Mila brewery in Shanghai
It was 1988 when Heineken announced that in combination
with BIPL and the Chia Tai Group, a participation had been
acquired in the Shanghai-based Mila Brewery. After that there
was no further news about our activities in China. So, what do
things look like now? Heineken International Magazine talked
to Bert Slootweg. He's been general manager there for the past
three years. By the end of the year he'll be coming back to
Holland.
HEINEKEN INTERNATIONAL MAGAZINE NO. 33 PAGE 4
A venture that takes time
ment in the taste of Reeb. An extra
bottle washer was also transferred
from the Anchor brewery in
Singapore to the Mila brewery, enab
ling double cleaning of the badly soi
led bottles.
For 1991 an ambitious plan was
launched: a planned sales volume of
600,000 hectolitres. Ambitious, be
cause this capacity is not easy to
achieve in view of the technical con
ditions. But consumer demand is pic
king up so strongly that it is impossi
ble at the moment to meet market re
quirements in full.
Like many operations within the brewing process, checking of bottles is done by
people instead of by machines
mers' limited spending power meant
that they preferred a cheap beer. The
brewery responded to this by laun
ching a beer with a lower original
gravity and priced at RMB 1.00. A
dark lager beer was also launched for
the winter months when beer con
sumption is very low.
Renovation
During 1989 it also became ob
vious that the brewery was in a poor
technical state. Scarcely two years af
ter the re-opening many of the brewe
ry's installations were already in need
of large-scale renovation because of
design and manufacturing faults and
insufficient maintenance. China is not
a country with a rich beer and bre
wing culture, and so there is a lack of
specific brewing know-how.
For 1990 Mr Slootweg decided to
tackle things from a completely diffe
rent angle: 'In our plan for 1990 we
said: we'll start from scratch again,
because there are many technical de
fects and the personnel have been in
adequately trained.' What this deci
sion meant in practice was that much
of the fault-sensitive, semi-automated
equipment was switched off and ma
nual operations were introduced. For
1990 the target output was a capacity
of 400,000 hectolitres. That's not
much in view of the fact that, under
optimum circumstances, the brewery
ought to be capable of producing one
million hectolitres.
ney was again pumped into the eco
nomy during 1990. That meant that
we had to adjust our plans from
400,000 to 480,000 hectolitres.'
Barley
In the technical field major advan
ces were achieved in 1990 in the
quality and taste of Reeb. Specifically
since March 1990, following the
change-over to the use of Australian
barley in Mila's own malting plant
which was started up by Mr Aalbers
of HTB, there has been an improve-
Summer drink
Beer is clearly seen as a summer
drink in Shanghai. In the winter
months the Mila brewery is virtually
at a standstill, but activities peak in
the summer months. Consumption is
then five times higher than in the
winter.
Ten per cent of all beer in
Shanghai is sold via the on premise
trade: in hotels, restaurants and bars.
The remainder is distributed via the
state-owned selling organisation to
the countless little shops. Mila now
holds a share of almost sixty per cent
of the on premise trade. To serve the
hotels, restaurants and bars as effecti
vely as possible a depot was opened
up in Shanghai city in June last year.
From that depot Reeb is supplied di
rect - without using the wholesale
distributive trade - to some 350 res
taurants.
Wang Tianbao, commercial ma
nager of the Mila brewery, notes with
satisfaction that the number of custo-
Old-fashioned and heavyweight machines are a typical sight in the Mila brew
ery
First we have to take a trip back in
time. Back to 1980, to be precise.
That was when the first talks were
held within the Board of Directors
about studying possible opportunities
in the People's Republic of China.
The country had one billion inhabi
tants and, though beer consumption
per head was still very modest, there
were signs that it was starting to
grow.
The Chinese authorities were cer
tainly willing to listen to Heineken's
plans, but the problem of hard curren
cy stood in the way of a definitive
form of cooperation. With the aim of
getting hard currency to flow into
China the authorities set the require
ment that Heineken beer should be
brewed locally and then exported.
Heineken could see little in that idea
and the negotiations became dead
locked.
