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Our reporter Cheng Wei reports from Chongqing

Recently, the internal strife of the "Shancheng" beer brand has attracted widespread media attention. After it was acquired by the foreign brand Carlsberg, the brand's beer production was said to have dropped sharply from 994,300 tons in 2013 to 115,600 tons in 2019. In 2023, it dropped to less than 100,000 tons.

The "Shancheng" brand originally belonged to Chongqing Beer Group Co., Ltd. (hereinafter referred to as "Chongqing Beer Group"). After the acquisition, the group began to mass-produce foreign brands such as Carlsberg and Tuborg instead of the original "Shancheng" beer. When Carlsberg acquired Chongqing Beer Group, it promised to move Carlsberg's China headquarters and Asia-Pacific R&D center to Chongqing, but both promises were said to have not been fulfilled.

At the same time, the brand value of "Shancheng" beer was RMB 6 billion before the acquisition, but as of September 2020, the book value of all trademarks of Chongqing Brewery Co., Ltd. (hereinafter referred to as "Chongqing Beer"), a subsidiary of Chongqing Brewery Group, including "Shancheng", was less than RMB 16 million.

Amid public doubts about production cuts, broken promises and brand depreciation, on August 9, Carlsberg's media staff in Chongqing told a reporter from China Business News that due to the recent media attention on Carlsberg and its partner Chongqing Yuxin Industrial Group Co., Ltd. (hereinafter referred to as "Chongqing Yuxin"), Carlsberg wanted to "cool down" and therefore would not respond to the questions raised by this reporter.

The Carlsberg English trademark is printed on the guardhouse at the gate of the Chongqing Brewery.

Chongqing Beer M&A lays the "root of trouble"

"We are one of the earliest beer production companies in Chongqing. At that time, most of the beer we produced was in barrels, and everyone bought it barrel by barrel." A director of Chongqing Jiawei Beer Co., Ltd. (hereinafter referred to as "Jiawei Beer") said that in 1984, Jinxing Brewery was founded in Dadukou District, Chongqing, and was later renamed Chongqing Yuxin Industrial Group Co., Ltd. (hereinafter referred to as "Chongqing Yuxin").

At that time, the beer market was highly competitive, and various brands competed to sign exclusive entry and supply agreements with merchants and hotels. In order to compete for customers, sales staff from different brands often fought each other. After several years of fighting, everyone was exhausted and there was no profit.

In 1992, Chongqing Brewery, the predecessor of Chongqing Beer Group, reorganized the assets of the former Chongqing Second Brewery. At the same time, Hua Zhengxing, the then director of the brewery, led Chongqing Beer Group to carry out large-scale mergers and acquisitions and reorganizations in the city's beer market, and decided to form a consortium with Jinxing Brewery to jointly operate and turn enemies into friends.

In short, the hope is that in the Chongqing market, only the "Mountain City" of Chongqing Beer Group will remain, thus achieving brand integration.

In June of the same year, Chongqing Brewery and Jinxing Brewery signed a "Joint Agreement" to carry out beer underwriting cooperation. Under this framework, Jinxing Brewery abandoned its own "Jinxing" brand and switched to "Shancheng" brand beer in accordance with the requirements of the agreement.

After that, Chongqing Brewery was restructured into Chongqing Brewery Group Co., Ltd., and Chongqing Brewery Co., Ltd. was established under it. Jinxing Brewery was restructured into Chongqing Yuxin.

In 1999, Chongqing Beer Group and Chongqing Yuxin signed the "Agreement on the Reorganization and Establishment of Chongqing Jiawei Beer Co., Ltd." and jointly established Jiawei Beer Co., Ltd. Chongqing Beer Group invested in the "Mountain City" beer trademark use rights, accounting for 33% of the shares; Chongqing Yuxin invested in all beer assets, accounting for 60.31% of the shares; Chongqing Yuxin employees invested in cash, accounting for 6.69% of the shares.

The agreement stipulates that Jiawei Beer has the right to use the "Mountain City" trademark independently and no longer pays trademark royalties to Chongqing Beer Group. According to the Jiawei Beer Articles of Association, Jiawei Beer will continue to exist forever. Therefore, Jiawei Beer has obtained the permanent right to use the "Mountain City" beer brand.

In 2007, Chongqing Yuxin signed a "Strategic Cooperation Agreement" with Chongqing Beer Group to continue the beer underwriting cooperation between the two parties, and further clarified that Chongqing Beer Co., Ltd., a listed company controlled by Chongqing Beer Group, will "inherit this agreement" and continue to be responsible for the underwriting of "Mountain City" beer produced by Jiawei Beer. The term of this agreement is 20 years, and after the expiration, if both parties are willing, it can be renewed.

That is to say, this agreement will be implemented until January 2029, which means it still has more than four years of existence.

Before Carlsberg acquired Chongqing Beer Group, it was a "honeymoon period" for both parties. After all, the two parties were already "one family". Of course, this so-called "honeymoon period" was not all smooth sailing. The two parties had different views on the calculation method of management fees and promotion fees in the underwriting agreement.

