The story of China's first water war

An obituary opened the prelude to the "water war". This article deeply analyzes the business duel between Wahaha and Nongfu Spring, and explores how brand image and public sentiment affect market trends. It is recommended to readers who have a deep interest in business strategy and brand building, and I hope it will be helpful to everyone.

The two richest men in China have been caught in an unprecedented whirlpool of public opinion.

Right now, the aftermath of this storm shows no signs of stopping.

The death of Zong Qinghou, the founder of Wahaha, triggered remembrance and recollection from all walks of life. People gave him extremely high praise, which immediately led to a surge in Wahaha's sales, even to the point where all kinds of products were sold out.

On the other side of the scale, due to various disputes in the past, Nongfu Spring and its founder Zhong Shanshan were accused of "betrayal", encountered countless doubts and even slander, and were even suspected of being "pro-Japanese". Various accusations came one after another, resulting in a certain impact on the normal sales of Nongfu Spring products in various places.

Over the years, Nongfu Spring has defeated countless competitors with its "natural mineral water" and has created various beverage products with its strong channel advantages and product capabilities. After Nongfu Spring was listed in Hong Kong, Zhong Shanshan became China's richest man and maintained the position for many years.

After learning the power of online public opinion, the richest man had to write an article to clarify the matter himself. But the huge wave of public opinion is still surging like a tide, hitting every corner of China's urban and rural towns. Now this "cyber war" with almost all the attention and participation of the Chinese people, the largest in scale, has penetrated into the fabric of Chinese society.

As the mainstream media in Zhejiang said, "The market is big enough to accommodate two bottles of water." I believe most ordinary people can understand the reason. But is this really just about one bottle of water? The reason why the current public opinion environment has become so extreme is worth everyone's deep thinking. After all, it is not common in China for consumers to participate in competition between companies in such a large-scale manner.

1. Public opinion disputes

Completely different business styles.

An obituary marked the beginning of the "water war".

On February 25, the official Weibo account of Wahaha Group released an obituary that the group’s founder and chairman Zong Qinghou passed away due to illness.

Afterwards, the whole society generally participated in the deep remembrance of this outstanding national entrepreneur, and his stories of hard work, arduous struggle and courage to innovate were also spread more widely. People admired his ability to practice a warm management philosophy in a cold economic society, and also felt the power of humanity beyond business in his deeds.

Jack Ma, Lei Jun and others posted articles to mourn the legendary entrepreneur, but some people found that Zhong Shanshan, a big boss in the same industry who had connections with Wahaha, had not made any statement. It was not until the day before the memorial service that Zhong sent a wreath and a mourning couplet. At one time, public opinion arose, and some people began to flock to Nongfu Spring's live broadcast room to express their dissatisfaction.

After the doubts, Nongfu Spring's flagship store and live broadcast room both saw a single-day sales drop of more than 90%, and its stock price began to fall continuously. On the other hand, Wahaha's Douyin flagship store sales increased several times, and best-selling products such as AD calcium milk and Nutri-Express were once out of stock. In some shopping malls, Nongfu Spring products were piled up like mountains, while Wahaha was sold out.

Faced with an unprecedented special situation, the usually low-key Zhong Shanshan could no longer sit still. He personally wrote an article to clarify, denying that his first pot of gold came from Wahaha, and that he was not fired by Wahaha for selling goods in parallel, and that he and Zong Lao were both teachers and friends. However, the heated controversy was overwhelming, and Zhong Shanshan's rumor-refuting was of limited effect.

Although both of them are the richest people, they have completely different personality traits and completely opposite ways of dealing with the world. This may be an important reason why the two have completely different reputations among the people.

As we all know, Zong Qinghou is a down-to-earth entrepreneur who gets along well with his employees and the masses. He lives a very frugal life, started his business on a tricycle, wore canvas shoes for a year, only took economy class on business trips, did not fire employees over the age of 45, and solved the problems of employees' accommodation and even their children's schools. In the wave of public opinion, Zong Qinghou was highly praised for this.

