Guide: How big do you expect the impact of the epidemic on the domestic economy in 2020? Zong Qinghou said that the impact is very large, and the key is that the global epidemic is still evolving. But he also believes that to boost the economy, only to stimulate domestic demand. China is a big market with a 1.40 billion population. As long as domestic demand goes up, it will be no problem to develop at a high speed for many years.
Source: 21st Century Business Herald (ID: jjbd21)
Journalist Shu Bao Hui
EditorShu Li Yilin, Video Editor, Wang Bo
During the cold winter, Wahaha, which had always been stable, became "radical".
On April 28, at the headquarters of Wahaha Group, No. 160 Qingtai Street, Hangzhou, in this simple six-story building, Zong Qinghou once again accepted an exclusive interview with the 21st Century Economic Herald reporter to explain his thoughts on the epidemic and e-commerce.
At the moment of crisis under the epidemic, the biggest problem many companies face is insufficient cash flow, which cannot survive the day of retaliatory consumption after the epidemic is over. This problem does not exist in Wahaha.
In February, when it was completely shut down, Wahaha lost only 100 million yuan. But its bank account was still sitting on more than 10 billion yuan in cash. In this way, Wahaha could be shut down for 10 years without going bankrupt. In fact, Wahaha restored 80% of its production capacity in March, and its sales in April had increased by 30% compared with the same period last year.
So when the real economy was full of grief, many companies were laying off staff and cutting wages, and shrinking the front line, Wahaha took the opportunity to expand aggressively. It announced that it would invest billions of yuan to launch four new e-commerce platforms, and "bottom fishing" talents, to recruit 100,000 social retailers.
In 2018, Zong Qinghou, chairperson of Wahaha Group, summed up his business philosophy in an exclusive interview with the 21st Century Business Herald reporter as "focus on the main business, run in small steps". The so-called "small steps" refers to being careful in decision-making, expanding in small steps, and immediately retreating to stop losses if you find something wrong. "Run" refers to acting quickly when an opportunity arises, seizing the opportunity, and not hesitating.
Among China’s private entrepreneurs, Zong Qinghou is very special. He has adhered to two principles for decades: one is not to do "quick money" industries such as finance and real estate, and the other is not to operate in debt. Even if it takes tens of billions to launch four e-commerce platforms in one fell swoop, he still insists on all investment from equity funds.
Wahaha has developed from the distribution department of a school-run enterprise to a leading enterprise in China’s beverage industry with total assets of nearly 40 billion yuan. It has persevered and changed with time. The environment has changed, consumers have changed, and so has Wahaha. Is Wahaha also stepping on the node this time when it enters e-commerce?
Responding to the epidemic: Wahaha has more than 10 billion cash deposits
"21st Century": Have you measured Wahaha’s cash flow? Is it safe?
Zong Qinghou: It’s very safe. We still have more than 10 billion yuan in cash deposits in the bank.
"21st Century": How much is the company affected by the epidemic, how much has the income decreased compared with the same period last year, how is the resumption of work and production, has the order been affected, and has there been any layoff and salary reduction?
Zong Qinghou: We lost almost 100 million yuan in February this year. Because we can’t start work, we still have fixed expenses. We have three production bases in Hubei Province, in Wuhan, Yichang and Hong’an. Wuhan is the last base to resume production.
None of Wahaha’s tens of thousands of employees were infected, so Wahaha was one of the first companies to resume work. Our production capacity returned to around 80% in March. Sales in April increased by 31% compared with the same period last year, and orders increased by 21% compared with the same period last year.
Instead of layoffs and salary cuts, Wahaha is preparing to expand its recruitment significantly. First of all, Wahaha has recruited more than 1,000 high-level talents from around the world in the two directions of "big health" and "intelligent manufacturing", including nutritional function support engineers, health food research and development engineers, etc. Secondly, our new e-commerce platform will also recruit 100,000 social retailers. We want to find 100,000 newly graduated college students, each of whom will give him 100,000 loans to be our health care product distributors.
21st Century: Why did sales increase by 31% year-on-year in April? Is it because of retaliatory consumption after the epidemic?
Zong Qinghou: No, revenge consumption did not appear. Mainly because we prepared earlier and acted quickly. Sales growth was mainly achieved by expanding sales through various operating methods.
