Sparkling partnership turns still

French company Groupe Danone and Chinese beverage producer Wahaha were preparing court cases in mid-June as what had been a resoundingly successful bottled water joint venture publicly collapsed.

On June 18, Hangzhou-based Wahaha was readying to challenge Danone over the use of the brand name Wahaha, saying arbitrators had accepted its application.

Danone had already filed for arbitration in Sweden and launched a US$100 million lawsuit in the US targeting members of Wahaha founder Zong Qinghou’s family.

The Wahaha-Danone joint venture – or, strictly speaking, 39 joint ventures in which the French firm has a 51% stake – has built up a 23% market share of the bottled water market.

But relations turned sour when Danone claimed that Zong was operating a parallel drinks manufacturing and distribution business that was beyond the strictures of the joint venture agreement.

Zong quit in disgust a few days later, saying Danone had “humiliated” and “framed” him, while invoking nationalistic rhetoric. At a June 13 press conference, he denounced his former partners, adding the veiled threat: Give in or the workers walk out. Although, the minority holder in the venture, Zong has always run operations.

Danone is not innocent in this debacle. It had investments in competing beverage companies all along, although Zong was given assurances of full corporate support.

Speaking to the Wall Street Journal on June 15, Danone spokesman Laurent Sacchi defended the firm’s joint venture strategy.

“If we now have 30% of our sales in emerging markets and we built this in only 10 years, it’s thanks to this specific tactic. We have problems with Wahaha. But we prefer to have problems with Wahaha now to not having had Wahaha at all for the last 10 years.”