Wahaha Enters Chinese Liquor Sector, Higher Risk than Opportunity

By CnAgri2014-02-11 09:42:07 Print

After failing in the Chinese liquor sector in 2002 and 2004, Wahaha again invested 15 billion yuan to enter the Chinese Liquor Industrial Park in Huairen City, for continuation of its diversification strategy.

Although this is not the first time for Wahaha to enter the sector, yet Chinese liquor is a brand new field for the company. It is unknown whether Wahaha shall make a success by cloning its operational methods in the soft drinks sector while there is lacking of expertise and operational experience in the liquor sector. On the other hand, the current situation of the Chinese liquor sector is very poor, only 4 out of the 15 listed companies in the sector saw over 10% year on year growth of revenue in the first half of the year, the remaining 12 saw a single-digit growth only. To enter the Chinese liquor sector during this period is risky for Wahaha. Also, consumers accord importance to brand and brand culture, whereas Wahaha has marketing experience and brands mostly in the soft drinks sector. Whether consumers will accept the liquor brand of Wahaha is to be tested by the market.

While the Chinese liquor sector is in sluggishness, Wahaha can reduce cost in this cross-sector investment. However low cost is not a sufficient reason for cross-sector investment. The investment strategy of a company should be based on measurement of the risks and benefits, hence the diversified strategic investment based on low cost would enlarge the operational cost risks for Wahaha.

From “China Soft Drink Market Monthly Report”