Beijing time, October 30 - According to people familiar with the matter, after years of trying to turn around its operations, Nestlé is weighing options for two of its Chinese subsidiaries, including a possible sale. The people said that Nestlé has been reviewing its ownership of Hsu Fu Chi and the congee brand Yinlu, and is seeking to sell controlling stakes in these two companies for more than $1 billion. It may also choose to sell only part of its stake in one or both of these Chinese businesses. No final decision has been made, and it is uncertain whether the discussions will lead to a transaction. A Nestlé spokesperson declined to comment. -01- The Secret to 150 Years of Glory: "Buy Whoever You Like" and "Laissez-Faire" Management Nestlé was born in 1867 and has a history of more than 150 years. It has grown from a small factory producing infant food into a giant in the global food and beverage industry. Looking at Nestlé's development, it is clear that the company's century-old strategy is acquisition. Today, Nestlé's market spans more than 180 countries, and it has acquired over 2,000 food and beverage brands, half of which came through acquisitions. Nestlé entered China as early as 1908. Over more than a decade in China, it has invested a cumulative total of 7 billion yuan, and now has six well-known brands under its belt. In 1999, Nestlé acquired 70% of Totole chicken bouillon, and later took a 90% stake in Guangzhou Wuyang Ice Cream. In 2001, Nestlé bought a 45% stake in Sichuan Haoji, the second-largest chicken bouillon producer in China. In December 2011, it acquired 60% of Hsu Fu Chi for $1.7 billion, taking over this old candy brand and reshaping China's confectionery market. Nestlé has also made full acquisitions. In 2011, Nestlé acquired 60% of Yinlu Peanut Milk, and gradually increased its stake until completing a full acquisition in June 2018. Today, Yinlu is 100% foreign-owned. Although the actual controllers behind these brands have changed, due to Nestlé's "localization" strategy, many brands still retain their original taste, so many consumers are unaware that these brands have changed hands. Nestlé's century of glory is not only due to its acquisition strategy but also its business model. Nestlé has acquired and merged over 2,000 brands. Managing such a vast portfolio, Nestlé has never made any serious catastrophic decisions, and the acquired brands have become value-adds for the company. This is all thanks to Nestlé's founder, Henri Nestlé, who always emphasized long-term interests and passed this on to his descendants. Thus, even after acquiring many companies and brands, successive leaders of Nestlé have not been hasty but have let the businesses develop on their own. This management style is common in Europe. The Nestlé headquarters only needs to decide whether to buy and how much to pay; after the purchase, it is up to the company itself. Sometimes even consumers do not notice that the products they buy have been acquired by Nestlé. Over time, economic benefits gradually grow. Having been able to develop for 150 years, Nestlé is never short of time, and the headquarters always looks at long-term development potential. -02- Predicament and Transformation: How to "Buy, Buy, Buy" and "Sell, Sell, Sell" Since 2013, Nestlé's sales growth has slowed, and profit margins have fallen to industry average levels. Due to sluggish performance growth, Mark Schneider became Nestlé's new CEO in 2017. After taking office, he adhered to the strategic core of food and beverages, focusing on coffee, pet care, infant nutrition, and water, and made a series of adjustments to Nestlé's business. In January 2018, Nestlé sold its U.S. confectionery business to Ferrero for $2.8 billion. In September 2018, Nestlé sold Gerber Life insurance business to Western & Southern Financial Group for $1.55 billion. On October 2 this year, Nestlé announced the completion of the sale of its skin health company for 10.2 billion Swiss francs (approximately 71.874 billion yuan). On one hand, it has been selling; on the other, it has not stopped buying. In December 2017, Nestlé acquired the well-known American natural dietary supplement company Atrium Innovations for $2.3 billion. This acquisition added a batch of high-value-added health products, such as probiotics, plant protein-based nutrition, meal replacements, and multivitamins. On August 29 this year, Nestlé announced that it had obtained the perpetual global license for Starbucks retail and foodservice products. The two companies will work closely to develop Starbucks' existing product range, including roasted ground coffee, coffee beans, instant coffee, and portioned coffee. After multiple rounds of adjustments, Nestlé's business portfolio has become more focused. As a multinational company and the world's largest food company, Nestlé's continuous business restructuring and integration reflect its accurate grasp of the dynamics of the global FMCG industry. -03- Nestlé's Q3 Report: Coffee and Pet Products Shine, Yinlu Drags Down China Market On October 17, Nestlé released its financial report for the