Zong Qinghou, the chairman of Chinese beverage industry leader Hangzhou Wahaha Group, may have ranked no. 1 on our latest Forbes China Rich List, but he can hardly rest on his laurels even after ending a bitter dispute with Danone last year over control of joint ventures in China. Wahaha is increasingly being challenged by multinationals like Pepsi, Nestle and Coke that are downplaying their national origin and developing drinks targeted at Chinese consumers.

To find out more, we exchanged this week by email with Matthew Crabbe, a director at market research firm Asia Access. Crabbe is co-author of the new book, “Fat China: How Expanding Waistlines Are Changing A Nation.” Excerpts follow.

Q. To what extent would you say Wahaha’s dispute with Danone has had a lasting impact on the company’s domestic costumers?

A. That is difficult to say, as the domestic consumers will doubtless publicly show support for their “cherished” local brand. However, what they say and what they do is often at divergence. Shoppers are hard-nosed when it comes to the till, and nationalist sentiment tends to go out of the basket when faced with cost comparison and product quality comparison. We sense that Wahaha has not kept its eye on the ball with the key retail chains. It is the retail chains that are taking control of the domestic market, holding as they do the means of distribution, and Wahaha needs to get its profile raised with the retailers, including more promotions.

Q. What are Wahaha’s strengths in the marketpace vis-a-vis rivals such as Pepsi, Coke and Nestle? Weaknesses?

A. The local home-turf advantage that Wahaha had has been greatly eroded. The NesCoPeps of this world have rebranded and retooled to look ever more “Chinese.” The NesCoPep brands have shrunk in deference to the new China brands, and it is harder for Chinese consumers to tell foreign apart from domestic. That blurry distinction takes away from the likes of Wahaha and gives to the likes of NesCoPep, et al.
Q. In general, what’s the growth outlook for the beverage market in China for the next two-three years? What companies will gain the most growth and why?

A. Overall growth is nothing to shout home about, as the carbonated soda drink (CSD) sector will continue to trundle along the ground. Growth sectors remain the fruit juices and fruit blend drinks, particularly the pulp drinks of late, and anything with tea in it. That will continue, with a gradual overall growth, but an internal switch of value from CSDs to fruit and tea drinks. It is through these new drink sectors that the likes of NesCoPep have been able to rebrand themselves away from their iconic brands towards their Chinese brands, and that all important more nebulous national identity. Keep an eye on smaller, niche product brands that have the ability to rise very quickly on the back of strong fashion trends. Some of the Taiwanese and Japanese brands have the potential to rise phoenix-like.