along with yogurt drinks and children's nutritional products. The company believes that expansion of its product line will be the key to expanding its market share. "Now the name of
Wahaha is known nationwide, so people are curious about our other offerings," Yang says.
These offerings now include Coffee Cola, a product dreamed up by Wahaha founder Zong Qinghou on a trip to visit joint-venture partner Danone (which has stakes in many of Wahaha's operating subsidiaries, but not in the parent company).
"Other companies didn't think that the Chinese people would like this, because we drink mostly tea," says Yang. The concept relies not only on a new flavor combination, she says, but on new technology.
"There are lots of bubbles; lots more than other cola drinks, and they even spray backwards," she explains. "They express the (exuberant) feelings of young people."
Launched last August with the slogan "When coffee meets cola, romance meets passion", the product vanished from store shelves as rapidly as retailers could stock it.
And Wahaha executives see Coffee Cola's success as a taste of things to come. The better they get at tapping into China's unique consumer market, the greater the odds they will be able to beat Coke in the country's giant urban markets -- and even overseas.
Already, Wahaha is exporting some of its drinks to Southeast Asia, and its children's protein and vitamin beverages can be found in Asian specialty stores in the United States. And if Wahaha succeeds, Chinese consumers will be cheering it on.
Robbie Blinkoff, a consumer anthropologist who conducted an extensive study of Chinese consumer attitudes in late 2005, found that the average Chinese consumer was intensely proud of homegrown brands. Blinkoff mentions electronics company Haier and computer manufacturer Lenovo, which acquired IBM's personal-computer business in a 2004 deal that made Lenovo the world's third-largest maker of PCs.
"They are excited that Chinese companies are now competing with the likes of General Electric and Sony, at least within China," Blinkoff says.
Tom Doctoroff, head of greater China for advertising agency JWT, has been surprised at the recent strength of the Chinese brands.
"They are true brands; they are becoming increasingly viable," Doctoroff says. "Five years ago, we had no (advertising business) from local brands; now 50% of our revenue is coming from local brands, and the majority of our growth. It is a major shift." Chart: Chinese stocks to watch
Published June 29, 2007
However, I didn't know that they made anything other than water and gentlemanly comforts. But I wish for them the best. It's nice to see Hangzhou locals do so well, like Alibaba.com.
Pizza is odd in China. Or at least it was in Hangzhou. Pizza hut was treated like a gourmet restaurant. However, several little Chinese owned restaurants tried selling pizza with minimal success. Most of it was terrible anyway. However, we knew an Italian chef who came to China specifically to work in restaurants and cook Italian food there. He was forced to switch restaurants so much because the owners just didn't feel that it was selling enough to maintain Italian food, so they often changed to cafes. But he was a great cook. Some of the best calzones I've ever had.
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