Zhong Shanshan is extremely low-key, a Don Quixote-like figure who is isolated from the world. He worked as a reporter for Zhejiang Daily for 5 years, and later started his own business. He has both the idealism of a scholar and the toughness and courage of a businessman. He is independent and disregards worldly views. In order to open up the natural water track, Nongfu Spring did not hesitate to become an enemy of the entire industry, looking at the world completely in its own way, reshaping the industry, and ultimately succeeding.

Zhong Shanshan once defined his character like this:

"I am indeed a very conceited person. I usually don't talk much with people I can't get along with. I have my own circle, my own lifestyle, and my own group of friends."

Therefore, almost no one can really understand Zhong Shanshan, and he has never hoped that others can understand him deeply. In contrast, Zong Qinghou is more like a kind old friend and elder, which makes him gain more love from ordinary people. In his many years of business career, Zong Qinghou has almost never had any negative reports.

The two companies also adhere to different strategies in the market. Zhong Shanshan is good at marketing and once said, "If a company can't hype, it is a mummy, and the mummy must go to the grave as soon as possible." Zong Qinghou led Wahaha to run the business more honestly, with limited publicity and promotion, low volume, some rustic products, and even the same advertising spokesperson for 20 years.

The two different business styles also led to a huge difference in external evaluations during the wave of public opinion.

2. Competition and Cooperation as a Normal State

It is more of a competitive relationship.

Despite the public opinion turmoil, the relationship between the "two generations of Chinese water kings" is not as tense as people imagine. As Zhong Shanshan said in his article, it is definitely not what Mr. Zong expected to start a public opinion war and use the news to attack another company.

Judging from the development history of the two companies, it is inevitable that they will attack each other, but it is more of a competitive and cooperative relationship. Zhong Shanshan did receive help from Zong Qinghou in the early days of his business.

After starting his own business in 1988, Zhong Shanshan dealt in private newspapers, mushrooms, street stalls, curtains, shrimp farming, etc., and later developed health products such as turtle pills. In the 1990s, after visiting Zong Qinghou, Zhong Shanshan obtained the distribution rights of Wahaha Children's Oral Liquid in Guangxi and Hainan, but the sales in the two regions were average at the time. The goods were later sold to Guangdong, solving Zhong Shanshan's urgent needs.

Therefore, some netizens questioned whether Zhong Shanshan's move was a "rush to buy" behavior, but due to the long time, it is impossible to verify. Moreover, the market management at that time was still very extensive, there was no clear concept of "rush to buy", and there would be no situation where dealers would be fired for this.

After years of hard work, Zhong Shanshan, who has a keen sense of smell, entered the natural water market. In 2000, Nongfu Spring began to spread its message to the public, claiming that "purified water is not as good as natural water" and promoting small experiments such as "mice that drink purified water for a long time will die, and daffodils grown in purified water will be stunted" through the media.

The product promotion strategy that openly opposed the entire industry triggered a unified action by nearly 70 companies including Wahaha and Robust. Both parties sued each other, and Nongfu Spring lost the case and was fined 200,000 yuan for "unfair competition."

On the surface, Nongfu Spring lost the lawsuit, but in the long run, Zhong Shanshan did not lose. Nongfu Spring became famous through hype, and the concept of natural water was widely spread and fully accepted by the public.

Nowadays, many people choose to "boycott" Nongfu Spring. Many netizens believe that they have been influenced by the concept of natural water for many years, and now they no longer agree with this concept.

In 2009, Nongfu Spring was involved in the "arsenic scandal", but the final investigation results proved that there was no problem with Nongfu Spring products. Zong Qinghou also publicly expressed his support and doubted the test results of Nongfu Spring products in the incident.

Four years later, the Beijing Times published 76 reports accusing Nongfu Spring of failing to meet national standards for water quality, which was even worse than tap water. Zhong Shanshan was furious and confronted the Beijing Times head-on, saying that Nongfu Spring would not succumb to the violence of public opinion and planned to stop production at its Beijing factory and abandon the Beijing market.

