Family-owned Yinlu is a well established brand in China and a major distributor of ready-to-drink peanut milk and instant canned rice porridge. The deal extends cooperation between the two companies, as Yinlu is a coproducer of Nestlé's Nescafe coffee in China.
"It demonstrates our long-term investment in China and our commitment to further developing local brands," said Nestlé's chief executive officer Paul Bulcke .
Nestlé did not say how much it paid for the stake, but the move is in line with the Vevey, Switzerland-based company's aim to increase its sales in emerging markets to 45% by 2020 from around 38% now.
Indeed, Nestlé's Asia, Oceania and Africa regions were the main bright spot in the first quarter, with sales up nearly 12% in the three months to the end of March. That contrasts with just 2.3% growth in Europe and 3.7% in the Americas as customers tightened their belts amid higher prices and fears over the economy.
"With this acquisition and others, I expect them to get to 45% sales from emerging markets by 2017, or maybe even earlier," said Bank Vontobel analyst Jean-Philippe Bertschy .
China is growing particularly fast for Nestle; sales into the country surged 11% to 2.8 billionSwiss francs ($3.1 billion) last year, making it the company's ninth largest market. In local currencies, the region was fastest growing of Nestlé's top 15 markets during 2010, with sales up 14.6%.
"In the past months, Nestlé stated several times it would make acquisitions in the emerging markets," Bertschy said. "With the addition of Yinlu, China could be up to its sixth or seventh most important market."
Analysts estimate the deal to have been between 1 billion francs and 1.2 billion francs, easily affordable for Nestle.
Bank Sarasin analyst Patrick Hasenboehler said it was important that Nestlé had a majority stake as it was clear who would make the decisions.
"With local competition, China is not such an easy market to get into, so a partnership with one of them makes sense," he said. "This will definitely help the build market share, and give Nestlé access to more distribution channels."
Yinlu is the leader in the canned/preserved ready-meals market in China, with a 30% market share, according to data from Euromonitor International, and holds 10th place in the soft-drinks market. It sells its products to the U.S, South Africa and Singapore.
Yinlu Foods will continue to be managed by Chairman Chen Qingyuan , Nestlé said.
The world's largest food maker has been present in China for more than two decades, operating from 23 factories and employing around 14,000 workers.
Nestlé sells its international Nescafé, Nan, Maggi and KitKat brands in the country, as well as local products like Haoji and Totole.
From the April 18, 2011, Prepared Foods' Daily News.