Chongqing Yuxin Group only has an advertisement poster for Shancheng Beer on its website. When its subsidiary Jiawei Beer was established, it had the right to use the "Shancheng" beer brand. In its information to the media, Carlsberg only emphasized that Chongqing Beer owns the "Shancheng" beer. Both statements are correct.

Carlsberg's situation has changed

However, Chongqing Beer Group is not the only one eyeing the Chongqing market.

In July 2007, the same year that Chongqing Yuxin and Chongqing Brewery Group signed the "Strategic Cooperation Agreement", Newcastle, the largest beer company in the UK, defeated world beer giants such as AB of the United States and Carlsberg of Denmark, and acquired 50 million yuan of state-owned shares of Chongqing Brewery Co., Ltd. at a price of RMB 10.5 per share, spending RMB 525 million and becoming the second largest shareholder of Chongqing Brewery, accounting for 19% of the total share capital.

The price of this acquisition is 4.2 times higher than the net assets of Chongqing Brewery Co., Ltd. and is equivalent to the price of Chongqing Brewery's circulating shares.

After Newcastle acquired a stake in Chongqing Beer, Chongqing Beer also made some changes to its terminal strategy: it began to open "Newcastle Bars" in the most prosperous areas of Chongqing, namely Jiefangbei in Yuzhong District, Guanyinqiao in Jiangbei District, and Sanjiaobei in Shapingba District. Because most bars in Chongqing at that time were entertainment bars or performance venues, Newcastle Bar only played light music and sold beer, and the consumption was not high, becoming a clear stream in the local bar industry at that time and quickly captured a large number of consumers in the main urban area.

At that time, Chongqing Beer invested 10 million yuan to establish Chongqing Newcastle Bar Development Co., Ltd., planning to build 100 chain bars across China before 2008 to welcome the Olympics.

However, this plan soon fell through. On April 29, 2008, the investment group jointly formed by Carlsberg and Heineken acquired the Scottish Newcastle British Brewery Company for 10 billion pounds. Carlsberg thus became the actual controller of Chongqing Brewery's second largest shareholder.

In July 2010, Carlsberg acquired 12.25% of Chongqing Brewery shares held by Chongqing Brewery Group at a price of 40.22 yuan per share, with an acquisition amount of 2.38 billion yuan. This was much higher than the weighted average price of 25.33 yuan when Chongqing Brewery Group solicited proposals, with a premium of 58.89%, making it the highest bid among the participating companies.

Chongqing Beer was at its peak at the time of the acquisition and was the first of the "Five Golden Flowers" of Chongqing's light industry. Although the acquisition triggered widespread doubts among workers and the public, Carlsberg's conditions for Chongqing were very attractive: Carlsberg promised to locate "three major centers" in Chongqing. First, the management headquarters of Carlsberg China would be moved to Chongqing; second, the technical research center of Carlsberg Asia would be established in Chongqing; and third, Chongqing would be built into the production and logistics center of Carlsberg China.

Carlsberg also promised to continue to retain the "Mountain City" beer brand. Carlsberg is willing to work with the Chongqing State-owned Assets Supervision and Administration Commission to build Chongqing Beer into a first-class beer company with a scale of more than 5 million tons.

So far, 14 years have passed, and the first two promises made by Carlsberg when it acquired Chongqing Beer have not been fulfilled. As for the third promise, it is currently unconfirmed. On August 9 this year, when interviewed by our reporter, the media affairs staff of Carlsberg Chongqing said that he is currently in Carlsberg Guangzhou.

Guangzhou is the current headquarters of Carlsberg China. On May 24, 2024, an article on the official WeChat account of "Carlsberg China" stated: "Carlsberg Group's first R&D center outside of Europe will also be located in Foshan Brewery, providing new product R&D, packaging design and testing services for the Chinese and Asian markets."

This statement makes Carlsberg's previous promise of "setting up Asia's technology and research center in Chongqing" even more illusory.

Recently, after the dispute between Carlsberg and Chongqing Yuxin over "Mountain City" beer became a hot topic, the fact that Carlsberg had not fulfilled its promise of price for 14 years was also exposed by the media. However, neither Carlsberg nor the local government responded positively as of press time.

In fact, after Carlsberg became the largest shareholder of Chongqing Brewery in 2010, the "honeymoon" between Chongqing Brewery and Chongqing Yuxin gradually dissipated.

The aforementioned director of Jiawei Beer said that because the volume difference and price difference caused by not reaching 150,000 tons in 2013, Jiawei Beer lost more than 200 million yuan in a few years. The two sides held many rounds of consultations and talks on this issue for many years.

"They are very experienced in negotiations. First, they always bring lawyers to negotiations. Second, a lot of content in the negotiations is not written into the meeting minutes or memoranda, and then they quickly change their minds and overturn them." The aforementioned director of Jiawei Beer said that later, in order to maintain the cooperative relationship, Chongqing Yuxin made huge conditional concessions (which must be strictly implemented in accordance with the agreement between the two parties in the future). Chongqing Beer only needed to supply Chongqing Yuxin with 30 million yuan.

In its 2023 annual report, Chongqing Brewery disclosed the payment of 30 million yuan in settlement to Chongqing Yuxin.