Nongfu Spring then took the Beijing Times to court, but after four years of no results, it finally withdrew the lawsuit. During this period, Zong Qinghou also made it clear that "someone was deliberately messing with Nongfu."

It can be seen that in his early years, Zhong Shanshan adopted unconventional and quite fierce marketing techniques, which attracted a lot of social attention, and with the help of clever slogans, he occupied the minds of users and eventually built a beverage business empire.

Nongfu Spring has been the No. 1 brand in China's packaged water market since 2016. At the same time, Nongfu Spring's various teas, juices and functional beverages have also become increasingly successful, with category innovation and marketing capabilities at the forefront of the industry.

The industry competition strategy of the year, that is, the business war in the early years, has now been re-examined under special circumstances and re-evaluated as unethical and hype, which is obviously biased. Because Nongfu Spring's products have actually been tested by the market for many years, if the product strength or channel strength is not up to par, it would have been eliminated from the stage of history long ago.

Zong Fuli also admitted in an interview that she prefers Nongfu Spring, believing that its brand communication and product creativity are unique and that it has great insight into the market.

Time flies, and now is no longer the early days of reform and opening up, and the two companies have long since made peace. Although there have been grievances between the two tycoons, they are basically business and market competition, and there is no moral basis for judgment.

3. New Business War

Need to be a better self.

"If a small business wants to stand out, the types of business it operates must be unique and must be highly profitable." In the 1990s, after Yangshengtang achieved great success with its Turtle and Bie Pills, Zhong Shanshan summed up this lesson, "because there is no scale effect for you to accumulate slowly."

The high-frequency and necessary drinking water track is in line with Zhong Shanshan's judgment. He keenly smelled the taste of wealth in "natural mineral water". Although drinking water is a very common thing, it means huge market value for business operations.

What is not well known to the public is that natural mineral water is essentially a unique "mineral resource" and that market-oriented development must overcome a high "policy access" threshold.

Compared with purified water, the difficulty of mineral water lies in obtaining mining rights and water extraction licenses. Mining rights need to go through dozens of complicated approval processes, which takes 2-3 years. Nowadays, the approval of these policies has become more stringent, and it is difficult for small and medium-sized enterprises to enter and exit freely as before.

The underlying logic of water source barriers is "policy barriers" rather than resource barriers. For example, Jingtian Baisuishan also has water sources in Changbai Mountain. Foreign brands such as Evian, Nestle San Pellegrino and Voss also have excellent water sources. The natural advantage of natural water companies is that they have priority in obtaining policy approval.

Currently, Nongfu Spring has 13 major water sources, 34 water extraction permits and 3 mining licenses, and has gathered policy, brand and scale barriers. This is a height that is difficult for ordinary companies to achieve.

Looking back at the development of drinking water in my country, what is reflected behind it is the upgrading process of China's consumer market. Wahaha led the "1 yuan water era", Master Kong won the "1.5 yuan water era", and after Yilibao briefly dominated the "2 yuan water era", Nongfu Spring has completely secured the first place.

Channels are the foundation of the Wahaha beverage empire. Zong Qinghou founded the joint sales system in the 1990s, changing the model from goods first and payment later to payment first and goods later. Wahaha collects a 10% deposit from distributors in advance and gives them interest higher than bank deposits. Distributors who purchase goods every month must pay off the previous month's payment.

This model is a stroke of genius in terms of operation, which has enabled Wahaha to have sufficient cash flow without the need for IPO financing. It is reported that Wahaha has more than 10 billion yuan in cash on its account for a long time, and the company can use this money to build bases and invest in reproduction.

Wahaha’s revenue peaked at 78.2 billion yuan in 2013, and Zong Qinghou became China’s richest man three times from 2010 to 2013.

However, in the new era of consumption, Wahaha's old-fashioned management style and insufficient product iteration gradually emerged. Even the Zongs themselves admitted that the company's brand power was too old-fashioned and lacked innovation. After AD calcium milk and Nutri-Express, there has been no hit product.