"21st Century": Wahaha is not greatly affected by the epidemic?
Zong Qinghou: Now the overall market has shrunk due to the impact of the epidemic, but it is expected to rebound after the epidemic has passed. So now we are more proactive and seize the opportunity to seize the market.
For example, if offline promotion is not possible during the epidemic, we will require distributors, wholesalers, and retailers to establish WeChat groups and hold promotion meetings in the WeChat groups. In addition, we are also looking for partners to deliver products to communities, government agencies, enterprises, and institutions.
Picture/Visual China (000681, stock bar)
E-commerce layout: resolutely do not burn money to buy traffic
"21st Century": Is the idea of building an e-commerce platform before or after the epidemic?
Zong Qinghou: It was there before the epidemic, but the epidemic made this idea more bold and clear. Before the epidemic, I just wanted to build an e-commerce direct sales platform for health products, and promote the combination of online and offline channels to create a digital marketing platform. After the epidemic, I decided to build four.
"21st Century": So before the epidemic, Wahaha only wanted to build a health care product e-commerce platform, but after the epidemic, Wahaha decided to launch four e-commerce platforms in one go?
Zong Qinghou: Before the epidemic happened, we wanted to build an e-commerce platform for health products in the vertical segment. Wahaha’s main business is from "safety to health", so it hopes to produce healthy food and health food to meet the needs of consumption upgrading. If you want to build a new health product sales channel, the e-commerce channel is still relatively easy. And there is no e-commerce platform dedicated to selling health products.
The other is the food and beverage sales platform. We integrate distributors, wholesalers, and retailers into this platform, making it more convenient for them to place orders and ship goods. At the same time, we can also sell food and beverage products for other companies.
Our offline channels are already very strong. Now export enterprises are blocked from exporting. All countries in the world are affected by the epidemic, which is giving rise to the global financial crisis and economic crisis. So what should domestic export enterprises do? Export cannot be done, and the domestic market competition is too fierce. Our self-built e-commerce platform can help some export enterprises solve sales.
Cross-border e-commerce platform. Due to the upgrade of domestic consumption, we import some foreign high-quality products and bring some consumption back to China. The fourth platform is Habao Amusement Park, an online platform dedicated to young people’s communication, sharing and shopping.
We are preparing to officially launch the other three platforms during this year’s "618" e-commerce festival. Cross-border e-commerce platforms will not be launched until the second wave due to the global epidemic.
"21st Century": The traffic dividend period of the e-commerce platform has passed. The biggest problem with the self-built platform is where does the traffic come from? Can Wahaha’s brand extension be supported as an e-commerce platform?
Zong Qinghou: On the issue of traffic, I am determined not to burn money to buy traffic. Our platform mainly helps factory direct sales. On the one hand, we can prevent counterfeiting and shoddy products, and on the other hand, we can get fairer and more reasonable prices by skipping the intermediate link. Health product e-commerce platform We want to recruit 100,000 entrepreneurs to be retailers.
The food and beverage e-commerce platform should incorporate the joint sales network that has been built over the past 33 years, covering nearly 10,000 dealers, hundreds of thousands of wholesalers, and millions of sales end points, so that every offline store can become an e-commerce warehouse or transfer station, and every in-store salesperson is a delivery person. Like capillaries, it penetrates into counties, towns and villages across the country, and distributes products to the whole country at the fastest speed and lowest cost.
"21st Century": Throughout the relationship between manufacturers, it has always been a game. It is difficult for a company to be both a "factory" and a "business" at the same time. Wahaha has crossed the border from factory to business this time. Are you ready? Can the original system, products and operation details match?
Zong Qinghou: Our e-commerce platform is a brand-new sales channel established online, which will not touch the original offline price system.
"21st Century": Hundreds of thousands of wholesalers, millions of sales end points, what do you think of your own food and beverage e-commerce platform?
Zong Qinghou: It has no impact on dealers, and there is no conflict. It is more convenient for them to place orders through this platform, and it can also increase sales for them. It is impossible for me to destroy my original offline basic dealer channel for new e-commerce channels.
"21st Century": In the past, you said you would neither resist nor embrace, but now you have built your own platform to actively embrace e-commerce. What has prompted your change?
