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Yangtze Business Daily News● Yangtze Business Daily reporter Shen Yourong

After taking over for 145 days, the news of Zong Fuli's resignation spread like wildfire.

According to the screenshots that were widely circulated online, Zong Fuli decided to resign from Wahaha because the rationality of her business management of the Wahaha Group was suspected by major shareholders.

In addition, a letter of complaint against Zong Fuli also went viral on the Internet.

Zong Fuli's resignation has triggered a heated discussion in the market on a series of issues including Wahaha's ownership, second-generation succession, family governance and inheritance.

A reporter from the Yangtze Business Daily found that as of now, Wahaha Group and its major shareholder Hangzhou Shangcheng District Culture, Commerce and Tourism Investment Holding Group Co., Ltd. (referred to as "Hangzhou Shangcheng District Culture, Commerce and Tourism") have not made a public response to Zong Fuli's resignation.

It is normal for the new to clash with the old and for reforms to affect interests. By resigning, Zong Fuli put herself in the public eye, seeking more support and more voice.

Regardless of whether Wahaha will eventually lose its "Zong" again, both Zong Fuli and Wahaha face severe challenges amid the industry's crazy internal competition.

It is worth mentioning that outside of Wahaha, the Zong family has established industrial groups including Hongsheng Beverage Group and Hongzhen Investment. Zong Fuli may use this to revive the family business.

Zong Fuli suspected of "quitting" and many parties remain silent

Wahaha and Zong Fuli once again attracted attention from all walks of life.

Early in the morning of July 18, an internal letter about Zong Fuli's resignation was circulated wildly on social media. In just a few hours, many related topics such as "Wahaha Zong Fuli", "Online rumors of Zong Fuli's resignation", and "Former Wahaha executive says Zong Fuli's resignation is true" dominated the major hot search lists.

The letter, signed by Zong Fuli, to all employees of Wahaha Group, stated that "due to the shareholders of Wahaha Group questioning the rationality of management, it has become difficult to advance management. Zong Fuli has decided to resign from the positions of vice chairman and general manager of Wahaha Group from July 15 and will no longer participate in business management."

On February 25 this year, the legendary Zhejiang businessman Zong Qinghou passed away due to illness, less than five months ago. This also means that Zong Qinghou's only daughter Zong Fuli has only been at the center of power in Wahaha Group for 145 days, and the power model of Wahaha Group has changed.

After Zong Qinghou passed away, Zong Fuli took over. The outside world believed that she would usher in the "Zong Fuli era of Wahaha".

In the first half of this year, under the leadership of Zong Fuli and driven by consumers' nostalgia for Zong Qinghou, Wahaha's influence in the market rose sharply. Unexpectedly, the Zong Fuli era brought about a sudden storm.

The equity structure of Wahaha is that Hangzhou Shangcheng District Wenshanglv is the largest shareholder, holding 46% of the shares, Zong Qinghou holds 29.40% of the shares, and Wahaha Group Employee Stock Ownership Association holds 24.60% of the shares. Currently, Zong Qinghou's shares have not yet been transferred to Zong Fuli.

Previously, although Zong Qinghou was only the second largest shareholder, he was the founder of Wahaha and might be of the same mind as the employee shareholding association, thereby exercising actual control over the Wahaha Group.

In her resignation letter, Zong Fuli openly named some shareholders of Hangzhou Shangcheng District Culture, Commerce and Tourism and Wahaha Group, exposing the changes in the originally stable relationship among the three parties.

So far, the largest shareholder, Hangzhou Shangcheng District Cultural Tourism, has not denied the authenticity of the internal letter, nor has it made any official statement on the matter. Wahaha Group has also remained silent on the matter.

Also going viral was a report letter against Zong Fuli. The report letter was written by a former Wahaha employee, who allegedly pointed out that Zong Fuli had sidelined the old employees of Hongsheng Beverage Group, replaced the management, and transferred assets through Hongsheng Group. Neither Wahaha Group nor Zong Fuli responded to the report letter.

