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BIZCHINA / Backgrounder

Wahaha's expansion is no laughing matter

By Paula M. Miller (China Business Review)
Updated: 2007-06-08 09:34

If you've traveled in China, chances are you drank at least one bottle of
Wahaha brand water, or perhaps the company's iced tea, fruit drinks, or
its Future Cola. Once you returned to the United States, you may even
have come across Future Cola in New York or Los Angeles, because the
company that first set up shop in an elementary school in Hangzhou,
Zhejiang, is going global.

From Hangzhou to huge

Wahaha's exhibition hall at its corporate headquarters in Hangzhou,
Zhejiang. Photographs: Paula M. Miller
The Hangzhou Wahaha Group Co., Ltd., China's leading domestic beverage
producer, didn't achieve success overnight. The company's predecessor,
the Hangzhou Shangcheng District School-Run Enterprise Sales Department,
funded its start-up operations in 1987 with a government loan. Zong
Qinghou, the company's founder, and two retired schoolteachers initially
sold milk products and popsicles out of a school store, but to benefit
the students' health the group soon began producing and selling
nutritional drinks. The company's success selling nutrition products in
school shops led to its first big expansion: with Hangzhou government
support, the company acquired a large, 30-year-old state-owned
enterprise, the Hangzhou Canned Food Product Co., in 1991. The company
then changed its name to the Hangzhou Wahaha Group Co. (The word "Wahaha"
is meant to mimic the sound of a baby laughing and is taken from a
children's folk song.)

The company's founder and two retired schoolteachers initially sold milk
products and popsicles out of a school store.
Wahaha's second large-scale expansion occurred in 1994 when the company
merged with three insolvent companies in Fuling, Sichuan, to set up its
first factory in Chongqing. Establishing a factory in Chongqing helped
the company in two ways. The location provided Wahaha with a
manufacturing base in western China, enabling the company to reduce
distribution costs. And the merger occurred when the central government
was providing coastal companies incentives to invest in the west.

In 1996, Wahaha joined with Groupe Danone SA to form five new
subsidiaries, of which Danone owns 51 percent and Wahaha the remainder;
Danone now owns 30 percent of the whole company. With Danone's
assistance, the company was able to invest in advanced production lines
and improve efficiency. Thanks to the mergers and joint ventures,
Wahaha's production doubled from 1996 to 1997.

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