Tycoon's rags-to-riches story echoes nation's rise

Zong Qinghou, founder and chairman of Hangzhou Wahaha Group.

Bouquets of flowers have piled up in front of building No 160 at the headquarters of Hangzhou Wahaha Group, China's leading beverage maker, in tribute to its founder and chairman, Zong Qinghou, who passed away on Sunday at the age of 79. A memorial service was held for Zong in Hangzhou, Zhejiang province, on Tuesday.

Earlier, past and present employees as well as visitors paid their respects to the business leader at the gray, six-story building, where Zong, once China's richest man, conducted his daily work.

Among the bouquets were a pair of black cotton shoes, Zong's signature footwear, which reflected his simple and frugal lifestyle, along with a container of Wahaha AD Milk, a favorite drink of generations of consumers, especially in their childhood.

Leaders of private enterprises sent their regards. Geely Chairman Li Shufu praised Zong as a pioneer of innovation and entrepreneurship in the private sector who was representative of modern Zhejiang merchants and their hardworking spirit.

"You have opened up new territories for the rise and development of China's food and beverage industry, and you are a model for the first generation of Zhejiang businesspeople," Li wrote.

Lei Jun, founder and CEO of the technology giant Xiaomi Corp, hailed Zong as a true legend, citing his book on marketing in 2002 as a source of inspiration for over two decades.

Zhou Hongyi, founder of the cybersecurity company 360 Security Group, lauded Zong's marketing theories on selling beverages as words of wisdom for his own entrepreneurial journey. "I hope his spirit can continue to encourage more Chinese entrepreneurs to work together," Zhou said.

In 2012, Zong claimed the top spot on the Forbes List for the Chinese mainland with a fortune of $10 billion.

In 2020, he was named on the Hurun list as the richest man on the Chinese mainland. By March 2023, Zong ranked 121st on the 2023 Hurun Global Rich List with a wealth of $15 billion.

Despite his huge fortune, Zong led a modest life and diligently worked from 7:00 am to 11:00 pm. He slept in a bedroom located in the same building as his office and was known for his calm and soft-spoken demeanor.

He preferred simple meals like porridge and noodles from the company canteen. The tycoon often traveled alone on business trips carrying a single suitcase and once went second-class on a bullet train, chatting to and befriending other passengers.

Tough start

Born in 1945, Zong's early years were shaped by hard work at salt mines and tea farms in Zhoushan, Zhejiang. He once said the 15 years of menial labor had built his character and resilience.

Zong returned to Hangzhou in 1978, and in 1987, he took over a school shop and began selling sodas and ice creams. At about the same time he founded the Wahaha Group and teamed up with a nutrition expert at a local hospital to develop the company's first product, a nutritional drink for children.

The drink proved successful and led to the company's first major expansion. In 1991, with support from the Hangzhou government, the company acquired an indebted State-owned enterprise, the Hangzhou Canned Food Product Co.

Zong initially encountered opposition from the workers but won them over by explaining to them Wahaha's founding, how it operated and the benefits it would bring them. Three months later, the cannery began turning a profit.

Wahaha's early success was largely attributed to its sales system and vast distribution network. In 1994, when the country's credit system was still evolving, Wahaha began to foster strong financial links between producers and distributors.

The company's idea involved the upfront guarantee of money from the distributors to the producers, with the products delivered at a later date. This ensured a steady cash flow for the producers and fostered their loyalty to the distributors.

The money guarantee was usually the equivalent of 10 percent of estimated annual sales and was refunded with interest at year's end by the producers. This innovative risk-sharing model became a case study at many business schools.

Customers scramble to buy clothes at the Beijing Exhibition Center in 1983. WANG WENLAN/CHINA DAILY

Famous brand

At its peak, Wahaha boasted more than 7,000 distributors, over 100,000 wholesalers and 5 million sales outlets across China.

"Wahaha is one of the few private enterprises in China that has been active in the consumer market since the beginning of the market economy and it is still developing rapidly," said Jason Yu, general manager of Kantar Worldpanel China, a market research firm.

"It is also one of the few Chinese brands with strong penetration, ensuring mutual benefits for the brand and distributors," he said.

Wahaha's sales model allows it to penetrate millions of retail outlets in China, including in rural areas.

This wide distribution network is unmatched by many international giants and domestic companies, giving Wahaha an edge in maintaining steady revenue flows in the era of the internet, Yu said.

In 1996, the company extended its portfolio to include bottled water, which solidified its market presence. In 2013, the company made 78.2 billion yuan ($10.8 billion) in revenue, still the highest annual revenue recorded for China's beverage market.

"So far, no domestic beverage producer has surpassed that record," said Zhu Danpeng, a food and drink sector analyst.

Although consumers have more choices today, and many new brands achieve rapid breakthroughs using e-commerce, Wahaha has successfully maintained substantial revenue, Yu said.

Over the decades, Wahaha has also had many successful product innovations, such as Nutri-Express and AD Milk, which met the needs of consumers at the time and reflected Zong's profound insight into the domestic consumer market, Yu said.

