The Beverage Industry in China.

Analysis the Wahaha strategy

1. Introduction

The beverage industry in China has entered a highly competitive era. International companies such as Coca-Cola, Pepsi, Master Kong, and President, as well as domestic companies, such as Wahaha, Daly Park, Nongfu Spring, and Red Bull, have conducted fierce market competitions. With their strong financial support, brand resources and successful experience of expanding in foreign markets, multinational companies pose a certain threat to domestic beverage companies in China, which makes Chinese local beverage companies in an awkward situation. In this market where numerous profiteers compete, different companies often occupy the market with their different tactics and strategies.

Wahaha, as China's beverage brand has achieved good performance in the beverage market. Wahaha's success is inseparable from its unique marketing mode. Wahaha cooperate with distributors to form a "joint sales" mode. This model can make the new products of Wahaha swiftly put on the counters of hundreds of thousands of rural retail stores in China.

This assignment takes Wahaha company (abbreviated Wahaha) and distributor’s cooperation as the case analysis. The structure of this paper is listed as followed. Firstly, it will introduce the general situation of inter-organizational cooperation, then analyzes how Wahaha to deal with the strategic opportunity and formulate the sustainable strategic direction. In addition, it will discuss Wahaha implementing transformation strategies to handle critical problems. Finally, take a failure case of Wahaha as an example to discuss “rationality” in the business model to the actual business behaviour.

1. Inter-Organizational Cooperation

1. Company Profile

In China's beverage market, "Wahaha" has become a well-known brand. In 1987, Zong Qinghou, the founder of Wahaha, led the only two retired teachers who commenced his entrepreneurial journey. In 1989, the company developed and produced "Wahaha Children's Nutrient Solution." With the help of CCTV's advertisement of "Drinking Wahaha, eating is a fragrant", the product has been popular throughout the country.

Since its inception, Wahaha Company has maintained a stable and rapid development trend. The company has nearly 80 production bases, more than 180 subsidiaries in 29 provinces in China and employs 30,000 people. The company's products have ten categories, more than 150 varieties, including carbonated drinks, tea drinks, milk drinks, bottled water, juice drinks, baby milk powder, and so on. After 31 years of development, In 2017, Wahaha company achieved an operating income of 45.5 billion yuan, ranking the 327th among the top 500 Chinese private enterprises. It is currently the largest and most potential beverage company in China.

2.2 Company Mission

The mission of the company determines the development perspective of the company. Wahaha's mission is: "You and I are healthy and happy." Wahaha provides products that satisfy people’s daily needs and operates a “healthy, happy” business. Wahaha's overall strategy: “development, development and further development”, the company is mainly engaged in the beverage industry, supplemented by cross-industry operations.

2.3 Wahaha Cooperates with Distributors

Jarrehult (2011) described that cooperation refers to the process of acting or working together. He believes that two or more actors are a temporary environment, and participants separate after obtaining their respective goals. In addition, Jarrehult (2011) pointed out that cooperation does not require too much trust to make it work. On the contrary, he thinks fairness is an important component, which means that participants in cooperation need to be aware of the intentions of other participants. Thomsen (2001) believes that cooperation has a common goal and leads to cooperation, so it is a major differentiating factor.

Kaats and Opheij (2014) pointed out that market development is the substantive motivation for starting cooperation between organizations. These motives are pursued when the partners’ objectives are to develop joint market forces, enter new markets. Furthermore, Kaats and Opheij (2014) mentioned that another motivation for cooperation is to gain a cost advantage.

The cooperation between Wahaha and distributors is a type of contractual cooperation, called “joint sales”. Compared with competitors in the same industry, this is also a unique marketing strategy for Wahaha. Wahaha and certain regional distributors with good credit status and strong sales ability signed a cooperation agreement. The agreement was signed every year. The responsibilities of the distributors in the agreement are:

• settle historical arrears;

• give Wahaha company a certain amount of margin (usually 10% of annual sales);

• order within the guaranteed amount, and settle the payment twice a month. Orders in excess of the guaranteed amount must be paid first;

• Sales must not be made at a price lower than the company's minimum price;

• and distribution and delivery within a specific area must be guaranteed.

Wahaha's responsibilities :

• Exclusive supply in the region;

•According to the amount of the distributor's deposit, the monthly interest rate that is slightly higher than the bank's interest rate is refunded (if the bank's monthly interest rate is 1.2%, Wahaha's rebate is 1.5%; if the bank's monthly interest rate is 0.8% %, then Wahaha's rebate rate is 1%);

• The best price for the supply within the margin amount;

• At the end of the year, according to the sales volume of the distributors and the profit of the company, a certain percentage of rebates will be given;

• The company is responsible for marketing support such as advertising and promotion.

• Products that are not sold by distributors can be returned to the company. This solves the distributor's worries. In fact, as long as the product is competitive, distribution and advertising are in harmony, and the actual return is very little. The "end-of-year rebate" system, on the other hand, also ensures that distributors increase their sales and reduce returns.

This is a very unique way of cooperation. From the perspective of distributors, distributors help Wahaha company to sell products; whereas, in the company, it is "gratis" to provide manpower and advertising fees to help dealers make money. For distributors, they are undoubtedly very fond of such companies as Wahaha: first, because the company is large, the product with high brand awareness and strong advertising propaganda; Secondly, the Wahaha company has many product lines, which can carry out the comprehensive operation and cost dilution. In addition, the company appointed the tally staff "free" support, the headquarters of the various preferential policies can be well implemented. Of course, the distributors also have pressure, because they have to invest a certain amount of money in advance. In addition, they must do their job well in the responsible regional market; otherwise, the corporation relationship will be abolished in second years.