Summary of Key Points
Wangwang has failed to adapt to the trends in healthy consumption and changes in distribution channels due to its reliance on a traditional combination of "Wangzai Milk + Snow Crisp + Xianbei" for thirty years. As a result, its profits plummeted by 38% in the first quarter of the 2026 fiscal year, while revenue only decreased by 6%. Its market value has shrunk from a peak of HK$170 billion to HK$40 billion. Although founder Cai Yanming foresaw the crisis a few years ago, he took no action until profits were halved, at which point he admitted to being complacent and lazy. The root of the problem lies in the inertia accumulated during times of success, which led to systemic failures in cost control, expense management, and channel strategy. The organization has become outdated and unable to hear honest feedback. In contrast to Master Kong's proactive transformation and growth in adversity, Wangwang’s lesson is clear: don’t wait until profits collapse to think about innovation; instead, initiate a "second growth curve" while the business is still thriving.
Direct Reasons for the 38% Profit Drop
The sharp decline in Wangwang’s profits is not due to a lack of sales but rather an inability to generate sufficient revenue, driven by three factors:
1. Rising raw material costs: Increased prices for imported milk powder and palm oil have eroded product profitability.
2. Waste of expenses: Over HK$7 billion was spent in the past year on new product development and organizational reforms (with distribution and administrative costs rising by 14.2%). Despite hiring over 1,000 new employees, no meaningful new products were launched, resulting in wasted funds.
3. Critical channel failures: Traditional wholesale channels experienced double-digit declines, while new snack vending channels, although accounting for 10% to 15% of sales, require extremely competitive pricing. Wangwang was forced to sell products at low margins to maintain sales volume. This led to a situation where losing high-margin orders from old channels was offset by gaining fewer, lower-margin orders from new channels, effectively draining profits.
This is not a single issue but a systemic failure involving cost, expense, and channel management.
Thirty Years of Success Become a "Sweet Burden"
What once was Wangwang’s strength—its "sweet" products (such as Wangzai Milk and Snow Crisp)—has now become a liability:
- The post-80s and post-90s generations, who grew up on Wangwang’s products, now restrict their children from consuming too much sugar.
- The ingredient list of Wangzai Milk has remained largely unchanged, causing it to shift from being a source of pleasure to a burden for consumers.
- The greater the dependence on a highly profitable product (like Wangzai Milk, with annual sales in the tens of billions), the harder it is to make changes.
This phenomenon is known as a "core capability debt"—something that was once a strength becomes a constraint.
Organizational Aging
Cai Yanming recognized the crisis years ago, so why didn’t anyone take action? The problem lies within the organization:
- Boss-centered culture: Employees learned to "manage the boss," avoiding issues and only speaking what the boss wanted to hear, preventing any suggestions for change.
- Information silos: New products (such as coffee and energy drinks) were developed but not communicated to the channels. Some stores even still only carried a few old Wangwang products.
- Lack of talent renewal: The core team consists of older individuals, with no new generation contributing to product development and marketing strategies. Two signs of an aging organization: employee social media posts focusing on internal affairs rather than consumer perspectives, and products and logos remaining unchanged for thirty years, indicating a lack of investment in the younger generation.
Why Master Kong Is Growing Despite Adversity
Despite being a traditional company, Master Kong’s net profit increased by 7.1% in the first half of 2026. The key to its success is its commitment to change:
1. Return to the entrepreneurial spirit: Master Kong embraced the "Back to Day1" initiative, encouraging honesty and swift action.
2. Proactive product development: It rebranded its best-selling products (such as Ice Black Tea) with sugar-free, low-sugar, and high-fiber options, and introduced new products like Energy Ice Black Tea and Tomato Egg Beef Noodles.
3. Flexible organization: It is willing to adjust its team to implement new ideas.
In contrast, Wangwang’s efforts at reform (such as creating a sugar-free version of Wangzai Milk) were only prompted by external pressure, and its transformation is still in the planning stage. Master Kong has already taken action, while Wangwang is still hesitating.
A Warning for All Business Owners
Wangwang’s story serves as a reminder for all entrepreneurs:
1. Identify core capability debts: Regularly ask yourself if your most profitable products are becoming a burden.
2. Be cautious of complacent customers: Those customers who make your business easy may be leading you towards failure.
3. Initiate a second growth curve early: Start changing before your business starts to decline.
4. Three key points for change: Foster a sense of crisis within the company culture, embrace new talent, and adapt products to consumer needs (not just based on data but on what consumers really want).
Wangwang’s story is not over, but its lessons are clear: waiting until profits plummet is too late. Don’t wait until your "Wangzai Milk" fails before seeking new paths forward.