Zong Qinghou

Drinks boss defends his stand on charity

PUBLISHED : Monday, 02 May, 2011, 12:00am
UPDATED : Monday, 02 May, 2011, 12:00am

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When Bill Gates and Warren Buffett visited Beijing in October last year to encourage the mainland's wealthiest citizens to donate their fortunes to charity, Zong Qinghou, chairman of Wahaha Group and one of the richest men in China, was on top of the invitation list.

But the soft-drink tycoon did not accept the invitation, saying he had to attend a business forum in Australia. His absence triggered media speculation that he was reluctant to respond to the American billionaires' call.

'I always support charity causes,' said Zong, ranked by Forbes and the Hurun Rich List as one of the wealthiest men on the mainland with a net worth of US$6 billion to US$12 billion. 'But I do think charity is more about creating wealth for society rather than simply giving money.'

In recent years, a number of the world's super-rich - including Microsoft founder Gates, investor Buffett, mainland recycling king Chen Guangbiao and Hong Kong businessman Yu Panglin - have promised to donate their entire fortunes to charity after their deaths.

'I never thought of an all-out donation,' said the 65-year-old entrepreneur. 'I believe wealth should be in the hands of those who know how to create more wealth.'

And Zong is certainly one of those. Born in Jiangsu province, Zong was the eldest son in a family of five children. He began bringing money home after graduating from secondary school, working on a salt farm and earning only 28 yuan a month. During the following two decades, he took different jobs in factories and remained a common worker and salesperson most of the time.

It was not until Zong was 42 that he set up his first business - a small shop selling ice lollies in a school in Hangzhou in 1987. His first big success came the following year when he launched Wahaha Oral Liquid, a nutritional drink to improve children's appetites, a product that was well received nationwide.

Wahaha is pinyin, with wa meaning a young child and haha indicating laughter. According to Zong, Wahaha was also in the lyrics of a popular children's song in the 1980s. He thought the three words were cheerful and easy to remember.

In the next few years, Zong acquired a loss-making state-owned cannery and tapped into the bottled water market in the '90s.

As one of the mainland's first generation of entrepreneurs, Zong is viewed as a smart, hard-working businessman.

'The key to making money is to make sure other people can make money by doing business with you,' said Zong, who added that he has modelled himself after Hong Kong tycoon Li Ka-shing. 'Never transfer your cost to others.'

Luo Jianxing, who worked as a marketing director for Wahaha in the '90s, described Zong as a rare business talent in his book Zong Qinghou and Wahaha - an in-depth report on a famous enterprise.

Luo said Wahaha was the first company in the country to adopt a pre-payment system. The company encourages distributors to pay for goods before they are delivered. In return, Wahaha pays interest on the pre-payments at a better rate than available at banks. The system helped Wahaha establish a sales network covering almost every corner of the country in a few years.

'This is very well received by distributors,' said Luo, a marketing instructor with the Zhejiang University of Media and Communication. 'They think their money is safe and they are happy to be able to earn an extra amount.'

As Wahaha expands, Zong's authority over the company is also growing. The company has no deputy general manager; the 100-plus middle-management staff report directly to Zong, the board chairman and general manager.

'The good thing is the decision-making process can be very efficient and can respond quickly to the market,' Luo said. 'The bad thing is there's little room left for younger managers to grow and it could be hard to find a proper successor for Zong.'

In 2007, Zong and Wahaha were in the spotlight over their battle against French food giant Group Danone, then a stake owner in their joint ventures, over control of the Wahaha brand.

The legal fight, which made headlines globally, ended in 2009 with Danone agreeing to sell its 51 per cent stake in the joint ventures to Wahaha for an undisclosed sum.

'It was a big lesson,' Zong said. 'But we will keep an open mind on working with foreign partners and bear in mind that the relationship must be on the basis of equality and mutual benefit.'

Under Zong, Wahaha has grown into the third-largest beverage maker in the country. It sold 55 billion yuan (HK$65.8 billion) in mineral water, soft drinks and canned and packaged foods last year and earned 6.7 billion yuan in net profit.

In a crowded Beijing market, ZhuangHua, a mother of two children, said Wahaha Nutri-Express, a milk drink, is always on her shopping list.

'My kids love its taste and they drink it almost everyday,' said the 35-year-old housewife. 'I remember when I was a child, my parents often bought me a tasty drink by Wahaha. It always has something nice for kids.'

Despite being one of the wealthiest men in the country, Zong said he leads a simple life.

'I am really not good at enjoying life,' he said. 'Everyday, I arrive in my office at 7am and leave at 11pm. I have my lunch and dinner in the canteen and seldom go out for social engagements. My biggest spending is on cigarettes and tea. They are helpful to ease the pressure of work. Yet they are both cheap.' Zong said he smokes two packs of cigarettes daily at a cost of 12 yuan per pack.

His attitude towards money is reflected by his company. Wahaha has never borrowed from banks and relies on its own capital to support growth. By the end of last year, the company held 13 billion yuan in deposits.

Instead of giving to charity, Zong said he prefers to help the poor by building factories in remote and underdeveloped areas. Education is another focus. The company often organises volunteers to go to rural areas to conduct classes for local children.

'Providing job opportunities for poor people and helping them get financial independence - this is the true sense of charity,' he said. 'It's easier but also useless to give a million dollars to a lazy person who may use it up overnight.'

Yang Sheng, an administrative employee at Wahaha, recalled that just before Lunar New Year last year, Zong travelled to eight of the company's factories to give lai see to workers there. The company has also built several apartment buildings for its workers and offered an average pay rise of more than 10 per cent annually in recent years, he said.

Wahaha accounts for about 20 per cent of the bottled water market in China, second only to Taiwan-based Tingyi (Cayman Islands) Holding, whose brands include Master Kang, and Uni-President China Holdings.

But Zong said he has no intention of becoming No 1. 'The profit margins [in this industry] have become thinner and thinner,' he said. 'A bottle of mineral water is only around one yuan. You'll lose money fast if you're not careful about controlling costs.'

To raise the margins, Wahaha has improved its product mix and put more resources into the production and advertising of higher-priced milk drinks.

However, last year was still a difficult one for the drink maker. Despite a sharp 27 per cent gain in sales revenue, Wahaha recorded a fall of 23 per cent in net profit, mainly because of price increases for sugar, raw milk, packaging and labour. Expecting a high level of inflation this year, the company earlier lowered its profit target to seven billion yuan from up to 10 billion yuan for this year.

The veteran businessman said he feels it is the time to look for new growth opportunities. 'We need to diversify our business if we want to go faster,' he said.

Zong has identified retailing, mining and baby formula markets as possible targets. Wahaha first ventured into retailing in 2002 with a range of children's clothing, also named Wahaha. His daughter, Zong Fuli, is now in charge of the business.

The company said earlier it plans to open 100 supermarkets and shopping centres under the Wahaha name in second- to fourth-tier cities on the mainland over the next few years.

'If it goes smoothly, the retailing business will be bigger than our soft drink business,' Zong said. 'We may list it on the stock market when the opportunity is right.'

Meanwhile, he said he was also interested in buying copper and other rare metal mining projects in foreign countries.

With such a busy schedule, Zong has no plans to retire. 'I never stop looking, listening, studying and thinking,' he said. 'I will be very careful in making every business decision. But once I decide, I will act quickly.'