Chapter 271: The Beverage and Cosmetics Industry
"Beverages are one of Swire Group's core businesses. Going up against a giant like that—I'm not confident I'd win," Yang Wendong said with a light smile.
In his previous life, Swire, one of the four great foreign trading houses, was perhaps the most low-key of the large British conglomerates, but its comprehensive strength wasn't much less than Jardine Matheson. Its business spanned beverages, sugar, maritime shipping, aviation, ports, and trade, among others...
But Jardine's investment arm, Hongkong Land, completely dominated during the Hong Kong property boom of the '70s and '80s, overshadowing all their other businesses.
Sanders chuckled. "Each has its own market. When it comes to beverages, the variety is endless. Even Coca-Cola can only dominate the carbonated drink segment in the West—there are plenty of other successful brands out there.
Mr. Yang, opportunities like this don't come often. If you're interested, I can serve as a middleman. The price will be absolutely fair."
Yang Wendong considered for a moment, then asked, "Then may I first review Watsons' financial and market data?"
If this were a hostile takeover in the stock market, he'd need to prepare in advance. He'd have to research independently, and if the data was off and he lost money after the acquisition, he'd have no one else to blame.
But this was a friendly acquisition, and in such cases, the acquiring party had the right to examine the target company's records before committing.
"Of course. That's only reasonable," Sanders nodded. "But we'll need to sign a legal agreement.
If you review the data and decide not to buy, you must keep all information confidential. And their side will guarantee the data provided is accurate. If either party breaches the agreement, there will be legal consequences."
"No problem," Yang nodded.
This was standard procedure before any acquisition—meant to protect both sides. In more complex cases, or when it involved cross-border mergers, a deposit was even required. If one side breached the deal, they'd lose that money along with facing legal repercussions.
"Alright, I'll have the agreement drawn up," Sanders said after thinking for a moment. "How about we arrange a meeting in two days' time?"
"Two days? That soon?" Yang looked surprised.
Such speed suggested that Watsons' situation was quite dire.
Sanders explained, "The main reason is that Watsons' major shareholder has flown in from the UK to handle this matter personally. It's better to move quickly while they're still here."
"Alright, I have no objection," Yang replied with a nod.
Sooner or later didn't make much of a difference to him...
...
After Sanders left, Bai Yushan—who had remained silent throughout—finally spoke freely.
"Dong-ge, I've looked into Watsons a bit myself. Their business has been bleeding money.
Especially since Coca-Cola entered the Hong Kong market, their soda business has tanked. The only thing still turning a profit is their distilled water line, mostly thanks to industrial clients."
Yang raised an eyebrow. "You researched Watsons?"
Bai Yushan shook her head. "Remember when you told my dad to invest in street-facing commercial properties? He nearly bought a Watsons pharmacy. So I did some digging into their operations before that."
"I see." Yang nodded. "If they're even thinking of selling off their storefronts, their pharmaceutical business must be in bad shape."
"Exactly," she said. "Nowadays, more hospitals are opening, and with the economy improving, most people go to a hospital for treatment and get their prescriptions filled there. Watsons' in-store doctors and medicine offerings just aren't competitive anymore."
"The times have changed," Yang nodded again, then asked, "Watsons also does cosmetics retail, right?"
Watsons had once been one of Hong Kong's largest chain pharmacies, but in this era, it was clearly declining.
Pharmacies would never disappear, but they'd likely shrink in scale—especially since Watsons had too many stores from earlier times. As the market shrank, they naturally suffered.
"Right, but even their cosmetics sales aren't doing well," she said. "I didn't go too deep into why, though."
Yang thought it over and said, "Maybe the issue is that they're trying to sell pharmaceuticals and cosmetics in the same store—that business model might be fundamentally flawed."
"Could be," Bai Yushan agreed. "And as for beverages—they just can't compete with Coca-Cola or Swire's own brands.
Swire is massive, and they even produce their own sugar. How could Watsons hope to match that?"
"Haha, that's the power of vertical integration," Yang laughed.
Some big capitalists weren't fools. They pursued full control of the production chain to cut costs and dominate their markets. Swire was a good example of that.
Unlike Jardine Matheson, which blindly threw money into overseas ventures—gold mines, iron mines, farms, ranches, sugarcane plantations—without any coherent strategy. If not for its early foothold in Hong Kong and deep foundations, it probably would've gone bankrupt already.
