WAHAHA : Posing a Threat to CocaCola and Pepsi in China

Key factor for its success:

Distribution Network

Presented by:

Group 1

Soft drink industry in china

Soft drink industry is growing at the CAGR of 8.2% in terms of volume and CAGR of7.6%in terms of value The major players in the domain where coca-cola and pepsico, wahaha which was a Chinese player was the main challenger By the end of 2003 the market was of value$8.8 billion also annual output had increased from 261million lts in 1980 to 14.7 billion lts in 2003 Per capita consumption of soft drinks was only 42% of worlds average annual consumption The soft drinks in china was divided in five segments : Carbonates Bottled water Juices Energy and sports drinks New age beverages(bottled tea, milk, etc.)

 In 2003 industry was led by carbonates with 38.4% market share and bottled water was second with a share of 30.8% Together top ten producers including coca cola and PepsiCo accounted for 63% of total national output of china Coca-cola was the leader in carbonates with 42%share followed by PepsiCo, wahaha was leader among domestic producers The consumption of soft drinks in urban area was than rural areas, though population in rural areas was more than that of urban areas According to the survey the age group of the target customers for soft drinks ranged from 11 to 40 years Taste was a key factor for purchase The emphasis of the players in the market had changed from advertisement and brand building to retail and distribution which was considered as critical factors for gaining competitive advantage

Coca-cola
Coca-cola initially came into china in 1927 but due to communism was forced to leave, it reentered in 1979 in china By the end of 2002 it had 28 bottling plants in china with an investment of $1.1 billion Its share was 16% of Chinese soft drink market in 2001 Its out put in the year 2004 was 14% more than in year 2003 Coca-colas strategy think local, act local, but leverage global. It recruited Chinese people and introduced wide variety of drinks keeping local needs and tastes in mind Its market share was 10% in 2004, it used Chinese cultural icons to get closer to Chinese consumer It used local film stars and sports events for advertisement and brand endorsement

PepsiCo
PepsiCo entered china in 1981 by establishing joint venture bottling plant in china By 2002 it had 14 bottling plants and invested $500 million in china PepsiCo was the second largest in Chinese markets with output of 1066ton lts in 2001 PepsiCo introduced local brands in Chinese market to get closer to the people Many of its drinks gained popularity in both carbonated and non carbonated segments

Distribution Channel of WAHAHA

Manufacturing Plant

Distributors

Retailers

Present Distribution Network Analysis

2- level Distribution Channel.
Distributor and retailer

Classification of Distributors
First grade ( Big dealers) > 1500 nos Second Grade ( Operating at smaller levels) >12000 nos

Distributors : Responsible for carrying inventory, providing funds & delivering to retailers.

Follows Mao Zedongs strategy of surrounding cities from countryside. WAHAHA strategy was to penetrate the 2nd tier cities and the rural markets. (Rural population constituted almost 60% of total population). Early mover advantage in rural areas. Entry into retailing in rural market because of low land prices. Less focus for penetrating in to URBAN market.

SWOT Analysis --- WAHAHA

Strengths
Patriotic Brand Intense Distributor Network Motivated Distributors Good Marketing Intelligence, Unique retail & sales strategy Diversified product portfolio Acquired advanced technology .

Weaknesses Less share in urban market

Less Cash Pool

Opportunities
Global market Huge untapped urban market Developing demand for new age beverages. Opportunity to Increase revenues from rural market.

Threats
Increasing competition from MNCs. - Increasing investment by Pepsi in R&D. - Coke Planning to inc. investment. Low Affordability of Rural population

Ques. 1: Would WAHAHA emerge as the market leader in the Chinese soft drink industry.

NO, because

Company Coca-Cola PepsiCo WAHAHA

Market Share 42% 23% 14% ( mainly from rural market) 21%

Others

Though WAHAHA is penetrating best in to rural areas, but the consumption

level of cold drinks is very low in rural markets because of low disposable income. And the company has very less presence in Urban Areas. With Selective Distribution, Coke & Pepsi have acquired more than 65% market share. These MNCs are now planning to penetrate in to the rural markets also with their aggressive expansion plans, huge investments in advertisements, accessibility and R&D. -- Coca Cola started with targeting cities with high population.(> 1 billion) -- Now is moving towards smaller cities with lower population( 0.5 million or so). To achieve this, the company has planned to open 34 new manufacturing facilities and 600 new sales centres. -- Pepsi is planning for product extension by making heavy R&D investments.

Ques2. What should WAHAHA do in order to increase its market share.

The company should introduce beverages in small packing(200ml), to increase the sales in rural areas(Coca Cola introduced Chota Coke- Rs.6/-). The company should try to increase its market share in Urban areas also, which can contribute more to the sales revenue. Since WAHAHA understands Chinese taste better and also the urban population is more concerned about the nutritious value of the drink rather than the brand. So, the company can diversify its products as per the demands. Company can tie-up with Fast Food Chains like Burger King or any other famous food chain in China to increase its presence( e.g.; coke & Dominos).

Thank You