Just now, according to a joint announcement by Tsingtao Brewery Group and Nestlé Group, Nestlé has officially agreed to a strategic cooperation with Tsingtao Brewery Group in mainland China. Tsingtao Brewery Group will purchase Nestlé's water business in mainland China. According to Tsingtao Brewery's official WeChat account, the transaction includes the ownership of local brands "Dashan" and "Yunnan Spring," as well as the equity of Nestlé's three companies in Shanghai, Tianjin, and Kunming. In addition, under a licensing agreement between the two parties, Tsingtao Brewery Group will produce and sell the "Nestlé Pure Life" brand in China. -01- Industry insiders believe that this move by Nestlé and Tsingtao Brewery will help Tsingtao Brewery Group further develop Nestlé's former "local" brands in China. Nestlé Group is a world-renowned food manufacturer and a global bottled water giant. Brands such as Nestlé Pure Life, Dashan, and Yunnan Spring are well known to Chinese consumers. Tsingtao Brewery is a beer company with global brand influence. According to its internal strategic plan, it is building a health segment focused on a product portfolio of "sparkling water + mineral water + healthy beverages" to promote the development of the healthy beverage industry. A review of Tsingtao Brewery's 2019 annual report shows that the company's revenue and profit were almost entirely generated from the production and sale of beer. Tsingtao Brewery stated that it will "fully utilize existing resources to extend into other alcoholic and beverage industries, achieve complementary advantages in brand, equipment, and products, maximize channel value, and continuously create new growth points." Currently, both Nestlé and Tsingtao Brewery stated that this strategic cooperation will achieve complementary advantages and resource sharing, with both parties committed to providing consumers with better products and services and offering new experiences for a better life. -02- In fact, earlier, New Distribution had exclusively learned that Nestlé would sell its water business in China to Tsingtao Brewery, and today it is officially confirmed. Nestlé's water operations in China include two major segments: imported water and locally produced water brands. The former includes high-end imported waters such as Perrier, San Pellegrino, and Acqua Panna; the latter corresponds to the three brands from Nestlé's factories in Shanghai, Tianjin, and Kunming: "Pure Life," "Huo Te Man," and "Yunnan Spring." Public data shows that in 2019, in China's bottled water market by sales volume, Nestlé's Yunnan Dashan held a market share of 1.3%, ranking 8th; Nestlé Pure Life held 0.4%, ranking 11th. The top-ranked Nongfu Spring had an 11.7% share, followed by C'estbon at 10.4%, Ganten at 5.5%, and Master Kong at 5.3%. In fact, Nestlé's water business not only lacks advantages in China, but its overall drinking water business has faced challenges for several consecutive years. According to Nestlé's 2019 financial report, its drinking water segment generated revenue of CHF 7.9 billion (approximately RMB 56.45 billion) last year, with organic growth of 0.2% and actual internal growth declining by 1.9%. At the same time, analysis of Nestlé's financial report shows that high-end waters such as San Pellegrino, Perrier, and Acqua Panna achieved growth of 8%-9%, while mass-market products declined. -03- In June this year, Nestlé officially announced a major new strategy to strengthen its focus on iconic international brands and leading premium mineral water brands, invest in differentiated health products, and explicitly stated that it might sell some drinking water businesses that do not align with its strategic direction. According to previous announcements, for imported brands such as Perrier and San Pellegrino, Nestlé Waters China positions them as "leaders in imported high-end packaged water, especially sparkling water," and will introduce more new products from imported water brands like Perrier and San Pellegrino to the Chinese market in the future. However, shortly after the new strategy was announced in June, Nestlé successively sold two drinking water businesses. At the end of June, Nestlé San Pellegrino announced that it had transferred its bottled water brand Nestlé Vera to a new company of PET bottle manufacturer Sicon, with the sale also including San Pellegrino's bottling plants in four regions of Italy. In early July, Nestlé Canada announced its intention to sell its Nestlé Pure Life bottled water business to Canadian family-owned company Ice River Springs, with the transaction expected to close in the third quarter of 2020. In terms of high-end layout, in early June this year, Nestlé's Italian high-end water brand Acqua Panna officially entered the Chinese market, launching products in various packaging specifications. In July, Nestlé also launched a lightly functional sparkling water beverage under the Pure Life brand, positioned as "high-end enhanced hydration." Nestlé CEO Mark Schneider has also publicly stated that the drinking water business has experienced a period of weak performance, and the new strategy is precisely to ensure that this category returns to high growth in the future, from which Nestlé will also benefit. Schneider said he believes that high-end and functional products represent the best opportunities for Nestlé. Once the tip is adopted, a payment of 400-2000 yuan will be made.