---
title: "Exclusive | Nestlé Selling, Selling, Selling: Its China Water Business May Be Taken Over by a Well-Known Domestic Beer Giant!"
description: "Yesterday, New Distribution exclusively learned that Nestlé is considering selling its water business in China to a well-known domestic beer giant. On July 17, foreign media reported that another beer giant, China Resources Beer, and Master Kong are bidding for Nestlé's Yinlu brand. These two pieces of news are indeed significant!"
author: "鲸落"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-07-19"
language: "en"
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# Exclusive | Nestlé Selling, Selling, Selling: Its China Water Business May Be Taken Over by a Well-Known Domestic Beer Giant!

> Yesterday, New Distribution exclusively learned that Nestlé is considering selling its water business in China to a well-known domestic beer giant. On July 17, foreign media reported that another beer giant, China Resources Beer, and Master Kong are bidding for Nestlé's Yinlu brand. These two pieces of news are indeed significant!

**Click to read the original article for details**
**Yesterday, New Distribution exclusively learned that Nestlé is considering selling its water business in China to a well-known domestic beer giant. On July 17, foreign media reported that another beer giant, China Resources Beer, and Master Kong are bidding for Nestlé's Yinlu brand.**
**These two pieces of news coming one after another are indeed significant!**
As the world's largest food company, Nestlé has been operating since 1867, with over 500 factories and more than 2,000 global or regional brands.
According to public data, Nestlé has always adhered to the development philosophy of "two-thirds through acquisitions, one-third through internal growth." The industry generally believes that Nestlé itself is a company built through "buying and selling."
**-01-**
**Is Nestlé Preparing to "Cut Off One of Its Legs"?**
In drinking water, Nestlé is the world's largest bottled water producer, with well-known brands including San Pellegrino and Perrier. To quickly enter the Chinese market, in 2010 Nestlé spent heavily to acquire 70% of Yunnan Dashan, and in 2014 acquired the remaining 30%.
Although Yunnan Dashan is not well-known nationally, it is a famous mountain spring brand with an 80% market share in Yunnan Province, and its excellent water source advantage has brought great convenience to Nestlé.
**Currently, Nestlé's water business in China operates on a "two-legged" strategy, including imported water and localized production water brands.** The former includes high-end imported waters such as Perrier, San Pellegrino, and Panna; the latter corresponds to three brands from Nestlé's factories in Shanghai, Tianjin, and Kunming: "优活" (Pure Life), "获特满" (H2O), and "云南山泉" (Yunnan Mountain Spring).
**Although it is uncertain whether this sale includes the high-end water business, it is clear that the localized brand, Pure Life, will be sold.**
Even so, Nestlé's water business changes in China have limited impact on the domestic bottled water market, because according to public data, the Chinese bottled water market is led by Nongfu Spring, C'estbon, and Ganten, followed by giants like Master Kong and Wahaha.
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, last year its drinking water business generated revenue of 7.9 billion Swiss francs (approximately 56.45 billion yuan), with organic growth of 0.2% and actual internal growth declining by 1.9%. **According to Bloomberg analysis, the business's performance last year was the "worst" in a decade.**
At the same time, analysis of Nestlé's financial report shows that high-end waters such as San Pellegrino, Perrier, and Panna achieved growth of 8%-9%, while mass-market products declined.
This also prompted Nestlé to make major adjustments at the end of last year, splitting its drinking water business. Nestlé announced last year that **it would integrate the drinking water business into three regional markets this year, but did not disclose the scope of these three regions.** At the same time, Nestlé Waters also established a dedicated strategic business unit to ensure global strategic consistency and manage global core functions.
In June of this year, Nestlé officially announced a major new strategy: **"It will strengthen focus on iconic international brands and leading premium mineral water brands, and invest in differentiated health products, such as functional water,"** clearly indicating that it may sell some drinking water businesses that do not align with its strategic direction.
In particular, it named multiple North American (U.S. and Canada) businesses for potential sale as part of exploring strategic options for the drinking water business. According to Nestlé's announcement, these businesses mainly refer to regional spring water brands other than the international brands to be retained, as well as beverage delivery services for offices and consumers.
It is worth noting that Nestlé Waters generates more than 40% of its annual sales from the North American market. From this perspective, the sale of Nestlé's water business in China is actually "a small witch compared to a big one."
According to previous announcements, for imported brands like Perrier and San Pellegrino, Nestlé Waters China positions them as "leading imported high-end packaged water, especially sparkling water," **and will introduce more new products from imported water brands such as Perrier and San Pellegrino to the Chinese market in the future.**
We do not yet know exactly which water businesses Nestlé will divest, and the final result remains to be seen. New Distribution will continue to follow up.