Zong Qinghou: I have never resisted e-commerce. What I resisted was burning money to buy traffic and counterfeit and shoddy products to disrupt the market. Since the outbreak of the epidemic, roads have been closed everywhere, cities and communities have been closed, and a large amount of consumption has been transferred from offline to online. Now consumers’ online shopping habits have been formed. So the general trend cannot be violated. But with the easing of the epidemic, consumers’ offline consumption trend has rebounded. People always have to go out, and it is impossible to rely on online shopping at home forever.
"21st Century": How much will be invested in these four platforms in total?
Zong Qinghou: About tens of billions.
"21st Century": Where does the money come from? Is there a bank loan?
Zong Qinghou: No, all are equity funds.
"21st Century": Bank presidents will cry when they hear it.
Zong Qinghou: No, the governors also like us very much. Because we solved the deposit index for him.
"21st Century": Are you responsible for these e-commerce platforms? What is your main focus now?
Zong Qinghou: I am in charge of the preparation now, and I will definitely hand it over to the management later. I have a lot of things to do now, developing health care products, purchasing equipment, building factories, and so on.
"21st Century": The crisis is the most testing time for the company. In addition to rebounding after the epidemic is over, what measures has the company taken to save itself? What other expansion plans does Wahaha have this year?
Zong Qinghou: Focusing on our e-commerce platform, we are now establishing our own health care product production base.
21st Century: Will entering the e-commerce platform help Wahaha’s digital transformation from traditional manufacturing to production, management and sales?
Zong Qinghou: In fact, Wahaha has been doing digital transformation for a long time, and the digital economy is the No. 1 project in Zhejiang Province. Wahaha introduced foreign advanced production lines in the early days, and later introduced stand-alone machines, integrated automated production lines, and now designs and plans its own smart factories.
A few years ago, we have felt that industrial robots will be an important direction for the development of artificial intelligence manufacturing. Many traditional manufacturing companies purchase equipment, but Wahaha chooses to develop independently. This is Wahaha’s most important industry after food and beverage. Wahaha has become the only enterprise in the domestic food and beverage industry with the ability to develop, design, and install and debug equipment by itself. Now it is mainly for self-use, and it will go to the market in the future.
Photo/21st Century Business Herald, photo by Bao Hui
Talking about the economy: Boosting domestic demand is fundamental
21st Century: How big do you expect the impact of the epidemic on the domestic economy in 2020?
Zong Qinghou: It has a great impact. The key is that the global epidemic is still evolving, so it has a great impact on our exports. The "troika" of development in the past – exports, investment, and consumption – can’t rely on exports and investment now. I think to boost the economy, only by stimulating domestic demand. China is a big market with a 1.40 billion population. As long as domestic demand goes up, it will be no problem to develop at a high speed for many years.
The consumption upgrade of China’s 400 million middle class has driven the rapid development of the domestic economy in the past few years, but now they have consumed everything they can consume at home, and then they have gone abroad to spend, such as buying luxury goods, traveling abroad, and sending their children to study abroad.
The key now is to stimulate the domestic consumption of the remaining 1 billion people, and to pull back some of the consumption of the 400 million middle class abroad, such as opening duty-free shops in China.
Aiming at the vast rural market, is the state considering restricting the import of agricultural products (000061, stock bar), because foreign imported agricultural products are cheaper than domestic farmers. Raise the price of agricultural products to encourage some migrant workers to return to their hometowns for employment and increase their income.
There are also tax cuts for enterprises, such as reducing corporate income tax by 5% -10%, but the limited part of the reduction must be used to increase employees’ wages, otherwise it will not be reduced for you. In this way, the income of urban residents will increase. The increase in income of urban and rural residents will naturally pull consumption. Now young people’s consumption concepts have also changed. They are willing to spend and dare to spend. As long as their income increases, consumption will naturally rise.
"21st Century": Consumption coupons are now being issued everywhere. What do you think of this measure?
Zong Qinghou: Although the government now has various relief for enterprises, such as loans, it can’t be released at all, because enterprises have resumed work and production, but there are no orders, no demand, and they don’t know what business to do with the money they borrowed, so some of them have flowed into real estate speculation. So the key to boosting the economy now is to stimulate domestic demand. The government has tried its best to help enterprises tide over the difficulties, but there must be demand at the source to have orders. No policy is useless without demand.
