This is an English adaptation of a FoodBud historical article originally published on December 11, 2021.
On December 9, 2021, Wahaha Group announced on its official website that Zong Fuli had been appointed vice chair and general manager, taking charge of day-to-day operations. Her father, Zong Qinghou, remained group chair.
Zong Qinghou said he wanted to “gradually step back to the second line,” let younger executives work at the front, and provide oversight from behind so that younger talent could be developed and the business could remain durable.
Zong Fuli was born in 1982. In 1996, while in the second year of junior high school, she strongly asked her parents to send her to the United States to study, and she stayed overseas for more than a decade.
In 2004, she returned to China and entered the beverage industry, starting from frontline production workshops. From 2007, she independently led Hongsheng Beverage Group.
In 2016, Zong Fuli led the launch of Kellyone, a customized fruit-and-vegetable juice brand named after herself. At the time, she told media that the plan would require investment of several million yuan, recruitment, and even a 400-square-meter central kitchen.
In 2017, she attempted to acquire China Candy. Some observers believed this was preparation for a Wahaha listing, but Wahaha Group said the acquisition was Zong Fuli’s personal action and unrelated to the group. The acquisition ultimately failed.
Wahaha began with children’s nutritional oral liquid and later launched widely known products including AD Calcium Milk, bottled water, Nutrition Express, and Shuangwaiwai.
Its core advantage was the “joint-sales body” distribution model, which allowed products to penetrate quickly across China, including remote rural markets, and helped build a large beverage empire.
Pride in the company’s performance once led Zong Qinghou to say Wahaha was determined not to list because it was not short of money. In 2010, Wahaha entered the RMB 50 billion sales club.
But the following decade brought volatility. Revenue peaked at RMB 78.2 billion in 2013, then declined. Revenue was RMB 72 billion in 2014, then dropped sharply to RMB 49.4 billion in 2015. In the following years, revenue stayed roughly around RMB 50 billion. By 2020, Wahaha revenue was RMB 43.98 billion, back to its 2009 level.
The company’s core questions became how to rejuvenate the brand and how to manage succession in a family business. Zong Fuli had previously said that corporate succession could be more market-oriented and did not have to rely on bloodline: if someone was more capable and could run the company better, she would step aside.
Three issues stand out for operators watching Wahaha:
In the early 1990s, Wahaha faced problems common to manufacturers: channel control, distributor management, price dumping, cross-regional selling, and receivables. Around 1993, Wahaha had RMB 100 million in overdue payments in the distribution system, a major burden for a company still in its early stage.
Zong Qinghou decided to build a relatively closed distributor network based on a new profit-sharing and credit system. At the national distributor meeting in early 1994, Wahaha introduced a deposit system.
The network structure was: headquarters, provincial branches, special first-tier wholesalers, special second-tier wholesalers, second-tier wholesalers, third-tier wholesalers, and retail terminals.
At the end of each year, first-tier distributors had to transfer 10% of that year’s sales volume to Wahaha as a deposit. Wahaha paid interest at or above bank deposit levels. Before each monthly shipment, distributors had to settle payment first; only then would Wahaha ship.
Zong Qinghou argued the system worked because Wahaha fruit milk sold well and let distributors make money, the deposit carried interest and was more attractive than a bank deposit, and long-term business required credit.
He later explained that prepayment itself was secondary; the more important point was maintaining a distinct credit relationship between manufacturer and distributor. Wahaha required payment before shipment, paid interest, and returned rebates annually. The result was strong working capital, no bad debt, and aligned incentives.
Wu Xiaobo argued that the foundation of the joint-sales body was trust, but the key mechanism was ordered price spreads across the channel: every layer had to earn what it should earn, every year.
The model depended on three factors:
To ensure each layer could profit, Wahaha built a strict nationwide price-spread system. To prevent cross-regional selling, it used a regional responsibility system. Distributors were restricted to their assigned territories; independent inspection teams could impose heavy penalties or remove violators from the network.
In foodservice, the article compares Wahaha’s distribution alignment with Wallace’s “joint-operation” approach.
After Wallace proved its model in Fuzhou around 2005, it wanted to replicate stores at scale and reduce marginal cost through a target of 10,000 stores. Fully owned expansion was unrealistic, so Wallace turned to franchising, then encountered familiar franchise problems: inexperienced franchisees could not make money, while successful ones wanted to leave and build their own brands.
Wallace introduced a partner mechanism. Individual ownership could not exceed 40% of a single store; 5% had to go to store employees; the remainder was held by the company.
For employees with more than one year of service, a store application could be made directly. Employees could hold 30%, the company more than 60%, and the rest could be allocated to other employees.
Through crowdfunded store openings, employee shareholding, and headquarters control, Wallace tied together the interests of employees, partners, and the company. The model drew from law-firm and consulting-firm partnership systems, using collective and cross-shareholding to support fast expansion.
Internally, crowdfunding turned executives, core store managers, and employees from employees into partners. Externally, suppliers, landlords, and other stakeholders could hold stakes from 2.5% to 40%, reducing capital pressure during expansion and forming a broader interest community.
Wahaha’s milk-tea franchisees had recently protested both online and offline, putting the business into a store-closure controversy. Some franchisees accused the milk-tea business of false recruitment, non-compliant franchising, and failure to deliver promised support, leading to large-scale store losses.
