After years of struggling to turn around businesses that it had acquired in China, Swiss food and drink giant Nestle is reportedly now considering the sale of its Chinese assets. According to reports citing sources close to the matter, Nestle is weighing the option of selling its ownership in its Chinese brands Hsu Fu Chi and Yinlu.
Nestle originally acquired both companies in 2011, as part of its push to serve the growing food and drink demand in China. Despite its best efforts, Nestle struggled with sluggish growth in both companies in the years that followed.
Hsu Fu Chi is a local confectionery brand, while Yinlu is best known for its ready-to-eat Chinese porridges. Nestle had attempted to transform Hsu Fu Chi by updating its packaging and adding more products to its portfolio. The company even began offering nutritious snacks under the Hsu Fu Chi brand to appeal to more health-conscious consumers.
According to inside sources, Nestle is seeking to get more than $1 billion for the sale of its controlling stake in both companies. The move does make a lot of sense as Nestle has been slow getting rid of its underperforming assets over the past few years.
Since Mark Schneider had taken over as the chief executive of the Swiss conglomerate, Nestle has been slowly divesting away its unprofitable businesses. Schneider has been actively trying to weed out weak spots in Nestle's portfolio, resulting in the sale of numerous assets including US chocolate brands, its life insurance business unit, and a dermatology business.
Since Schneider had started his purge of Nestle's portfolio, the company has divested close to two dozen businesses worth $15 billion in total. While no final decision has been announced regarding the company's Chinese units, insiders have stated that Nestle could choose to sell only part of its assets in one of both of the companies.
The option will likely still need to be deliberated by the company's executives and it may be possible that no transaction will take place. A previous report had claimed that Nestle was conducting a comprehensive strategic review of its Chinese business.
Nestle's Yinlu brand currently generates sales of around $1 billion. A third of the brand's sales have come from its local products like congees and peanut milk, while the rest comes from its ready-to-drink coffee product.
During the company's latest earnings call, Schneider had mentioned that he was "disappointed" in Yinlu's performance thus far. Schneider had mentioned that they will be working to address the situation and to find a way to bring up the brand's sales numbers. However, the executive also told investors that he will not hesitate in selling businesses that are unfixable and non-strategic.