21st Century: After this epidemic, many private enterprises are reflecting on whether their business models have the ability to resist risks. What do you think?
Zong Qinghou: Many private enterprises, especially small and medium-sized private enterprises, have closed down. In addition, there are some enterprises that have over-invested and over-indebted, and it is difficult to survive now. The cash flow is stable, and I think it can still survive.
21st Century: How do you think private enterprises should be supported?
Zong Qinghou: Now the government is very supportive of private enterprises. I think the key is to stimulate domestic demand, so that the people (603883, stock bar) have the ability and willingness to consume, so that private enterprises can open their doors to do business.
Interview Notes | Wahaha’s tens of billions of deposits account, what do banks think?
There is a controversial voice about Zong Qinghou in the outside world that is "conservative".
After many interviews, it was discovered that there is actually a little-known story behind the controversy. Briefly, in 2014, Zong Qinghou publicly criticized the negative impact of e-commerce on the real economy, which caused controversy.
In fact, he is not against ecommerce. "I used to be dissatisfied with them [ecommerce] because I was not satisfied with burning money to buy traffic and selling fake and shoddy products," he said. "I am not against ecommerce, and I think ecommerce should go deep into the countryside to help farmers sell their products, because farmers’ information is relatively closed, and increasing production does not increase income."
Due to the large weight and small added value of Wahaha’s drinking water products, his previous caution towards e-commerce is not difficult to understand.
But in fact, Wahaha joined hands with Alibaba to launch a shared service credit kiosk in September 2017, launched "Habao Amusement Park" in December 2018, and launched product promotion on Douyin, WeChat, Weibo and other platforms in 2019.
Although he is a 75-year-old, he remains constantly alert to changes in the market and is willing to embrace innovation when he perceives changes and finds possible solutions.
He is not a stubborn old man who does not embrace change and modern technology. Wahaha’s factory building has China’s first intelligent beverage production line. His bookshelves are densely packed with maps, full of maps marking the markets he has visited on the spot, and his footprints are all over China’s urban and rural areas.
In recent years, Zong Qinghou has expanded the scope of investigation on the map to include the United States, Israel, and others.
An epidemic in 2020 dragged the world into the cold winter of economic recession. He also saw that since the epidemic occurred, due to road closures, cities and communities, a large amount of consumption has shifted from offline to online. He knows that the general trend cannot be violated.
Photo/Tuchong
Zong Qinghou’s shaping of Wahaha is far from as simple as leading the crowd to win countless battles and wars. In 1988, he independently developed Wahaha nutrient solution to complete the original accumulation, in 1991, he merged with the old state-owned factory to achieve large-scale operation, in 1996, he and Danone jointly introduced foreign capital for their own use, and in 2005, he launched the Nutrition Express with a cumulative output value of more than 100 billion yuan. To bottled water, Zong Qinghou’s every step is stepping on the node of the times. This time, he launched four e-commerce platforms in one go. Is he also stepping on the right rhythm?
But no matter whether it is accurate or empty, it is Zong Qinghou and Wahaha who benefit or suffer.
From the institutional side, the billions that Wahaha is prepared to invest this time are all its own real money, without any money from investors or credit from banks. For consumers, there is one more choice and channel, which is usually good for consumers.
Wahaha is another "extreme" compared to companies that are overextended and mired in debt crisis. It has never left its main business of beverages. Except for the early days of its establishment, it has insisted on not borrowing a penny of foreign debt for more than 30 years. Therefore, Wahaha has been questioned as "conservative" in the past.
But fast is slow, slow is fast. Businesses are like people, sometimes ill, need to think about how to improve their own immunity?
In terms of industry and finance philosophy, Wahaha has persisted in not lending a penny for decades. On weekdays, it seems that such enterprises are too "conservative", but in the cold winter, it is a precious "immunity" that allows enterprises to withstand the next spring. Reasonable cash flow is life infra for enterprises.
Editor of this issue, Li Yutong
This article was first published on WeChat official account: 21st Century Business Herald. The content of the article is the author’s personal opinion and does not represent the position of Hexun.com. Investors operate accordingly, and please bear the risk.
