Wahaha Group to boost shopping center business

Hangzhou Wahaha Group, China's largest beverage group by sales, will continue to develop new shopping malls across the nation despite the current losses from its first.

"We're strongly confident in the domestic retail market, and we expect the revenue from our retail business to exceed that of our beverage business by 2015," Zong Qinghou, the founder and chairman of the company, said at a news conference held at the Beijing Grand Hyatt Hotel on Wednesday.

Last year, the group's revenue was 63.6 billion yuan ($10.4 billion), and Zong topped the Hurun Rich List in 2012 with a personal fortune estimated at $12.6 billion.

Attracted by the huge potential of the domestic retail market, the beverage giant entered the sector by opening a luxury shopping mall, called WAOW Plaza, in Hangzhou in November with an initial investment of 1.7 billion yuan.

The group plans to open 100 WAOW Plazas nationwide in the next three to five years, according to Zong. The plazas will form a chain of high-end shopping malls hosting European and American luxury brands.

So far, the first WAOW Plaza has been running at a loss, yet the losses are temporary and will be reversed soon, Zong said.

"The losses are normal because we have just one mall, which was opened not long ago," said Zong. "As we open more malls, we'll have more bargaining power when it comes to purchasing orders. Our prices will be lower and products will become more competitive, which will attract more visitors."

He emphasized that in the next three to five years, the group will build shopping malls in cities at all levels based on the concept of building malls wherever there are good opportunities. The new shopping malls will be comprehensive facilities mainly with Western high-end brands.

"There's an increasing demand from Chinese customers for international boutique brands. We will introduce more foreign boutique brands to the Chinese market," said Zong.

So far the company has deals with about 100 boutique brands from France, Italy, Spain, the United Kingdom, Germany and other nations, and by the end of the year, the number will increase to about 300, Zong said.

He added the group will hold an exhibition in Hangzhou's WAOW Plaza from July 25 to 28, where franchisees will be invited to view samples and place orders.

Despite Zong's confidence, analysts pointed out the company has a very aggressive plan given the current business climate.

James Roy, a senior analyst with China Market Research Group based in Shanghai, said China's retail market growth has been slowing down.

"Over the past few years, the retail sales growth rate has slowed from the range of 16 to 18 percent to the range of 12 to 14 percent," Roy said. Wahaha is not the only player in the luxury malls industry and faces competition from others, he added.

"There are many companies with more experience developing luxury malls. They are opening new properties as well, but are being more cautious in their roll-out plans," Roy said.

Zong said that when it comes to the retail industry, the Wahaha Group has many advantages, including strong support from abroad and rich business resources from its beverage business.

According to Zong, the group has won support from many foreign governmental and non-governmental organizations, including the Spanish Ministry of Agriculture and UK Trade and Investment.

"Some US retailers have also expressed their wishes to cooperate with us," said Zong. "Meanwhile, we are preparing to discuss cooperation opportunities with Raffles from Singapore and Allanzia from the UK."

He said that Wahaha's strength in the beverage industry can also help to stimulate the development of its retail business.

According to Zong, Wahaha has more than 70 production bases all over the nation, which can provide delivery services. The group also has about 10,000 distributors and more than 10,000 sales employees across the nation, which can facilitate the information flow, and help to monitor and maintain orders for the group's retail business more conveniently.

Zong also said that Wahaha's rich capital reserves will support the retail business.

"Expansion in the retail industry requires heavy investment. Our group doesn't have any bank loans so far and we have rich cash reserves, as much as about 10 billion yuan, which is a great advantage for us to expand our retail business," said Zong.

"The current sluggish market offers good opportunities for us to tap the retail market, because others are not in such a great shape and we have enough money. We have the opportunity to run ahead of them," said Zong.