At present, Zong Fuli's position is rather awkward. In December 2021, Zong Fuli was already the company's vice chairman and general manager. Five months after Zong Qinghou's death, she has not yet taken the position of chairman.

However, although Zong Fuli has not yet taken over the position of chairman of the Wahaha Group, she has taken over the equity of more than 20 companies under her father's name.

The outside world commented that Zong Fuli's resignation was based on the fact that the Hongsheng Beverage Group, which she headed, had grown from a small factory to a food and beverage company with 104 production lines, 44 subsidiaries and 16 production bases. In 2021, the operating income of Hongsheng Beverage Group reached 10.421 billion yuan, ranking among the top 200 light industrial enterprises in China.

Outside of Wahaha Group, the Zong family has established a huge industrial group, including Hongsheng Beverage Group and Hongzhen Investment controlled by Zong Fuli. Zong Fuli holds shares in 27 subsidiaries through Hongzhen Investment.

Most of the Zong family's industries revolve around the upstream and downstream of the Wahaha Group's business, and have a great influence on the Wahaha Group.

Conflict of ideas and power struggles broke out

Zong Fuli's resignation, whether true or false, more or less exposed the internal contradictions of Wahaha.

Once upon a time, Zong Qinghou tried his best to promote Zong Fuli and tried to train her to be his successor.

Born in 1982, Zong Fuli attended high school and college in the United States. She joined Wahaha in 2004 and started as a grassroots production manager. In 2007, she became the president of Hongsheng Beverage Group. Through the reform and integration of Hongsheng, she led Hongsheng to become a beverage production company with a full industrial chain. In 2016, she led the team to launch the original customized beverage brand KellyOne.

In 2018, Zong Fuli served as the director of the Brand Public Relations Department of Wahaha Group; in March 2020, she also served as the deputy general manager of Wahaha Group Sales Company; in December 2021, she became the company's vice chairman and general manager, taking over the company's daily affairs and truly moving to the center of power.

According to media reports, in early 2022, when Zong Qinghou talked about the succession of Zong Fuli, he said that he felt much more relaxed after his daughter took over the position of general manager. He said that Zong Fuli was "better than me" and he was very relieved. If she matured in the future, he would consider handing over the chairmanship to her.

However, to this day, the position of chairman of the Wahaha Group has been vacant for five months, and Zong Fuli has still not been able to take the position.

From this, it can be seen that it is not easy for Zong Fuli to completely take over her father's business.

Recently, Zong Fuli has made some moves. It is reported that after Zong Qinghou's death, Zong Fuli launched a series of reform storms within the company, including requiring employees to extend their working hours, and there were rumors of large-scale layoffs among employees. In May this year, Zong Fuli demoted more than 30 middle-level cadres at one go, and at the same time introduced some former Hongsheng Group managers. Some time ago, several senior executives of Wahaha Group left one after another.

Zong Qinghou's confidence in his daughter is related to the success of Zong Fuli in founding Hongsheng Beverage Group. Zong Fuli was deeply involved in everything from acquiring land, purchasing equipment, building a team, establishing factories, to building factories across the country.

However, Zong Qinghou is not too confident about his daughter. Zong Qinghou once publicly admitted that he and his daughter had differences over the management of the company. In his eyes, his daughter was influenced by Western culture and was very independent in doing things. He was worried that she would not be able to adapt to the Chinese corporate environment. If the employees did not do a good job, his daughter would be fired, which was contrary to Zong Qinghou's belief. There was even an incident where an employee fired by Zong Fuli was invited back by Zong Qinghou.

The differences between Zong Fuli and Zong Qinghou go beyond this. Outsiders say that Zong Qinghou's management style is that of a patriarch, and he makes the final decision on all matters, big or small. Zong Qinghou's approach to managing Wahaha Group is to not take out loans, not go public, not appoint a vice president, and not engage in real estate.