Bai Yushan then asked, "If you know all this, are you really still planning to acquire Watsons?"
Yang replied, "Watsons does have powerful competitors, but the company itself still has a solid foundation—plenty of talent, established logistics, and existing retail channels.
The market might be shrinking, but the infrastructure is there. With a proper new direction and a little capital injection, it's not that hard to revive. The real challenge would be trying to beat Swire—that would be tough.
But there's no need to aim that high for now. The first priority is simply survival."
In business, it was important to have ambition. But unless you were launching a brand-new product or entering a completely untapped market, it was almost impossible to take down an industry leader in a short time. Setting such a goal was often unrealistic.
For now, the beverage business at Watsons just needed to stay afloat. Later, when China opened up, there would be huge opportunities to become one of the first players in the domestic soda market—that could lead to big success.
"You're right," Bai Yushan nodded. "I always assumed that if you took on a business, it'd be to take it all the way to the top."
"That's the long-term goal. But the short-term strategy has to be grounded in reality," Yang said with a grin.
"Mhm~"
Yang added, "Let's head back. I want someone on my team to dig deeper into Watsons' history and numbers."
Even though Watsons would submit their own documentation, legal agreements only prohibited them from submitting false or misleading materials or withholding major information.
But in practice, there were still plenty of ways to sidestep those clauses—so it was always best to verify independently.
So even in the case of a friendly acquisition, the data provided by the other party was important, but Yang's team still had to conduct their own investigation thoroughly.
Suddenly, Bai Yushan spoke up, "Should we go take a look at one of the Watsons stores?"
"Sure," Yang Wendong nodded.
Since arriving in Hong Kong, Yang had only been sick once, right at the beginning. After that, he'd never visited a pharmacy himself—except for that one time when his son was born, and they went to the hospital.
As for drugstores, he'd never personally stepped into one. On the rare occasions when medicine was needed, he just sent someone from his staff.
The two of them soon arrived at a Watsons branch in Central.
As soon as they walked in, a female staff member approached and asked, "Are you here for medicine or cosmetics?"
"We're just browsing," Yang replied with a faint smile.
He then walked around the store with Bai Yushan—and just as he suspected, cosmetics and medicine were all mixed together.
This kind of business model might be tolerable for someone buying medicine, but for a customer looking to purchase cosmetics, it could easily feel off-putting.
And what was even more absurd was that the store also sold all kinds of daily necessities and even food—essentially turning the place into a general convenience store.
Just then, the same female salesperson returned and said, "We've invited Hong Kong's famous traditional Chinese medicine doctor, Dr. Lin, today. Would the two of you like to get your pulses checked?"
"Pulse diagnosis? Sure," Yang replied, intrigued.
He had always been interested in traditional Chinese medicine. In his past life, he once injured his meniscus due to long-term physical training. He went to the local No. 1 People's Hospital and got a prescription of Western meds, but after a month, they didn't help at all.
Later, he tried visiting a traditional Chinese medicine clinic, thinking that perhaps acupuncture might relieve the pain. But instead, the doctor gave him a week's worth of herbal medicine. After just three days of taking it, he was healed.
"Please, right this way," the staff member said, pointing them toward the consultation area.
Yang and Bai Yushan followed. The place was quiet, and there wasn't a line. Yang extended his wrist for the elderly doctor to feel his pulse.
"Very strong yang energy—you're young and in excellent health," the doctor said after checking his pulse for about half a minute.
"Impressive," Yang smiled. His yang energy really was quite robust.
Bai Yushan also got her pulse taken and was told she wasn't sleeping well and lacked physical activity. She was amazed at the accuracy.
As they walked out, she was still muttering, "How did that old man know all that?"
"That's the magic of Chinese medicine," Yang replied. "Too bad fewer and fewer people know how to practice it well."
"Is that because it doesn't have a systematic teaching method like Western medicine?" she asked.
"Smart girl," Yang nodded. "And as for this Watsons store—we've just seen the problem with our own eyes. No wonder they're losing money."
"Mhm~"
...
The next evening, Yang Wendong was at Changxing Plaza.
Around 7 PM, there was a knock at the door.
"Come in," Yang said.
Qin Zhiye, Wei Zetao, and Zheng Zhijie walked in together. After greeting him with a polite "Mr. Yang," they all sat down. Bai Yushan served everyone a cup of hot tea.
