Drink king's new tonic: luxury on tap

Zong Qinghou believes his experience in selling soft drinks can be used in the luxury sector. Provided to China Daily

 

The British do it at Harrods in London, the French do it at Galeries Lafayette in Paris, and a billionaire has plans for Chinese to do it all over the country

Can this really be the man who had an early business venture selling something as simple as Popsicles, who went on to make a mint flogging soft drinks and who has a reputation for leading a life of austerity?

"It's Gregory from Italy, warm and light," says Zong Qinghou, beaming as he talks of the cashmere suit he has just donned after zipping off to an adjoining room during an interview with China Daily.

"It's only 4,000 yuan ($645; 485 euros)."

Yes, this really is Zong, the man who made his billions by soaking parched palates and who was named by the Hurun Rich List last year as China's richest person for the second time, with a personal fortune of $12.6 billion.

This day the chairman of Wahaha Group Co is here to sell something else: an idea. But as any salesman knows, before you sell something you must buy it, and Zong has been on a buying spree in Europe as he tries to make his idea become a reality.

The snazzy cashmere suit he has shown off bespeaks his apparent sudden interest in all things fashionable and all things luxurious. In fact, so taken is he with the subject that recently he even went through the rigors of a two-hour shoot for a fashion magazine.

Zong's grand idea is to recreate a Harrods of London or a Galeries Lafayette of Paris in China. WAOW Plaza (the name is based on Chinese characters), may not quite have the same ring, but Zong's aim is for it to become a chain of upmarket shopping centers for European and US luxury brands.

Zong, 67, wants to introduce more European brands for his project during his investment team's one-month stay in Europe.

But unlike the first-tier luxury brands, the brands to be sold at WAOW, while being well designed and popular, will be largely unknown by Chinese customers, Zong says. He also plans to sell some brands from the US.

Both it and Britain "are good at innovation and update their product lines quickly", he says.

The first shopping mall opened last month in Hangzhou, after a gestation of just four months.

The high cost of first-tier luxury brands are anathema to Zong, and his idea is to have a buying system in which products are imported direct from international companies to reduce prices.

"We need luxury goods that are affordable to younger generations. Chinese white-collar workers have grown smarter and smarter and question whether it is worth buying a 100,000-yuan bag."

A survey by Roland Berger Strategy Consultants in 2011 found that brand awareness is important for Chinese buyers of luxury goods, more so than design, quality and price. Many brands are rejected in China because they are unknown, rather than because they do suit potential customers. But the report said that in the future the question of "whether a brand suits me" would become more important for Chinese people when deciding whether to buy a luxury product.

The idea to start the retail business emerged last June, Zong says, when he discovered on an overseas trip that second-tier luxury products of good quality do not have to be so expensive if unnecessary distribution methods are cut. He and his investment team visited Italy, France and Spain during a 10-day trip.

Delighted local officials first directed him to some smaller-sized producers. Dissatisfied, Zong asked to meet bigger companies.

The Italian trade commission has managed to arrange a total of 600 talks for all his investment team members and gave them special access to exclusive exhibitions in cities such as Milan and Florence, says Antonino Laspina, the Italian Trade Commissioner in Beijing, coordinator of the ICE offices in China and attache for trade promotion at the Italian Embassy in Beijing.

"It is not easy to understand what kind of products are suitable for the Chinese market when you approach such big projects."

Eventually Zong brought back brands such as Castangia Dal and Anna, from Italy and Groc from Spain. His other deals included Italian wine and olive oil, but Zong believes that another buying trip this month is needed.

"We arrived during the wrong season. We missed the ordering season for the autumn and winter collections. So this month we are going to Europe to get the next season's collections."

Retail experts are worried that the Hangzhou center's simple layout, scarcity of visitors and the fact that Zong has moved out of his comfort zone, a field in which the returns are much faster, do not bode well.

"Nothing at an early stage is perfect," Zong says, in his low but firm voice. "But it will grow quickly."

He insists his experience in selling soft drinks will help in the luxury sector. In addition to cutting out unnecessary distribution channels, he says, the quick expansion of his shopping centers will push up profitability and benefit his suppliers abroad.

The group spent 1.7 billion yuan on the first phase. Zong says he expects to establish another five to 10 shopping malls this year and a total of 100 across the country in five years. The new shopping centers are designed to be comprehensive, with a theme of Western upmarket brands accompanied by retailers of children's products and entertainment centers, he says.

"We want to sell more at a lower profit than other luxury dealers. Once you open more shopping malls you develop bargaining leverage: prices will be lower and products become more competitive."

But doubts persist about how a man known only for making and selling soft drinks will fare as a broader retailer. In fact, the billionaire started making his fortune from retail.

In 1987 Zong, then 42, managed a mini-grocery store for a local school, along with three retired teachers.

"I once sold 100 Popsicles by knocking door to door only to get 4 yuan in return. Now I might make a loss at first but once I have more brands I will get more investment because I have a great reputation in China."

Zong's soft drinks empire, Hangzhou Wahaha Group Co, remains based in a gray, six-story building adjacent to the city's railway station despite the company's huge growth and the dramatic rise in his own income in just 25 years. He now oversees 170 subsidiaries and employs about 30,000 people.

At the moment, going abroad is all the rage among Chinese private billionaires, which means Zong is swimming against the flow.

"If you go abroad and sell, you merely aggregate competition," he says. "They won't like you. If I buy from abroad, they will like and support me."

Italian companies are happy with the opening of the first physical department store in Hangzhou and with the way Zong is going about investing in Italian products, says Laspina of ICE.

Because Zong and his team went to Italy, Wahaha are capable of discerning what is suitable for the market, he says.

At the same time, Italian companies have begun to appreciate that the Chinese market is changing and is becoming similar to more developed markets, he says.

Laspina says he is impressed with Zong's hands-on approach. "For such an important businessman, he is directly involved in the selection and meetings."

It is not the first time Zong Qinghou has collaborated with international businesses.

In 1996 Wahaha signed a joint-venture agreement with the French food products multinational Groupe Danone. That partnership turned sour, and Wahaha triumphed in a series of lawsuits with Danone over control of the Wahaha name. Danone and Wahaha reached a settlement and went their separate ways.

For years the beverage tycoon's success has come from his intuition and ability to think ahead, saysYang Shuyin, secretary general of Zhejiang Provincial Consultant Committee, a think tank for the development of the province's economy.

"For Wahaha, one step ahead means innovation and breakthrough."

Zong's first crock of gold came from special nutritional milk for children, developed with a professor. It became an instant success.

When running water supplies were still unknown in many households across the country, he decided to sell bottled pure water.

"People thought I was crazy. Now even construction workers and farmers can afford our bottled water."

He says that he believes now is a good time to enter retail.

"When others are not in great shape and we have the money, we can get in before them. When they are already there, your chances are gone."

wangzhuoqiong@chinadaily.com.cn