Chia Tai
In 1986 Heineken established con
tact with the Chia Tai Group, from
Thailand. This group had already set
up some fourteen joint ventures in
China and could pride itself on the
wealth of experience and know-how
that it had gained in achieving coope
ration with the Chinese authorities.
Into action
After it had been proved that beer
could be brewed in the new brewery,
the Chia Tai Group and Heineken
moved into action. The outcome was
the signing of a joint venture agree
ment on 23 October 1988.
Heineken man Bert Slootweg was
appointed general manager and Liu
Lu Sheng became chairman of the
board on behalf of the Light Industry
Bureau of the Shanghai Government.
Straight away the management
started preparing plans and on 19
January 1989 the operational plan
was presented. The plan was that the
Mila brewery would brew Reeb beer
and sell it for RMB 1.36 (45 cents); a
significantly higher price than the
competition whose beer sold for an
average of RMB 0.85 (33 cents). That
higher price was considered justified
by the quality of Reeb which would
be head and shoulders above that of
other brews, even though there were
still a great many uncertain factors
and our knowledge of the market was
still limited.
Libo
Upgrading the fermentation and
storage cellars headed the list of prio
rities on the renovation programme.
In March 1989 the bottling line was
partly renovated and plans were made
to bring the line up to the normal
Heineken standards as much as possi
ble during its next overhaul. On 15
May the actual introduction of Libo
(or Reeb) took place. (The name
'Reeb' is of course the English word
for beer spelt backwards, but the
Chinese name 'Libo' also means 'po
werful wave').
The wort cooler soon needed repla
cing. As the technical know-how is
not available in China, this machine
was imported
Many talks followed and in 1988
the signatures were placed under a
contract which linked Heineken (to
gether with Fraser Neave) and
Chia Tai to the government in
Shanghai.
The Shanghai authorities had al
ready made a start in 1984 on con
structing a brewery. For they had in
fact seen that a shortage of beer was
threatening in Shanghai. Because of
financial and technical problems it
took four years to build the brewery.
It was the first really big brewery in
China to be built by the Chinese
themselves. And the lion's share of
the production equipment (70%) was
also manufactured locally, one of the
motives being cost considerations.
In the months that followed it be
came clear that the conditions to re
alise the plans had changed unfavou
rably. The June 4th incident was one
of the reasons to enforce the already
existing austerity policy. Government
projects were slowed down and enter
tainment tightly controlled.
Temporary seasonal workers were
sent back to the countryside from
where they came. This reduced the
number of beer drinkers. On top of
that the two million tourists who visit
Shanghai each year also stayed away
and reduced the beer market further.
Bottles
Shanghai rapidly got into econo
mic problems and opposition to the
high price of Reeb grew strongly.
Besides, the brewery was unable to
live up to its promised price-quality
ratio because it experienced big prob
lems with the bottles.
The bottle cleaner did not work
properly and, to cap it all, the quality
of the bottles was poor. Most of the
problems were caused by damaged
crown rims which allowed carbon
dioxide to escape from the beer. And
so the ironic situation arose in which
the beer was of a good quality but
could not demonstrate its superiority
in full because of poor packaging.
Engineering manager Klaas van der Brug inspects the brand new keg-fil-
ling line
Cheaper
It was clear that, also in view of
the poor economic situation, the Mila
brewery could not afford to sit back
and wait; something had to be done.
It became apparent that the consu-
Later, this plan was again adjusted
upwards. 'The market showed a mir
aculous recovery, since the govern
ment realised that its investment res
traints were having a disastrous effect
on Shanghai's economy. And so mo-
Beer market
Total beer consumption in
Shanghai for 1991 is estimated at
more than 2.2 million hectolitres. The
six breweries in Shanghai supply 1.8
million hectolitres of this volume.
The remainder comes from breweries
in the surrounding provinces.
Per capita consumption in
Shanghai is about 15 litres a year.
That's twice as high as in the rest of
China. The reason is simple:
Shanghai is one of China's most de
veloped cities and has a fairly high le
vel of industrialisation, which means
that the local population clearly have
more to spend than their compatriots
in other parts of the People's
Republic.
By far the favourite amongst local
consumers is the 64 cl bottle.
Although Mila markets a 35.5 cl bot
tle as well, this pack form represents
a mere one per cent of total turnover.
