A Confusion of Brands: Miller Buys Steel Reserve

Jay Brooks

18 years ago

Okay, maybe the confusion is all on my side, but I’m confused. SABMiller announced the purchase from McKenzie River Partners of Steel Reserve, the leading high gravity beer. High gravity beers are essentially a euphemism for malt liquor. But the McKenzie River Partners that I knew also owned or at least controlled in some fashion Black Star Lager from Great Northern Brewing Co. of Whitefish, Montana.

The original Black Star Lager label and today’s label.

I knew at some point that Steel Reserve became the focus of the company but Black Star all but disappeared from the Bay Area, where at one time it actually did pretty well. I confess when the focus changed to malt liquor, I stopped paying attention. I don’t generally think much of high gravity beers — Dogfish Head’s Malt de Liquor notwithstanding — so I tend to ignore news about them. For this reason, this move by Miller to buy even the leading malt liquor for an astonishing $215 million makes little sense. Also in the deal is Sparks, a caffeinated alcoholic malt beverage with added caffeine, guarana and ginseng. But the spin machine makes these two brands sound like Miller’s salvation. I guess time will tell.

From the press release:

The deal immediately strengthens the Miller portfolio with two fast-growing and profitable brands that are defining their respective product categories and far outpacing overall industry growth. Miller also expands its innovation capability and expertise by aligning itself with an entrepreneurial pioneer with a proven track record of creating highly successful, first-mover brands like Steel Reserve and Sparks.

“Sparks and Steel Reserve will have an immediate positive impact on our growth profile,” said Norman Adami, president and CEO of Miller Brewing Company, a wholly owned subsidiary of SABMiller plc. “In addition, our new product development relationship with Minott Wessinger connects us with a very special guy when it comes to innovation.”

Under Mr. Wessinger’s leadership, the Sparks and Steel Reserve brands have grown at triple and double digits respectively. Miller plans to build on their innovative and highly differentiated positionings and continue their impressive growth by leveraging Miller’s first class marketing, sales and distribution platforms.

“I’m very excited about the new relationship with Miller and confident that they will take Sparks and Steel Reserve to the next level with great marketing and sales support,” said Mr. Wessinger. “The U.S. beverage market is changing rapidly and there are tremendous opportunities for us to create new brands that bring value to consumers, wholesalers and retailers.”

Both Sparks and Steel Reserve are already brewed by Miller under a contract brewing agreement with McKenzie River. Under the new agreement, the parties have also agreed to a long-term contract brewing relationship. The majority of Sparks and Steel Reserve volume is currently distributed by U.S. wholesalers who also carry Miller brands.

McKenzie River has successfully built national distribution of both the Sparks and Steel Reserve brands through seeding in independent C-stores followed by expansion into chain convenience stores and supermarkets. Miller intends to increase the channel penetration of the brands.

Besides acquiring great brands, Miller also gains access to Mr. Wessinger’s creativity and entrepreneurial winning streak through a formal product development relationship.

“Our new relationship with McKenzie River will enable Miller to tap into emerging consumer trends and leverage new brands through our national system of distributor partners,” Mr. Adami said.