Case Study Cola Wars in China Strategic Marketing – MKTG 801 Luminita Tanase Professor Dr. Alex July 29, 2011
Wahaha is a China’s largest soft drink producer in 2002 which was founded in 1987 in Zhejian Province by Zong Qinghou and other two employees. The company developed a nutritious drink called the Wahaha Matrient Beverage for Children and the product was supported with the slogan “Drinking Wahaha boosts appetite”. Since there were a large competition, and a single product could not sustain growth, Wahaha expanded its products in 1991 by entering the fruit-flavored milk drinks market. In 1996, Wahaha expanded by introducing purified water. After a its expansion, Wahaha increased its sales revenue by acquisitions such as larger companies poorly managed. Also in 1996, despite Wahaha’ success management established a joint ventures with Groupe Danone. One of the company's products, Future Cola, was launched a in a same period to compete with Coca Cola and PepsiCo and has made significant progress in the soft drink markets that were developed by these cola giants. Wahaha used extensively advertising, and in 2001 it was in the top 10 advertiser in China and only beverage company in the group. The prices of its products usually lower than most comparable product, Wahaha’s promotion targeted the mass market. Also, Wahaha was the first Chinese company who used a pop singer to endorse its products. Wahaha didn’t create its channel of distribution, instead partnered with local distributors. But partnering generated a new problem such as accounts receivable and bed debts. Therefore, a new policy was created to rearward the distributors whoa made
prompt payments. Wahaha established several offices to coordinate operations with its distributors. The main competitions in a soft drink industry present in China are Coca Cola, PepsiCo, Nestle and Danone. Coca Cola and PepsiCo were dominant in China in a carbonated drink, and Nestle and Danone were strong in the ready-to-drink tea and water. After landing Future Cola, Wahaha unintentional started a price war in cola category. This product was lower priced to aimed the rural market which is more sensitive that the urban markets were the international competitors focused. Initial Wahaha had a surprising success the company couldn’t meet the demand using its own bottling facilities and requested outsourcing bottling from others. Coca Cola and PepsiCo started to respond to their market by introducing lower prices that Future Cola and developing non-carbonated drinks. Also, they took the advantage of large cities stores, while Wahaha had to reach its market through multilayered whole-sale markets. Coca Cola, the largest soft-drink company and the fifthlargest food and beverage company, opened bottling plants in China after the communist revolution. Coca Cola didn’t have the majority of market in China, and Wahaha was a feared competitor of Coca Cola. The annual per capital of Coca Cola in China was far less than the average consumed in the United States, Japan, Europe and South Korea. PepsoCo, the fourth-largest food and beverage company in the world in 2001, opened 14 bottling plants in China in 2002 after signing an agreement with the government. PepsiCo was preferred by young people in China, however after 20 years it was not profitable in China. In 2001, Nestle was the world largest food and beverage
company. In 1979 Nestle started to operate in China, and by 2002 had 14 fully owned enterprises. Nestle is the marketing leader in the category. Groupe Danone, the sixth world largest company, started to operate in China in 1987. Danone’s products sold in China are biscuits, water, yogurt and milk. Wahaha perceives the domestic competition and fight against to battle imitations. The company's strategy is to fight counterfeit products by lowering prices. In management’s view, this pricing strategy will make fake-product makers drop out. Wahaha is able to keep costs low because the company produces its own bottles and caps. The issue in this case is: -what will be need for Wahaha to maintain the actual growth, and how to face of major competition from the giant multinationals and to achieve its goal of dominant market share. Wahaha should consider its top cola competitors the Coca-Cola Co. and PepsiCo, Inc. followed by the Taiwan-founded companies Uni-President Enterprise Corp. and Tingyi (Cayman Islands) Holding Corp. In China soda market is dominated by Coca-Cola. Even though Wahaha's Future Cola is the one trying to sell itself on patriotism, advertisements conveniently ignore the fact that the company is 51 per cent owned by the French company Danone and a Hong Kong investment company .Making the taste more suitable for Chinese, it may not be the most relevant weapon for saving Wahaha promises against Coca-Cola and Pepsi. To protect and lead rural marketing, Wahaha should increase marketing activities in rural area and offer bounce system to maintain distributes loyalty. Wahaha should expand its market by expanding in neighbor countries where there are similar cultures
of Chinese people. Using its joint-venture with Danone, Wahaha should enter in the markets where Danone has strong existence.
