Hangzhou Wahaha Group

Wahaha has its origins in the sales department of the Shangcheng District School in Hangzhou, which was founded in 1987. A factory, the "Hangzhou Wahaha Nutritional Foods Factory" (杭州娃哈哈营养食品厂), was created in 1989 to tap a niche in the market for a "children's liquid nutrient" (儿童营养口服液). Although there were 38 producers of liquid nutrients on the market, none were specifically for children. The advertising campaign struck a note with single child Chinese parents, and was a runaway success. In 1991, the factory was merged with the ailing "Hangzhou Canned Food Factory" (杭州罐头食品厂) in a social restructuring, but which increased the overheads of the business.

In 1992, Zong sought an initial public offering for Wahaha, but the Chinese stock market was not yet developed and few businesses qualified to be listed. The effort failed.

In May 1992, Wahaha raised CNY236 million internally in order to start the Hangzhou Wahaha Food City Co. Ltd. (杭州娃哈哈美食城股份有限公司), and to finance the construction of Wahaha Food City, in Hangzhou. Due to inexperience in project management, cashflow became a problem, as construction was delayed for 6 years. This company holds the interests of the employees' union. It changed its name to ZHI at an EGM in August 2001.

During the period from 1992 to 1994, WHH shifted the company away from health drinks to other products. During this period it launched a sour plum drink, alcoholic beverages and pseudo-medicinal potions, but these would successively fail.

In 1994, the company acquired three insolvent companies in Sichuan, and established its first factory in Chongqing. A local manufacturing base enabled the company to reduce distribution costs to western China. Once talks had started with Danone, capital became available once again for the company. WHH launched Wahaha Pure Water and struck gold with it. Over the next three years, WHH would acquire 40 more companies in 22 different provincial cities, transforming it into one of the largest beverage companies in China.

Joint ventures

In 1995, Peregrine Investments Holdings introduced Zong to Danone, and discussions about the creation of a joint venture began. The Wahaha trademark was assigned to the main joint venture vehicle on 29 February 1996, and a joint venture agreement was eventually signed on 28 March 1996.

The "foreign partners" took 51%, while the "Chinese partners" held 49% (of which WHH holds 39% and employees own 10%). Groupe Danone and Peregrine together invested US$70 million in return for the stake in five joint venture WHH companies with the exclusive rights of production, distribution and sales of products under the Wahaha brand. When Peregrine collapsed in 1998, Groupe DANONE acquired its stake in the JVs, and became majority owner.

The business had grown into 39 joint venture entities by 2007, and the total injected capital amounts to US$131 million.

Wahaha branded products include milk drinks (19%), soft drinks, bottled water (43%), bottled tea (19%), fruit juice (13%), porridges and its flagship yoghurt beverages (7%).

Its largest facility is located in Hangzhou's Xiasha Economic and Technological Development Zone, where one-third of the company's production occurs.

Wahaha dealers help them with management and marketing and advertises nationally. The company has 35 provincial sales offices, 2,500 sales team employees, Its distribution is truly nationwide. Wahaha is one of 3 brands which has few distribution gaps in rural China, with more than 2 million sales outlets across the country. Distributors are responsible for capital, storage, and delivery. The company maintains two grades of distributors: more than 1,500 first-level dealers that need to meet distribution targets and manage large networks and capital; and 12,000 second-level dealers that deal at smaller levels. Distributors' franchise areas are strictly delimited to ensure no poaching between areas, and are guaranteed by forfeitable deposits lodged with Wahaha.

The distribution has given "Future Cola" a close third in national market share through its domination of rural China, its tertiary and secondary cities. According to PRC government statistics, Coca-Cola held a 24 percent market share in 2003.