The pot of Wangzai not being prosperous cannot be borne by sugar.

Zebra Consumer | Chen Xiaojing

Tsai Yan-ming, Chairman of China Wangwang, hopes for a "bull market" more than anyone else, but this may just be a dream.

In an internal letter widely circulated on the internet recently, Tsai Yan-ming bluntly stated that the significant drop in performance in the first quarter of fiscal year 2026 constitutes a "major operational crisis."

Market public opinion generally points to the high-sugar formula of Wangzai Milk as the culprit, simply attributing the pressure on performance to the wave of sugar-reduction consumption.

This blame clearly cannot be placed on sugar. In fact, the real crisis for Wangwang has long been buried; relying on its flagship products to earn easy money for years, with weak product innovation, aging channel systems, and low efficiency in marketing investment—these long-standing issues have never been effectively resolved.

Today, it is time for China Wangwang to wake up.

Sugar Takes the Blame

Perhaps Tsai Yan-ming did not expect that after an internal letter was leaked, related topics about China Wangwang (00151.HK) would land on trending searches several times.

The incident was triggered by the operating data for the first quarter of fiscal year 2026. On July 26, the company disclosed unaudited consolidated management accounts for the three months ended June 30 this year, showing a year-on-year decline in revenue of approximately 6%, and a sharp drop in net profit attributable to parents of about 38%. If the operating situation cannot be reversed, the overall performance for the first half of fiscal year 2026 will continue to face pressure.

In early August, Chairman Tsai Yan-ming released an internal letter, explicitly stating that Q1 operations failed to meet expectations and characterizing the current situation as a "major operational crisis."

It is quite rare in China's food and beverage industry for a chairman of a company with annual revenue exceeding 20 billion yuan to publicly expose such an operational crisis.

Netizens' feedback was simple and crude, yet highly consistent: "The product is too sweet." The biggest problem lies in the conflict between Wangzai Milk and the trends of controlling and reducing sugar intake.

One consumer gave an example: a can of 245ml classic tin-packaged Wangzai Milk has a sugar content almost equivalent to the World Health Organization's recommended daily intake for adults.

Launched in the mainland market in 1996, Wangzai Milk has gone through 30 years, with its core consumer base changing at least three generations over. The former main consumers, born in the 80s and 90s, no longer drink it. Those born in the 90s and 00s have become family consumption decision-makers, holding the discourse power to refuse excessive consumption of high-sugar beverages by the next generation.

The result brought about by this is that the growth curve of Wangzai Milk has significantly weakened: in fiscal year 2023, Wangzai Milk revenue showed high single-digit growth; in fiscal year 2024, it turned into low single-digit micro-growth; in fiscal year 2025, it slightly decreased by 0.3%, with a revenue scale of around 11 billion yuan.

Behind the loss of momentum in Wangzai Milk's growth is the gradual contraction of the milk-flavored beverage market.

With the accelerated improvement of China's dairy infrastructure, there is ample supply of UHT milk and refrigerated milk products. Reconstituted milk, a popular category from the 1990s, has long lost its rigid demand attribute.

The core driver behind Wangzai Milk's ability to maintain an annual revenue scale of tens of billions lies in marketing strategies acting as a safety net. For instance, capitalizing on festival gift-giving consumption in lower-tier markets, co-branded IP marketing, and nostalgia-driven consumption, but these efforts cannot hide the reality of continuously fading product growth momentum.

The Root Cause Lies Across the Board

Netizens complaining about the high-sugar formula of Wangzai Milk is merely the tip of the iceberg of the "major operational crisis" mentioned by Tsai Yan-ming. In the internal letter, he directly pointed out three major internal problems facing the enterprise: lagging innovation, aging channels, and inefficient expenses. These issues have already been fully exposed in the operating data for the first quarter of fiscal year 2026.

According to the announcement, starting from this fiscal year (April 1, 2026), the traditional wholesale channel, which accounts for more than half of the company's total revenue, has been negatively affected by the slowing pace of terminal sales. Distributors have encountered operational adjustments, creating pressure on the sales of some of the company's main products.

In detail, revenue from the traditional wholesale channel declined by double digits. Operating expenses increased due to business unit reforms and marketing investments growing at high single digits, along with rising raw material costs. Multiple factors jointly squeezed profits, causing a significant drop in performance.

The deep-rooted issues on the product side are even deeper. Currently, Wangzai Milk, Senbei (rice crackers), Snow Cake, and small steamed buns sold in the market were all created by Tsai Yan-ming and have been on the market for 30 years.

In fiscal year 2025, Wangzai Milk contributed 10 billion yuan in revenue; the snack food business covering Senbei and Snow Cake generated 5.915 billion yuan; and the rice cracker business including small steamed buns brought in 5.936 billion yuan, becoming the top three revenue pillars of the company.

Tsai Yan-ming frankly admitted that the company enjoys dividends by relying on these flagship products but "has failed to innovate and change."

In the past, Wangwang's approach to developing new products relied heavily on the Wangzai Super IP, assuming that binding this IP would drive sales. However, lacking deep analysis of food and beverage market trends, although many new products were launched, only a few became hits.

In fiscal year 2019, the company launched over a hundred new products at once, involving rice wine, lactic acid bacteria drinks, new-style fruit juices, etc., but most lacked independent and clear product positioning, resulting in very few breaking out into the mainstream, exposing shortcomings in product incubation capabilities.

Channel reform is urgent. E-commerce and emerging offline channels continue to divert users, while Wangwang's wholesale and offline KA channels continue to lose momentum. In fiscal year 2025, these two types of channels accounted for nearly 70% of total revenue but had experienced consecutive high single-digit declines for two fiscal years.

At this time, the snack discount store channel has gradually become an important source of incremental growth for the company. However, this channel pursues extreme cost-performance ratios, constantly compressing manufacturers' profit margins, becoming one of the factors contributing to the decline in comprehensive gross margin in fiscal year 2025.

To respond to market changes, the company began channel reform in the second half of fiscal year 2024, establishing business units according to product categories, optimizing channel resources, and implementing refined operations. This reform led to short-term cost increases, with sales expenses and administrative expenses increasing by 16.9% and 11.4% year-on-year respectively in fiscal year 2025.

As the consumer market enters a stock era, the probability of recreating a billion-yuan blockbuster product is slim. The era of earning easy money with just a few flagship products is gone forever. In the future, enterprises will compete on refined operations.

Currently, China Wangwang is implementing adjustment measures, sorting out and distinguishing products sold through different channels, providing distributors with higher-profit new products, and assisting in market expansion; optimizing distributor incentive policies to enhance sustainable growth momentum.

These adjustments also echo the more direct and pragmatic appeal made by Tsai Yan-ming in the internal letter—what is needed now are "Wangwang people who make contributions and achieve merits!"