Strong leader

Zong was also known for his firm leadership style, exemplified by his resoluteness during lengthy business disputes between Wahaha and French dairy giant Danone. A joint venture was formed in 1996 with the company producing bottled water and congee products and Wahaha's production doubled from 1996 to 1997.

However, a decade later, tensions arose when Danone tried to acquire a 51-percent stake in Wahaha's non-joint venture company at a net asset price of 4 billion yuan, along with the Wahaha trademark.

Zong strongly opposed the move and often faced the media alone.

In 2009, a settlement was reached and the Wahaha trademark remained with the Wahaha Group. "Let's not be afraid of international lawsuits. We don't bully others, but we also can't let others bully us," Zong said at the time.

Under his leadership, the Wahaha Group flourished. It diversified its portfolio to more than 200 products, including packaged drinking water, and protein, carbonated and tea beverages.

Since its founding 35 years ago, Wahaha has accumulated sales of 860.1 billion yuan, profits and taxes of 174 billion yuan, and tax payments of 74.2 billion yuan. The company now has 81 production bases and 187 subsidiaries in 29 provinces, municipalities and autonomous regions across the country, with nearly 30,000 employees.

Fluctuating fortunes

A state-owned investment company in Hangzhou holds 46 percent of the shares in the Wahaha Group while Zong and Wahaha's shareholding platform hold 53.2 percent.

The group operates without a deputy general manager, with production, sales, and other responsibilities handled by various directors. In 2012, Zong said in an interview that: "It (Wahaha) is my entire life, my dreams, values, label and purpose. It is proof of my existence in this world."

Last November, Zong made his final public appearance at a dealers' conference, the company's annual flagship event. Addressing attendees, he discussed his health issues and his decision to quit smoking. He added that retirement is a concept foreign to him.

In recent years, Zong's daughter Zong Fuli, 42, has emerged as a prominent figure in the company, gradually assuming key roles and responsibilities.

Since 2007, Zong Fuli, who studied in the United States from the age of 14, has managed the Hongsheng Beverage Group and invested in upstream businesses including sugar-free tea drinks and sparkling water products. In 2020, she was appointed deputy general manager of Wahaha's marketing unit.

Since 2015, Wahaha has grappled with shifting consumer behavior, tastes and the rise of online shopping. The new trend challenged its traditional distribution methods, leading to an 8-year sales decline and subsequent recovery efforts.

From 2015 to 2020, the company's performance hovered around 46 billion yuan, marking a 25 percent decrease from its peak in 2013.

In recent years, Wahaha has made efforts to diversify its interests, including the launch of shopping malls and forays into children's formula milk. It also expanded into health products and franchised Wahaha milk tea rights.

Despite a revenue decline from over 70 billion yuan in 2013 to above 50 billion yuan in 2021, Wahaha is still a formidable player in the industry and boasts revenues twice that of its closest competitor, Nongfu Spring. "Innovation of its product portfolio is still what Wahaha needs the most," said Zhu, the analyst.

Concern for others

Social responsibility was at the top of Zong's agenda.

Having personally experienced poverty and hardship, he remained deeply connected with less fortunate people. In 2020, the company allocated 942 million yuan to build over 1,360 apartments for their employees in Shangcheng district, Hangzhou.

In 2013, during the two sessions, the annual gatherings of the National People's Congress and the Chinese People's Political Consultative Conference, Zong, who was an NPC deputy, proposed establishing a tiered housing supply system to reduce housing costs. He also advocated exempting working-class people from paying personal income tax.

In 2020, when businesses in China encountered headwinds due to the COVID-19 pandemic, he called for enterprises to shoulder more responsibility to ensure the interests of employees are met and to keep employment steady.

Last year, he urged private enterprises to keep investing and developing their businesses to protect jobs.

Lily Xia, who operates a consultancy in Singapore for Chinese companies going overseas, said Zong had a deep impact on her personal and professional journeys. She began her career as a junior cashier with the Wahaha Group after graduating from a leading university in 1999.

When Xia won a running competition at the annual Wahaha Games, a corporate sports event, Zong presented her with a medal and gently patted her on the shoulder. "Keep going. You have great potential," he said. His words gave the young woman newfound confidence.

"He is a father to all of us, a guiding light," Xia said. "His sincerity, diligent work ethic and humble demeanor are inspirations for us as employees."

After four years with Wahaha, Xia was able to buy her first apartment in Hangzhou and pay for her MBA tuition fees in Singapore.

In 2012, Xia completed her overseas studies and later returned to work for Zong for a second time helping expand the group's international business.

Zong's real legacy was his ability to impart knowledge and values to his employees, teach them the importance of hard work and help others achieve their dreams, Xia said.

Ren Weifeng, a former secretary of Zong, said in a WeChat post that the businessman diligently looked at all the reports given to him. "Every night at nine, documents and reports would be printed out for him. With a pen, a pack of cigarettes and a cup of tea, he would review all the reports, making notes until midnight. The next morning, all departments would carry out their work according to his instructions. He did this every day," wrote Ren.