**-02-**
**China Resources and Master Kong "Wade into Troubled Waters"**
**As for China Resources Beer and Master Kong wading into this troubled water—participating in the bid for Nestlé's Yinlu—there have long been rumors in the industry that Nestlé would sell Yinlu.**
In March of this year, it was reported that Nestlé had hired JPMorgan to handle the sale of its Chinese subsidiary Yinlu Food Group, with a sale amount of approximately $1 billion. Additionally, Nestlé was in contact with potential buyers, including local Chinese food and beverage companies such as Dali Foods, Wahaha, and Uni-President. However, Wahaha later came forward to clarify and deny this.
Yinlu Group was established in 2000, formerly a village-run cannery in Tong'an District, Xiamen, Fujian. It can produce 600,000 tons of various food, beverages, and canned goods annually, with annual sales of approximately 5.4 billion yuan. After that, Yinlu continued to grow rapidly, **and by 2011, the output value of the Yinlu Industrial Park had exceeded 10 billion yuan.**
In April of the same year, Nestlé signed a joint venture agreement to acquire 60% of Yinlu Food Group, and Yinlu became a Sino-foreign joint venture. With Nestlé's support, Yinlu developed very quickly. **In 2013, Yinlu's sales reached 11.1 billion yuan, which was also its peak period.**
At that time, relying on two hit products—Yinlu Babao Porridge and Yinlu Peanut Milk, which people often brought when visiting friends and relatives—it became a dark horse in the beverage industry. However, after 2013, impacted by the rise of products like Ambrosial and Jindian, coupled with Yinlu's own brand aging, performance continued to decline, and channels continued to sink to third- and fourth-tier cities.
In 2016, Nestlé Group pointed out in its performance report that **Yinlu Food's performance experienced a double-digit decline in 2016, dragging down the growth of Nestlé Group's performance.** The voice to "put Yinlu on the shelf" and sell it appeared for the first time.
However, Nestlé's senior management fully supported the local brand Yinlu. In April 2017, it acquired an additional 20% stake in the joint venture from its partner, and in July 2018 acquired the remaining 20%, making Yinlu a wholly-owned subsidiary.
In the 2017 financial report, Nestlé mentioned that its China market growth turned positive, attributed to the "stability" of the Yinlu business, but on the other hand, it also revealed Yinlu's awkward position.
In July 2018, Daniel Loeb, one of Nestlé's shareholders and the head of hedge fund Third Point, a Wall Street activist investor, issued an open letter demanding that Nestlé be "bolder" in divesting businesses, specifically naming Yinlu as a candidate for divestiture.
In fiscal year 2019, sales of Yinlu Peanut Milk and Babao Porridge declined. Nestlé stated that Yinlu's performance in the second half of 2019 and during the important sales period of the Mid-Autumn Festival did not meet expectations. Coupled with intense competition, the company reviewed Yinlu's strategy, product portfolio, and business plans, and accordingly made impairment provisions.
In April of this year, in its first-quarter report, **Nestlé responded to rumors of selling its Yinlu business in China, deciding to conduct a strategic review of its Yinlu Peanut Milk and Yinlu Canned Babao Porridge businesses, including the possibility of sale,** with the aim of ensuring the long-term growth and success of the Yinlu business. The Nestlé Coffee ready-to-drink business, which is currently bottled and distributed by Yinlu and growing well, will be retained.
In recent years, Nestlé has continuously sold off some "sunset" sectors, but it can be seen that its development direction has always revolved around health and high-end fields. Clearly, selling the Yinlu Peanut Milk and Babao Porridge businesses is not surprising, **but these two businesses have a scale of over 4 billion yuan, and there are indeed few domestic beverage and food companies that can acquire and revitalize them. It is still impossible to conclude who will win.**
**Final Thoughts:**
Whether Nestlé sells its water business or prepares to sell the Yinlu business, this model of merger and acquisition expansion and divestiture to stop losses carries significant risks.
However, in recent years, it is not uncommon for foreign companies to withdraw capital and sell shares in China. Just last year, China Resources Snow acquired all of Heineken's businesses in mainland China, Hong Kong, and Macau for HK$2.35 billion, including factories and sales networks.
In the first thirty years of entering China, Coca-Cola was always the brand manager behind the scenes, but in 2016, Coca-Cola readily handed over its territories and bottling plants to Swire and COFCO to "manage."
Additionally, even fast-moving consumer food companies like KFC and McDonald's have faced pressure. Two years ago, McDonald's sold its shares to CITIC to seek development. After KFC and Starbucks suffered setbacks, they successively chose to "cooperate" with Alibaba. However, after this, the market for overseas catering giants is still not optimistic, because after the initial novelty fades, how to become a stable long-term seller is a question worth considering.
At the beginning, the domestic market layout was vast, and market resources were abundant. Many foreign companies began to enter the Chinese market, adding vitality to domestic market development. However, with the enhancement of China's economic strength and national influence, Chinese companies are also transforming from mainly being targets of asset acquisitions to becoming major asset acquirers.
**Behind these changes, we have reason to believe that the capital era surrounding the entire Chinese consumer brand has been declared. These domestic FMCG giants will no longer rely solely on launching their own brands as a single business development method, but will adopt more diversified operations, solving market problems through mergers and integration models!**


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