Tsingtao Drinks Up Nestle’s China Water Business as Swiss Giant Looks to Offload Underperforming Units

Nestle SA has agreed to sell its water business in China to local beer giant Tsingtao Brewery Group Co. Ltd., as part of the world’s largest food company’s ongoing effort to offload underperforming brands.

The company announced in a Friday statement (link in Chinese) that the sale includes its “Dashan” and “Yunnan Shan Quan” brands, as well as three water factories located in Shanghai, Tianjin and Kunming, Yunnan province.
As part of a licensing agreement, Tsingtao will also produce and market the Nestle “Pure Life” water brand in China, according to the statement. Details of the agreement were not disclosed.

China is Nestle’s second largest market after the U.S., with sales topping 6.9 billion Swiss francs ($7.6 billion) in 2019, accounting for 7.5% of its global sales. In July, after media reports that the company was looking to offload its China water business, Nestle said it was looking for the best solution for the future of the business, including a possible sale.

Offloading its China water business is the latest move in the Swiss multinational’s ongoing drive to trim its portfolio of underperforming brands. Its water businesses have remained sluggish over the years, with global sales generated from the category dropping 0.3% last year from the level in 2016. That’s compared to 3.5% growth for the company’s overall sales recorded during the same period.

Nestle said in June it was considering a sale of its mass-market bottled water business in the U.S. and Canada, as part of a shift in focus toward more premium soft drink products. The sale of its North American business, including brands like Pure Life, Poland Spring and Deer Park, is expected to be completed by early 2021, Nestle said at the time.

For Tsingtao, acquiring Nestle’s water business is part of its strategy to branch out from its core beer business. Currently, the Chinese group’s major asset is its Hong Kong and Shanghai-listed beer-making unit Tsingtao Brewery Co. Ltd., which reported net profit of 1.85 billion yuan ($269 million) on revenue of 27.9 billion yuan in 2019.

Contact reporter Mo Yelin (yelinmo@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)

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