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Wahaha plans to open department stores

By Michael Wei (China Daily)
Updated: 2011-03-03 09:12

Zong Qinghou, chairman of Wahaha Group, encourages employees to sing at the company's New Year Party. [Photo / China Daily]

SHANGHAI - Billionaire Zong Qinghou, whose beverage maker Hangzhou Wahaha Group Co has made him China's richest man, said he plans to venture into retailing by opening 100 department stores.

"We are in talks with many local governments because establishing big stores requires land," Zong said in an interview in Beijing on Tuesday. "By setting up our own shops, we can have more say in the distribution" of Wahaha's products, including carbonated drinks and mineral water, he said.

Wahaha, founded in 1987 by Zong with a 140,000 yuan ($21,300) loan, aims to boost sales 27 percent to 70 billion yuan this year, he said.

In 2009, the company ended two years of legal disputes with Danone over control of the Wahaha trademark, with the Paris-based owner of the Evian and Volvic bottled-water brands agreeing to sell its stakes in their joint ventures.

Wahaha, the third-biggest soft-drinks maker in China by market share, will also invest in the mining and high-tech industries, said Zong, who is also a deputy to the country's National People's Congress, the top legislature, which starts its annual session on Saturday.

"As for overseas investment, I'm not going to compete against foreign companies," said Zong, whose wealth was estimated by Forbes at $8 billion last year. "What I'll do is buy companies that make products that China lacks or China isn't good at making and sell them back to China," he said. Wahaha already makes milk powder in the Netherlands, he said.

The beverage maker, whose name means "Laughing Child" in Chinese, competes against Coca-Cola Co and Tingyi (Cayman Islands) Holding Co in China, where retail sales grew by 18.4 percent year-on-year in 2010.

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Profit margins in the department store business are "much better than in manufacturing", Zong said. "We'll have opportunities for department stores and supermarkets in second-tier cities, which will also ensure our products are sold across the country." He didn't say when or where he plans to begin.

"As a sector, retail is a good one to explore, but it's not easy to understand," said Shaun Rein, the Shanghai-based managing director of China Market Research Group.

"With no background in retailing and core expertise in beverages, the key for Wahaha to win is to hire the right management so that they can create the right concept."

Building stores may boost Wahaha's revenue to 100 billion yuan, Zong said, without providing a time frame.

Major urban centers such as Beijing and Shanghai have already "been conquered by established players", Zong said. "We'll eventually come back to the big cities" after establishing a retail brand, he said.

The country's retail market will remain fragmented because the size of the population and competition from local outlets prevent the dominance of one chain, said Roger Wang, chairman of the Nanjing-based department store operator Golden Eagle Retail Group Ltd, in September.

Golden Eagle, which made all of its 1.2 billion yuan first-half sales from 17 locations in China, had a profit margin of 40 percent in the period. Parkson Retail Group Ltd, the Beijing-based operator of 46 department stores in 30 cities, had a 26 percent profit margin on its 3.82 billion yuan revenue last year.

Zong's company, based in Hangzhou in China's eastern Zhejiang province, accounts for 9.7 percent of the nation's dairy market, the third-largest share, according to data from Euromonitor International.

China Mengniu Dairy Co leads the country's dairy market with a 19.5 percent share, with Inner Mongolia Yili Industrial Group Co at No 2 with 15.7 percent, Euromonitor's data show.

Annual sales for the industry increased 73 percent to 175 billion yuan in 2010 from 2005, the research company said.

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