Some franchisees said that since September, many Wahaha milk-tea stores had closed one after another. Franchisees collectively sought an explanation from the company but said they received no response.
More than two years had passed since Wahaha opened its first milk-tea store. In the 2020 Wahaha “Naturally Nutritious Natural Tea” cooperation manual, Zong Qinghou described the project as Wahaha’s third entrepreneurship and said he hoped every partner could realize self-worth and social value.
The manual stated that Wahaha Milk Tea planned to open 10,000 tea-drink stores nationwide over the next 10 years.
That target appeared difficult. Wahaha Milk Tea’s official website disclosed 418 stores, while Narrow Door data showed 356 operating stores.
The article noted that Wahaha Group held only 25% of Guangzhou Wahaha Health Beverage, while Guangdong Jianhua held 75%. In effect, the milk-tea operation was outsourced to Guangdong Jianhua, and the external team’s offline tea-drink execution capability appeared weak.
Problems gradually surfaced: insufficient product differentiation, lagging operations and management, and supply-chain issues. Consumers who tried the brand for novelty gradually left, and fewer were willing to pay for nostalgia. Store sales cooled after several months of operation.
Franchisees said Wahaha Milk Tea lacked a formal online operations team, hired young staff with little experience, changed personnel frequently, and provided inadequate support. Store supervisors were reportedly rushed through training, visited stores, went through the motions, and offered little practical guidance.
For the outsourced team, the project looked more like a deal than a long-term co-growth system with the main Wahaha brand. The article argued that the single-store model and offline operating capability were far from sufficient, especially in China’s intensely competitive tea-drink market.
For a company of Wahaha’s scale, buying a sizable chain brand would not be especially difficult, but the article said Wahaha’s investment activity had mainly involved participation as an LP.
In mid-2021, Zong Qinghou obtained a fund qualification certificate. Born in 1945, he was 76 years old at the time.
Wahaha Venture Capital was formally established on November 8, 2010, with registered capital of RMB 300 million. Its institutional type was private equity and venture-capital fund manager, and its business type was private equity investment fund and venture-capital fund. However, it did not complete registration with the Asset Management Association of China until July 9, 2021.
Across more than 10 years since establishment, Wahaha Venture Capital had not participated in venture investment as a fund manager. It had mostly participated indirectly as an LP and connected with project financing needs through branch companies.
Over the previous decade, Wahaha Venture Capital had six outbound investment cases, including stakes in other investment companies, direct investment in Dali Zongsheng Intelligent Technology Co., Ltd., and LP participation in Hillhouse Zhicheng Yangtze River (Hubei) Artificial Intelligence Equity Investment Fund Partnership (Limited Partnership) and Ningbo Meishan Bonded Port Area Qirui Equity Investment Center (Limited Partnership).
Wahaha was not short of money. In an earlier CCTV interview about investment in a health-production line, Zong Qinghou was asked what would happen if expectations were not met. He said he had invested nearly RMB 600 million; even if that were lost, it would not be much to him, given annual profit of RMB 7 billion to RMB 8 billion. But, he said, the company had to try and reform, otherwise it would never progress.
Wahaha’s second-generation succession has long been closely watched, especially as Zong Qinghou was nearing 80 and could not continue running around the world for business as before.
The article partly attributes Wahaha’s succession difficulty to Zong Qinghou’s strong personal management style. For years, Wahaha used a highly centralized management system centered on him. He held both chair and general manager roles, with no deputy positions.
Zong Qinghou had repeatedly said publicly that a strong leader was necessary to run the company well, and that without strength and respect, an enterprise could not be managed properly.
Now, with Zong Fuli appointed vice chair and general manager and given daily operating control, Zong Qinghou had clearly begun to delegate power. Wahaha’s succession plan was becoming more orderly, and the identity of the successor clearer.
Succession issues are common among private companies. The article cited New Hope as a relatively successful nearby industry example: Liu Chang’s transition was supported by Chen Chunhua as co-chair and CEO, creating a smoother handover. New Hope Liuhe’s share price reached a peak in August 2020 and then fell in 2021 amid the hog cycle, but the article viewed its broader growth and layout positively.
The article also mentioned New Hope Liuhe, its extension into New Dairy, and closely related investment institutions Hosen Capital and Caogen Zhiben, describing the broader ecosystem as relatively smooth in succession and broad in layout.
Hosen Capital founding partner Wang Hang had recently discussed generational transition in many companies. He said handing a company to a fund for management could be a good option because the fund’s interests are relatively detached and it would protect the founder’s brand. However, he said funds without industry background or M&A investment experience may struggle to do this. Wang argued that Hosen’s specialization in China’s food-consumption sector was an advantage and could play a unique role in private-enterprise succession.
The article concluded that many grown-up domestic enterprises would face second-generation succession challenges in the coming years. In foodservice, it cited Home Original Chicken, already on the road to listing, while market views of founder Shu Congxuan’s next generation were mixed. It also cited Haidilao, where Zhang Yong had already launched an internal succession plan that was steadily advancing. If neither the second generation nor internal teams can take over, the article suggested more funds may eventually manage such transitions.
Note: IPO, investment, revenue, store-count targets, and forward-looking figures above are historical references from the 2021 source article.