Swiss food and drinks giant Nestlé is reportedly considering dumping some of its local water brands in China. The world's largest food company stated on Tuesday that it is exploring the possibility of selling off its bottled water business in China due to its worse-than-expected performance amid the increasing competition from domestic players.
Nestlé is currently selling its more upscale international water brands in the country, such as its San Pellegrino, Acqua Panna, and Perrier. However, its best selling water brands continue to be the company's locally manufactured and soured Da Shan Yunnan Spring and Nestlé Pure Life products.
Despite its pedigree and internationally recognized brand name, Nestlé has struggled to penetrate the Chinese water market. Domestic brands such as Yibao and Nongfu Spring continue to dominate the country's bottled water market. According to a report published by Guoyuan Securities, Nestlé only occupied less than 2 percent of the entire country's water market in 2019. Even with the heft of its international weight, the company hasn't really managed to increase that number over the past few years, which may have eventually led to it considering giving up on the prospect altogether.
Divesting or selling its water business in China would make a lot of sense for the company, particularly after it had stated last month that it was planning to focus more on its premium international brands. In its previous statement, Nestlé had stated that it had plans to potentially sell its underperforming businesses in select markets, including its water brands in North America.
As part of its strategy, Nestlé had announced last week that it had found potential buyers for its Yinlu Foods division in China. The company stated that it had already narrowed down its list of potential buyers, who have agreed to its $400 million price tag. Nestlé's Yinlu Foods unit mainly manufactures ready-to-eat canned rice porridges and peanut milk products.
Even if the company does end up selling its water brands and its Yinlu Foods unit, Nestlé still has a substantial presence in China. The company currently owns more than 30 major production facilities spread across the country with over 40,000 full-time and part-time workers. China still continues to be the company's second-largest market, right behind the United States. Last year, the country generated over $7.4 billion in sales for the company, which translates to around 8 percent of its global sales. Nestlé sells dozens of its international and locally-sourced brands in China, ranging from its iconic candy and chocolate products to its popular infant formulas.