first three quarters of 2019. The data shows that during the reporting period, Nestlé's organic growth rate was 3.7%, with internal growth (RIG) at 3.0%, leading the food and beverage industry. By category, the data shows that in the first nine months of this year, the categories with the highest organic growth rates were pet food (7.3%), nutrition and health science (5.2%), and dairy and ice cream (3.0%). Strong performance in the U.S. market and Purina pet products supported growth in the first three quarters. However, in China, due to weakness in products like Yinlu, overall growth was flat. Among them, Yinlu's sales were about 1 billion Swiss francs, with about two-thirds of products being local brands. Sales of peanut milk and congee were declining, while ready-to-drink coffee performed better. Mark Schneider said in a conference call with analysts on October 17: "We are working very, very hard to solve this problem." He has repeatedly stated that Nestlé will sell non-strategic businesses that cannot be fixed. Hsu Fu Chi is also facing growth difficulties. Its performance in the Chinese market has not met expectations. According to a Mintel report, after more than 30 years of rapid development, and with consumers' pursuit of health, the Chinese confectionery market share continued to shrink from 2014 to 2016. In 2016, the number of loss-making confectionery enterprises reached 38. In recent years, Hsu Fu Chi has been criticized for its obvious "Spring Festival dependence." According to Bloomberg, citing analysts' estimates, Hsu Fu Chi's annual revenue is about 700 million Swiss francs (approximately 5 billion yuan). But according to insiders, Spring Festival sales can account for 40% to 50% of the company's annual total. Hsu Fu Chi is not unaware of this problem. According to Bloomberg, Nestlé is trying to improve Hsu Fu Chi's chocolate packaging and plans to launch nutritious snack products. -04- Pawn or Sacrifice? Nestlé Still Needs to Choose Carefully According to data, Nestlé currently holds 100% stakes in several Yinlu companies in China, and holds 60% stakes in Hsu Fu Chi International and related companies. As for whether it will really sell these two companies as rumored, New Distribution believes that Nestlé may need more time or more sufficient reasons. Speculation 1: Nestlé Still Hopes to Repair Both Businesses and Will Not Sell Them Cheaply Regarding Yinlu, in recent years Nestlé has been committed to "repairing" Yinlu's business, and even once praised it as a model for business recovery. Although Yinlu's well-known peanut milk product line faces challenges, Nestlé has found a good growth point. It is using Yinlu's existing production capacity to provide production infrastructure for ready-to-drink coffee products, which are in high demand in China. Regarding Hsu Fu Chi, Nestlé's CFO pointed out in the Q3 conference call that this is a very seasonal business and it will be clearer after the Lunar New Year. These statements indicate that Nestlé's global management still shows the intention to take more time to do these two businesses well. Speculation 2: The Possibility Is Not Zero, But Where to Find a Buyer? Since becoming CEO in 2017, Mark Schneider has been reshuffling Nestlé's previously acquired brands. As early as 2017, Nestlé sold 16 candy and chocolate brands in the U.S. market and announced its withdrawal from the U.S. market. These 16 candy and chocolate brands are all American local brands, including Butterfinger and Crunch. Due to the rise of health consciousness in recent years, demand for chocolate and candy, which are "high-fat" and "high-sugar" foods, has weakened, and market sales have declined. A similar brand, "Hsu Fu Chi," is clearly facing a similar decline and crisis. As for Yinlu, it may face pressure from Wall Street activist investors who have previously called for divestiture. In July last year, Yinlu, skincare brand Cetaphil, and frozen pizza maker DiGiorno were among the brands that hedge fund Third Point urged Nestlé to divest quickly. The fund also suggested that Nestlé instead acquire the nutrition business of Abbott Laboratories, Fiji Water, and Danone's medical nutrition business. In response, Nestlé said at the time that its board and management team were implementing a strategy to accelerate long-term value creation, and that it had taken swift and decisive action, with results already being achieved. However, since then, Nestlé has indeed accelerated its asset disposal pace. The fate of Yinlu and Hsu Fu Chi is clearly different from the past. Once they were proud national brands of China, marrying into a wealthy family, but now if they are sold off, it is inevitably lamentable. Moreover, the current situation is like a hot potato, and it seems that whoever takes over will find it somewhat powerless. Compiled and edited by If a tip is adopted, a reward of 400-2000 yuan will be paid.China FMCG + Internet Professional New MediaCommitted to FMCG Manufacturer Transformation and Upgrade and Channel Digital SolutionsCopyright Issues | Business Cooperation | Project Consulting | Reader Submissions