Yang started, "How's the research on Watsons coming along?"
Qin Zhiye replied, "Mr. Yang, I contacted a media professional who specializes in investigating Hong Kong's corporate landscape. According to him, Watsons suffered a loss of about 1.1 million Hong Kong dollars last year.
Their two core businesses—soda and pharmacy—are both in the red. Right now, they're surviving purely off past profits and by selling off some of their property assets."
"They still own that much property?" Yang chuckled.
A loss of over a million dollars in a single year was something most Hong Kong companies simply couldn't survive. Without deep foundations, many would fold in their first year of losses.
But British firms were an exception. Many of them had bought up property on Hong Kong Island decades ago—some even a century back. Those same properties were now worth millions.
Qin continued, "Quite a lot. At least three fairly large factories on Hong Kong Island for producing distilled water and soda, plus some storefronts and other properties.
The timeline's tight, so I haven't gotten the full data yet."
"No rush. I just needed a general idea for now," Yang nodded. Then he added, "I visited one of their stores the day before yesterday. It's more like a general store than a pharmacy. Do you know why?"
Qin replied, "From what I've heard, about ten years ago, their business started declining. To cut costs, they combined the pharmacy and cosmetics departments into one store.
Later, for the same reason, they started selling household goods and even food items.
But instead of improving things, business kept declining. By the time they realized they needed to pivot, it was too late. They couldn't change anymore, so they just kept losing money."
"Trying to earn every type of customer's money—what a pig-headed strategy," Yang said, exasperated.
Street-level businesses, whether large stores, small shops, or even street vendors, needed to have their own "lane"—that is, a clear direction for what they sold.
Food was food. Clothing was clothing. Toys were toys. It needed to be clearly segmented.
Even a general store was, at its core, focused on daily necessities.
That way, customers entering a store knew what they were there for.
But trying to sell everything to everyone just ended up turning people away. Customers go into a shop with a purpose and usually prefer specialty stores.
Even supermarkets that stocked tens of thousands of items still couldn't escape this basic logic.
Wei Zetao added, "Mr. Yang, Watsons' distilled water business is actually quite solid. Our company, Changxing Industrial, used to buy from them regularly.
It wasn't until our industrial park got its own water purification equipment that we stopped.
But most small factories in Hong Kong don't have that ability. So as long as they need distilled water, they buy it from Watsons. That market is still sizable."
"There must be a lot of competition in that sector though, right?" Yang asked.
"There is," Wei replied, "but distilled water isn't particularly technical.
Watsons just happened to be the first to do it, so they have the largest production capacity. Their stores are widespread, and their distribution network is integrated into daily operations—so they can deliver cheaply and efficiently.
That alone gives them a major edge. Others just can't compete on cost."
"That's actually a pretty effective form of monopoly," Yang Wendong said with a smile.
By leveraging early scale and customer base to reduce prices, external competitors really had little chance of getting in.
Wei Zetao continued, "But distilled water is really the only profitable business Watsons has left. Their soda division is doing terribly. Not only are they miles behind Swire Group, even Lee's United Soda performs far better."
"The soda business is complicated—let's not get into that for now," Yang replied, pausing before saying, "If the price is right, I'll acquire Watsons. In the meantime, think about how your respective departments can help Watsons post-acquisition."
Qin Zhiye said, "Promotion is my domain. Whether it's for sodas, cosmetics, or even pharmacies, I can handle it."
Zheng Zhijie added, "I'll take care of the real estate side. I still have plenty of street-facing commercial units available. And if needed, we can look into opening stores inside shopping malls too."
Wei Zetao thought for a moment and said, "There's not much Changxing Industrial can contribute, unless you authorize us to distribute sodas to our staff."
"No need for that. It'd be pointless," Yang said with a smile. "Any help is good, but ultimately, Watsons needs to be able to run itself properly. Let's wait until I meet with HSBC and Watsons tomorrow before making any moves."
The next day, Yang Wendong arrived at HSBC headquarters with three top executives from his headquarters office: one each from finance, legal, and accounting.
Sanders introduced in English, "Eric, this is Mr. Walter, the current director of Watsons. Mr. Walter, this is Eric Yang—arguably the most well-known Chinese entrepreneur in Hong Kong."
"Nice to meet you, Mr. Walter," Yang said in English as well.
