Cola War in China

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COLA WARS IN CHINA: THE FUTURE IS HERE

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Nancy Dai prepared this case under the supervision of Professor Niraj Dawar solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. This material is not covered under authorization from CanCopy or any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca. Copyright © 2003, Ivey Management Services Version: (A) 2003-08-21

On July 7, 2002, Zong Qinghou, the general manager of the Wahaha Group (Wahaha), China’s largest soft drink producer, was reviewing market data on Wahaha’s Future Cola in his office in Hangzhou, Zhejiang Province. Wahaha Future Cola had been launched four years earlier to compete with products from Coca Cola and PepsiCo, the dominant players in the category. At the launch, Zong and his management team had been tremendously energized by the opportunity to compete with some of the world’s best companies. Four years later, despite the failure of several other domestic colas, Wahaha Future Cola and other Future Series carbonated drinks had achieved an impressive 18 per cent of the carbonated drinks market in the first half of 2002. However, as Future Cola’s share grew, Zong was preoccupied with how his multinational competitors would respond, how Wahaha should prepare for these responses, and how it should continue to increase its market share. Competition for share in the high-stakes market of the world’s most populated country was intensifying. WAHAHA GROUP Company Profile

With 2001 sales revenue of RMB6.23 billion, and profits of RMB914 million,1 the Wahaha Hangzhou Group Co. Ltd. was China’s largest soft-drink producer. The 1

An exchange rate of US$1 = RMB8.27 applied in 2002.

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company consisted of more than 40 wholly owned subsidiaries and majority holding companies in 23 provinces, autonomous regions and cities. With total assets of RMB6 billion and 14,000 employees, the group operated more than 68 advanced automated production lines at various locations. Unlike many other Chinese companies of its size, the group had group had a solid cash position and no long-term bank debt. Wahaha’s 2002 target was to achieve sales revenues of RMB8 billion, and a profit of RMB1.3 billion. In the longer term, the Wahaha Group aimed to become a truly national, and even international, player. Specifically, it was working on establishing subsidiaries in most provinces, maintaining its leading position in water, milk drinks and mixed congee and on increasing its market share in carbonated beverages, tea and juice drinks. In 2002, Wahaha competed in six major product categories: milk drinks, packaged water, carbonated, tea and juice drinks, canned food and health-care products. For several years, its milk drink, packaged water and canned mixed congee had been leaders in their respective categories. For the first half of 2002, the total soft drink output for Wahaha was 1.83 million tons (1.66 billion litres), while its closest competitors — Coca Cola and PepsiCo — sold 1.61 million tons (1.461 billion litres) and 0.76 million tons (0.689 billion litres), respectively. This was the first time that a domestic company’s soft drink output had exceeded that of Coca Cola in China. It was also an unusual situation for Coca Cola that a local competitor had seemingly come out of nowhere to upstage the global giant. In a nation of 1.3 billion people, per capita...
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