In China, those who can afford it are very picky about the water they drink. Tap water is notoriously unreliable, so most turn to the bottled variety. That’s why Nestlé sees a big opportunity – hence its recent purchase of a majority stake in drought-hit Yunnan’s leading bottled water company.
It’s estimated that the Swiss food giant paid more than Rmb100 million for 70% of Yunnan Dashan. Nestlé is better known in China for its instant coffee and powdered milk, so the deal significantly raises the company’s profile in the bottled water market. Dashan is among the top 10 bottled water companies in the country – it has 40% of the Yunnan market, and sells about 100 million bottles annually.
By acquiring Dashan, Nestlé has also got its hands on its third Chinese water source (the others are near Tianjin and Shanghai). “Competition to possess water sources is one of the crucial factors for the future development of water enterprises,” one analyst told the New Express Daily.
Clean water is growing increasingly scarce in China, as the drought currently afflicting the southwestern provinces makes only too apparent. “We will probably run out of water long before we run out of fuel,” wrote Peter Brabeck-Letmanthe, Nestlé’s chairman this week told the BBC. “At the moment we are coping by ‘borrowing’ water supplies from non-replenishable aquifers… which is clearly not a long-term solution.”
Observers say Nestlé may also be pursuing acquisitions of other bottled water firms such as Shenzhen Jingtian and Huashanquan, which would make it one of China’s top water companies. But as it expands the Swiss firm is no doubt treading carefully: mindful of Danone’s unhappy experience with Wahaha (see WiC39).
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