With the rise of Internet thought and the rise of emerging beverage companies such as Yuanqi Forest, Wahaha's revenue scale has further declined, reaching only 51.2 billion yuan in 2022, only 65% ​​of that in 2013.

Source: All-China Federation of Industry and Commerce

In 2016, Zhong Shanshan reformed Nongfu Spring's channels, fully authorized distributors, and provided more timely assistance and services. Moreover, Nongfu Spring chose to pass on profits to distributors, who have greater profit margins - distributors have a gross profit margin of about 25%, and a net profit margin of up to 6%, which is 1.5-2 times the industry average.

Wahaha distributors are more concentrated in the sinking market, and their main products are still the successful products from many years ago. Nongfu Spring has a rich product line and soft drinks have higher profits. Distributors can sell packaged water and beverages at the same time, which is quite attractive for distributors.

In addition, Nongfu Spring has vigorously developed its own channels in first- and second-tier cities, such as "Sesame Shops" (self-service vending machines), entering communities, e-commerce self-operated stores, convenience stores and other self-operated channels to reach consumers. Its control over channels has reached its peak.

Once upon a time, driven by public sentiment, domestic brands such as Hongxing Erke, Baixiang, and Fenghua also experienced phenomenal sales growth, but they fell silent again not long after, and the shortest was only about a month. This is not because enthusiastic consumers did not give them a chance, but because the product strength and innovation of these companies have not kept up with the needs of consumers in the new era, while other companies can meet consumers' higher expectations for products - they may be state-owned enterprises, central enterprises, or private enterprises or foreign enterprises.

Compared with Hongxing Erke and Fenghua, Wahaha's product power is much stronger. People are not as cautious about spending on water and beverages as they are on shoes, clothing, and daily chemical products, so consumers will continue to pursue Wahaha pure water, AD calcium milk, and Nutri-Express for a long time. But in the final analysis, this once old-fashioned company still needs to become a better self in the new historical period in order to comfort the love of the elders for the company, employees, society, and people.

4. Editor’s Note

The short video column "Juchao Voice" under "Juchao WAVE" released a short video that sparked a huge discussion among the audience, with more than 150,000 likes on the Toutiao platform alone. The main content of the short video was that Zong Qinghou told the interviewer in an early interview program that "I am not a capitalist, I am an entrepreneur, and I will be respected only if I benefit the people."

These concerns and discussions actually reflect the ordinary people's thinking and judgment on business and business figures. In the past, this was usually summarized as "violent talk" that "violated certain market economic principles" and was not the mainstream voice of the business community. But this time, its breadth and intensity have far exceeded the past.

On the surface, this is a public evaluation of the two richest men and even a consumer stance. But a deeper observation is enough to see that ordinary people, especially in the vast areas outside the first- and second-tier cities, are no longer ignorant bystanders and buyers in commercial and economic activities, but have formed their own understanding of business, economy, and profit distribution, and even formed a trend of thought.

Rather than saying that people are missing Zong Qinghou, it is better to say that they are expressing their confusion, worry, and anxiety about the current business and economic environment through nostalgia, and trying to exert some influence more actively. Limited by their professional ability, their cognition may not be mature, or even wrong and extreme, but this does not mean that this debate is just a fuss.

Anyone who ignores these increasingly loud voices will not be able to make correct judgments in China's commercial and economic activities. Anyone who arbitrarily labels them as "populist", "brain-dead" or "mob" will inevitably pay the price for it, because they have stood against hundreds of millions of ordinary people.

The business world may be controlled by a few people, but the right to interpret it is not in the hands of a few people. Every participant has the right to form and express his or her own opinions, and even to make consumption choices based on these opinions.

It is foreseeable that various incidents similar to this "water war" will continue to emerge in the future. Having a clearer understanding of this is a compulsory course for every enterprise, entrepreneur, business commentator and big V and small V.

Author: Xie Zefeng

Source: WeChat public account "Juchao WAVE (ID: 1093294)"