Walter didn't speak Chinese, which partly explained how Watsons had ended up in such a mess—when the boss couldn't even speak the language of the local market, failure wasn't surprising.
"Pleasure to meet you, Eric," Walter said politely.
Sanders added, "Let's all sit down. Eric, Mr. Walter's team has brought the most recent data on Watsons. Your people can review it first."
"Thank you," Yang nodded and instructed his team to proceed.
What followed was an hour of document verification, as both sides' legal and financial staff cross-checked the materials. Meanwhile, Yang, Sanders, and Walter made small talk.
Yang had little to say to Walter about Watsons' core business. He wasn't expecting to learn anything from this typical second-generation elite who had clearly run the company into the ground. As long as the documents were accurate and there were no hidden traps, Yang was satisfied.
Whatever happened with Watsons next would be entirely under his control.
After over an hour, the due diligence team wrapped up the initial review.
Lan Jun, the legal lead, approached Yang and whispered, "Mr. Yang, we've asked about all the questionable data. Everything was answered, but we'll still need to cross-verify to make sure nothing's missing or misleading."
"Good work," Yang nodded.
Only after receiving preliminary materials could their team begin digging deeper, cross-referencing data, and possibly identifying conveniently 'omitted' issues.
Sanders asked, "Mr. Yang, what do you think?"
"I'll need time to verify all the documents before giving an answer," Yang replied.
Sanders took out an envelope and said, "Here is Mr. Walter's asking price."
Yang opened the envelope and saw a number with a six followed by six zeros.
"Mr. Yang, how does that figure look to you?" Sanders asked with a smile.
Yang replied, "Mr. Sanders, Watsons lost over a million Hong Kong dollars last year. Isn't this price a bit too high?"
"Yes, they've taken losses—but that's exactly why they're selling," Sanders said calmly. "However, Watsons still holds some very valuable properties. Based on market prices, their real estate alone is worth nearly 20 million Hong Kong dollars.
Even after deducting outstanding loans, you're still looking at around 10 million in asset value. If the company were well-managed, you couldn't buy it for even double this price."
Yang thought for a moment and said, "I'll give you my answer once I've confirmed the data."
"Of course," Sanders replied smoothly.
In the following days, Lan Jun and his team conducted a comprehensive audit based on the documents provided by Watsons.
One week later, Lan reported to Yang, "Mr. Yang, based on what Watsons disclosed, there are no major discrepancies. Their real estate and debt figures check out.
However, they did omit some key points—particularly regarding the soda business and the declining foot traffic in their retail locations. Especially on the real estate side, rental costs are expected to rise sharply in the coming years, which would worsen their losses."
"Technically, future trends like that don't have to be included in these reports," Yang said, shaking his head. "Everyone's smart enough to know how this game works. You only include projections if they support your pitch."
"Exactly," Lan agreed.
Yang said, "Alright, let's push the price down a bit more. Once we've done that, we can close the deal."
What Yang truly valued was Watsons' existing team and their distribution channels. Even if those weren't in great shape, it would still save him years of effort and energy compared to building everything from scratch.
As for their current performance—it was bad, no doubt about that. But that's exactly why he could buy them cheap.
Watsons' assets were still quite decent. They owned three factories on Hong Kong Island, all sitting on industrial-zoned land, with a total area approaching 100,000 square feet. Even if those factories shut down in the future, the land could be converted into commercial real estate, potentially worth billions by the 1980s.
Beyond the factories, Watsons also had over 100 stores on Hong Kong Island, with 46 of them fully owned—most in prime locations, thanks to early acquisitions back when land was cheap and plentiful. Many were now sitting in the heart of downtown.
Of course, most of these properties were currently mortgaged.
"Understood," Lan said. "I'll start negotiating with Mr. Walter tomorrow."
Yang nodded. "Also, inform HR—we need to start looking for talent in Hong Kong with experience in beverage marketing and cosmetics branding. After the acquisition, those will be our two primary areas of focus."
Beverages and cosmetics—these were trillion-dollar industries, and naturally deserved to be priorities. That was his main reason for acquiring Watsons. If it were just about the real estate, there were plenty of other ways to invest—he wouldn't need to buy a failing company to do that.
As for pharmaceuticals or traditional Chinese medicine, those were much more complicated. He was willing to support them, but it would be a long game with no short-term payoff.
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