China: Tsingtao buys Nestlé’s domestic water business

Tsingtao Brewery Group, China’s second largest brewing group, agreed to buy the domestic water business of Nestlé, the Swiss food giant announced today. The transaction involves the transfer of ownership of the local brand Dashan Yunnan Shan Quan and three factories located in Kunming of Yunnan province, Shanghai and Tianjin. Tsingtao also agreed to produce and market under license the Nestlé Pure Life brand in China and to continue to sell Nestlé’s iconic international brands including Perrier, S. Pellegrino and Acqua Panna to Chinese consumers. Financial details of the transaction were not disclosed.

Amid stagnant beer sales in China, Tsingtao is trying to diversify its product portfolio. Non-alcoholic beverages and especially packaged water is one of the large sectors which still offers a high growth potential because its market share in China is still low compared with other developed markets.

In June, Nestlé’s board of directors approved a new strategic direction for its global Nestlé Waters business which comprised 48 water brands and sales of CHF 7.8 billion (USD 8.3 billion) in 2019. Part of the new strategy is an increased focus on its premium mineral water brands such as international premium brands Perrier, S.Pellegrino and Acqua Panna as well as regional premium brands like Erikli in Turkey, Sohat in Lebanon and Buxton in the UK.

Additionally, Nestlé announced to increase investments in differentiated products under the Nestlé Pure Life brand, such as functional water with health-enhancing ingredients. At the same time, the company said to put underperforming and non-premium brands of its worldwide portfolio under scrutiny. As a result, the company decided to explore strategic options, including a potential sale, for the majority of the Nestlé Waters business in the US and Canada, excluding its international brands.

As a consequence,  Nestlé Canada announced in July to split its Nestlé Pure Life business in Canada from the rest of its North American business and sell it to family-owned private label bottled water producer Ice River Green. The sale which is expected to close in the third quarter, includes two factories located in Puslinch, Ontario and Hope, British Columbia, along with a well in Erin,Ontario.

The sale of the Chinese water business which was announced today can also be seen as part of the new strategy. According to company sources the review of the Nestlé Waters portfolio will be completed by early-2021.

“This strategy offers the best opportunity for long-term profitable growth in the category while appealing to environmentally and health-conscious consumers,” Nestlé’s CEO Mark Schneider explained the reasoning behind the new strategy in June.

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