Photo/Shetuwang

Jan. 23 (NBD) -- French multinational food products corporation Danone is again reshuffling its water business in China two years after it spun off beverage brand Robust. 

Danone's China unit confirmed the news when reached by the 21st Century Business Herald, saying that it ceased production and sale of Yili bottled natural mineral water last Wednesday, but Yili's barreled water business and other brands of Danone China won't be affected.

Currently, Danone is seeking a buyer for its Longmen plant, which is responsible for producing Yili bottled mineral water, the company said in a statement. 

Situated at Longtian Town, Longmen County, Guangdong, Danone Yili (Huizhou) Drinks Co., Ltd. is the French food group's first fully-funded plant and is designed to be able to produce ozone-free natural mineral water compliant with European standards. 

Upon its entry into the market, the Yili brand distinguished itself from C'estbon, NongFu Spring and other mineral water brands by targeting high-end consumers, but due to Danone's organizational restructuring, it was increasingly marginalized inside the company. 

On the outside, Yili's retail price has fallen from the original 3 yuan to 1.5 yuan a bottle. In comparison, Ganten, which also eyes the upscale segment, saw its retail price rise by more than 30 percent during the same period thanks to increased expenses in brand building and advertising. 

The fierce competition in the drinking water market is also one of reasons for Yili's declining performance. 

According to the newest data from leading market research company Nielsen, NongFu Spring, C'estbon and Ganten occupied the top three positions with a combined market share of 60.1 percent in the Chinese bottled water market in October 2018. Yili has little brand exposure nationwide, as it only has a major presence in Shenzhen. 

Danone has been intensifying the efforts to cement its position in the high-end water domain. In August 2017, the company launched its premium drinking water brand Aoraki in China. David Roos, then-managing director of Danone China's Water Business Unit, stated centering on the high-end segment is the priority of Danone's water business in China. 

Apparently, Yili which has descended to the medium/low-end segment couldn't match with the French group's development plan. 

Last year, Danone announced a goal of achieving more than 5 percent growth in earnings from its drinking water and beverage business by 2020. In this case, splitting the money-losing unit would be a wise move. 

Reports have emerged saying dairy giant Yili Group is likely to take over the Longmen factory. But a person-in-charge with Yili Group told the 21st Century Business Herald that he/she had no knowledge of the matter.  

If it was true, the acquirer would undoubtedly face serious challenges, as there are huge differences in operations of dairy products and drinking water business though they almost share the same distribution channels and customer groups, independent food and beverage industry analyst Zhu Danpeng said.

Email: lansuying@nbd.com.cn