Chongqing Yuxin believes that in December 2016, it put aside past grudges and, on the premise of giving up historical volume and price difference interests, the two parties successively signed the "Supplementary Agreement to the Product Underwriting Framework Agreement" and the "Product Underwriting Memorandum" and other documents in order to continue cooperation.

You are after 700 million, I will claim 822 million

According to the "Undertaking Agreement" between Chongqing Beer and Chongqing Yuxin, Jiawei Beer "will take 80,000 kiloliters as the base, increase the quota by 14,000 kiloliters each year, strive to reach 150,000 kiloliters in 2012, and ensure to reach 150,000 kiloliters in 2013. From 2013, the total annual beer sales of Chongqing Beer in Chongqing Jiulongpo District and Northern New District will keep pace with the growth, that is, increase or decrease in the same proportion.

In short, the output of Jiawei Beer must increase or decrease in the same direction as the output of the two factories under Chongqing Beer.

However, after Carlsberg took over Chongqing Beer, on the one hand, it implemented a high-end strategy and vigorously promoted Carlsberg and Tuborg brand beer. It adjusted the "Mountain City" beer that previously covered high, mid-range and low-end brands into a low-end brand, and newly launched "Chongqing" beer and "Guobin" mid-range and high-end brands.

Under Carlsberg's strategy, the "Mountain City" beer that Chongqing Yuxin holds the right to use has been marginalized and its production has dropped dramatically.

According to Chongqing Beer Co., Ltd.'s 2023 Annual Report, the combined annual sales of "Mountain City" beer and other economy beers have fallen below 100,000 tons, accounting for only 3% of Chongqing Beer's total sales. The company's previous announcement showed that in 2013, the sales volume of "Mountain City" beer was 994,300 tons. In 2019, the sales volume was 115,600 tons, a decrease of 88.37%. This was also the last time Chongqing Beer disclosed the production and sales of "Mountain City" beer.

Recently, Chongqing Beer responded to media questions about Carlsberg's reduction in sales of "Mountain City" beer by saying through local media: "Chongqing Beer emphasized that the sales volume of the 'Mountain City' brand in 2023 increased by 16% compared to 2019."

On August 7, 2024, our reporter asked Carlsberg for the sales data of "Mountain City" beer in recent years, as well as the company's recent clarification to the media that "Shancheng beer sales in 2023 increased by 16% compared to 2019". When asked why there were only relative values ​​but no absolute values ​​(specific sales data), the staff member in charge of media affairs at Carlsberg Chongqing replied: "This data has not been announced separately for many years."

Chongqing Yuxin accused Carlsberg of hiding its local brand "Shancheng" beer, which seriously damaged its business interests. When it communicated with Chongqing Beer and Carlsberg, it was ignored.

On September 27, 2020, Jiawei Beer filed a civil lawsuit with the Chongqing First Intermediate People's Court, listing seven units including Chongqing Beer and Carlsberg Beer (Guangdong) Co., Ltd. as defendants, claiming that since 2011, Chongqing Beer has committed many breach of contract, and that Chongqing Beer and other defendants in this case have adopted various related transactions such as commissioned processing, authorized production, sales of purchased wine in Chongqing, brand adjustment and promotion, etc., squeezing out the market share of "Mountain City" beer and damaging the interests of Jiawei Beer.

The amount of compensation claimed by Jiawei Beer against Chongqing Beer and seven other defendants was 639 million yuan, which was later increased to 822 million yuan.

Carlsberg responded by filing a lawsuit in the local court, asking the court to order Chongqing Yuxin to compensate for the more than 700 million yuan in cash that it had occupied from Jiawei Beer. In the indictment, Carlsberg Chongqing said that according to Jiawei Beer's 2019 "Audit Report", Chongqing Yuxin had occupied as much as 699 million yuan in Jiawei Beer's funds.

Since then, the two sides have been engaged in a fight.

On October 7, 2023, the Fifth Intermediate People's Court of Chongqing made a judgment: Chongqing Yuxin shall compensate Jiawei Beer for RMB 711 million and pay interest of RMB 18.45 million.

On November 30, 2023, Chongqing Yuxin submitted a civil appeal to the Chongqing Higher People's Court, requesting that the amount of funds occupied be re-sentenced to 299.7 million yuan, and agreed to repay it in five installments from 2024 to 2028, with no interest required.

"There are historical reasons for the occupied funds. How and when to repay will be decided by the shareholders' meeting. However, Carlsberg has violated the interests of Jiawei Beer by marginalizing the 'Mountain City' beer brand and severely reducing the sales of 'Mountain City' beer. There should also be an explanation." said the aforementioned director of Jiawei Beer.

It also said that after 2028, Jiawei Beer, which has the permanent right to use the "Mountain City" beer trademark, can produce and sell "Mountain City" beer on its own. However, with the existing channels being monopolized by Chongqing Beer, it will be difficult for Jiawei Beer to survive in the Chongqing beer market in four years.

(Editor: Hao Cheng, Reviewer: Wu Kezhong, Proofreader: Yan Jingning)