Zong Fuli has different ideas. She once said, "If it were not a listed company, people would doubt your investment. Although Wahaha is a big brand company, others will think that a listed company is a company with clear and standardized processes and will feel more at ease negotiating. Wahaha has never encountered a capital integration process. Under the current market conditions and industry environment, any major development of an enterprise is operated through capital means."

Zong Fuli wants to take the path of modern enterprise management, promote the listing of Wahaha Group, and manage the company with rules and regulations. Undoubtedly, the reform will affect the interests of some people and even shareholders.

According to regulatory requirements, when a company applies for listing, the number of shareholders cannot exceed 200. Since the implementation of the employee stock ownership plan in 1999, the number of shareholders of Wahaha Group has exceeded 15,000. If Zong Fuli promotes the listing of Wahaha Group, the number of shareholders will inevitably be greatly reduced.

It is worth mentioning that in 2006, Zong Qinghou negotiated with Hangzhou State-owned Assets on the withdrawal of state-owned shares, but was forced to suspend the negotiations due to the Danone battle. In July 2023, Hangzhou Shangcheng State-owned Assets planned to bid for the equity price evaluation and legal services of its 46% stake in Wahaha Group, but no substantial progress has been made so far.

State-owned assets are the largest shareholder and cannot be lost. Zong Fuli has not yet gained control of the Wahaha Group. If she wants to reform, it will probably be fraught with difficulties.

Industry involution increases pressure on Wahaha

Reform may be a reflection of Zong Fuli's inner anxiety.

At the memorial service for Zong Qinghou, Zong Fuli said, "Once, his shoulders were my lookout to the world. Now, my hands will be the writers who continue his beverage legend. I will take over the baton handed over by my father."

Undoubtedly, Zong Fuli is eager to make Wahaha bigger and stronger.

Since the beginning of this year, Zong Fuli has done some things that reveal her ambitions.

After Zong Qinghou's death, the market was once swept by nostalgia and pursuit of the Wahaha brand. Zong Fuli took the opportunity to vigorously develop offline channels and launched a terminal distribution assault in an attempt to open up new sales channels.

In the following two months, Wahaha increased the deployment of offline freezers and strengthened the performance evaluation of dealers’ sales staff. At the same time, KellyOne and sugar-free tea drinks also appeared on the shelves in first- and second-tier cities.

But this is far from enough, because Wahaha is facing a "mid-life crisis".

Public data shows that from 2021 to 2023, Wahaha's operating income was 51.915 billion yuan, 51.202 billion yuan, and 50 billion yuan, respectively, showing a slight downward trend in the past three years. In 2013 and 2014, its operating income reached 78.278 billion yuan and 72.043 billion yuan, respectively, and it is difficult to return to its peak.

Nutri-Express, AD calcium milk, and Eight Treasure Porridge, the three flagship products, were once the memories of a generation. Now, with the increasing number of competing products in the market, the three flagship products are no longer as popular as they used to be.

Public data shows that in 2013, Wahaha's Nutri-Express annual sales exceeded 20 billion yuan, becoming an industry legend for a time, but by 2019, sales revenue had fallen to less than 10 billion yuan.

As for AD calcium milk and eight-treasure porridge, although their sales have recovered in recent years, no impressive data has been disclosed.

The operation of enterprises also follows the rule of "if you don't move forward, you will fall behind". Industry observers commented that after more than 30 years of ups and downs, Wahaha's products and channels are aging, and it is being forgotten by old consumers and unfamiliar to post-00 consumers. Most of its attempts at diversification have had little effect, and it is in urgent need of modernization.

In recent years, Wahaha Group has developed 300 new products, which lack innovative elements and most have performed poorly.

Once upon a time, Wahaha was the leader in domestic pure water, with a market share of over 20%. In 2023, its market share shrank to 5.6%, and it had long been surpassed by its rivals such as Nongfu Spring, C'estbon, and Baishuishan.

The competition in the bottled water market is fierce. Regardless of whether Zong Fuli leaves or not, the pressure faced by Wahaha is increasing.

Where will Wahaha go?