» Biz Commentary
When red is go, green is stopped
A recent conversation sparked my interest in the battle between Guangzhou Pharmaceutical Group and Hung To (Holdings) Co over the brand name Wong Lo Kat.
At a casual gathering of friends, the talk turned to the identity of the beverage as soon as the red can of herbal tea was placed on the table.
"This is authentic Wong Lo Kat," one friend claimed. "It is produced by the Hong Kong company."
Alas! I wondered how my friend defined authenticity because there was not a word about Wong Lo Kat on the container in front of us. Rather, there were only big yellow characters spelling out the name Jia Duo Bao.
In May, the China International Economic and Trade Arbitration Commission ruled that Hung To should cease use of the Wong Lo Kat brand and Guangzhou Pharma could assume all rights to the trademark.
The love-hate relationship between the two companies began in 1995, when state-owned Guangzhou Pharma sold the rights of producing red-can Wong Lo Kat to Hong Kong-based Hung To. The mainland company continued to make and market a green-pack version under the brand Wong Lo Kat. In 1997, both sides inked an agreement stating that JDB Group, a subsidiary of Hung To, could use the brand Wong Lo Kat.
Back then, Wong Lo Kat was just a regional brand, little known outside Guangdong Province. But in its home territory, the brand was awesome, boasting a legendary origin stretching back nearly 170 years and synonymous with herbal tea in southern China.
Through the efforts of JDB, Wong Lo Kat became a national brand.
Seizing a niche market for the traditional herbal drink, JDB has successfully repositioned Wong Lo Kat herbal tea into a popular drink that claimed to quench "inner fire" in the early 2000s.
The two companies extended their agreement in 2000, allowing Hung To to continue using the brand until 2010. In a subsequent contract signed in 2002, that date was extended to 2020.
The core of the recent legal row focused on whether or not the second contract was valid because it had been signed by a Guangzhou Pharma executive later arrested for corruption.
Although the arbitration ruling in May went in favor of Guangzhou Pharma, the case has produced some interesting repercussions.
Nobody denies that JDB was highly successful in expanding the brand. With its strong sales network and smart marketing strategies, Wong Lo Kat has become popular.
In 2009, red-can Wong Lo Kat even surpassed Coca-Cola as China's best-selling beverage, with annual sales of 16 billion yuan (US$2.54 billion).
Jessica Li, an analyst with China International Capital Corp, said earlier that significant hurdles lie ahead for Guangzhou Pharma if it expects to reap the kind of sales windfall that JDB enjoyed.
"Guangzhou Pharma does not have a strong marketing background," Li said. "It may have the exclusive rights to use the red-can Wong Lo Kat brand, but it lacks the marketing savvy to maintain the market share of JDB-marketed Wong Lo Kat."
Her prediction is proving spot on.
Since May, Guangzhou Pharma has done little to promote the product outside of a press conference on the Great Wall in Beijing to declare the rebirth of red-can Wong Lo Kat under its auspices. The contrived event did not make a big stir.
Marketing the brand now seems confined to scattered posters outside small shops, even during the summer peak season for such a beverage.
For its part, JDB has simply switched its energies to marketing essentially the same product, sold in a red can under the name Jia Duo Bao.
The marketing effort has been aggressive. JDB sponsored a popular national singing contest, with high viewership, on television and websites. Its advertisements were targeted.
In Shanghai, it sponsored a front-page column related to the Olympic Games in a local newspaper, and it launched a commercial on the national television network whenever Chinese athletes competed in an event.
With people glued to Olympics coverage in the past two weeks, Jia Duo Bao seemed to be omnipresent, reminding people at every turn of its identity despite the new name.
JDB was equally active at the retail level. I found red-can Jia Duo Bao herbal tea alongside Coca-Cola in a prominent display in the convenience shop in our office building. There was no sign of red-can Wong Lo Kat produced by Guangzhou Pharma. The same was true in a bigger supermarket near my home in Yangpu District in Shanghai.
Anecdotal evidence seems to suggest that Jia Duo Bao is outperforming its rival, though exact revenues are not available.
I used to believe in the power of brand names. I used to think that time-honored brands would automatically enjoy a special place in the market.
But the competition between the two companies shows that a name is nothing without the support of strong marketing and distribution. JDB Group is marching ahead with a new brand name, while Wong Lo Kat is languishing amid a public perception that it is no longer the product consumers once loved.
Hung To may have been defeated in court, but it has won in the marketplace.
My social companions are now fans of Jia Duo Bao.
"What's the difference between the herbal tea produced by Guangzhou Pharma and JDB?" I asked curiously because I rarely drink these kinds of beverages myself. "Nothing...except that the Wong Lo Kat produced by Guangzhou Pharma tastes a little bit sweeter," said the friend. The others at the table nodded in agreement.