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TEACHING NOTE
CASE 7
Lagunitas Brewing Company, Inc.: 2013
Overview
On August 1st, 2013, Tony Magee, the founder and CEO of Lagunitas Brewing Company (LBC), stood in
Chicago, IL, 2,100 miles away from the current regional microbrewery in Petaluma, CA. He had chosen
to build a second microbrewery, providing him the capacity to meet current and expected future demand
of his LBC brand. The new brewery, which would immediately allow LBC to increase its production of beer and
quadruple capacity after some 20 years in business, was scheduled to open in early 2014. However, there were
already 2,400 craft or microbreweries and another 1,500 in various stages of development and completion in
mid-2013, and the U.S. craft beer segment appeared to be in the midst of explosive growth in production. LBC’s
expansion to Chicago was thought by management to be a key step to being able to break out of the craft beer
label and compete on the larger national—and perhaps eventually global—stage. Management also hoped that
the personality of LBC would not get lost in the expansion process. As Magee visualized his future in Chicago,
he couldn’t help but wonder what that future held and if expansion was the right move. How was LBC to manage
and maintain control of its expansion? If demand projections were off, did LBC have enough capacity or too
much? Did LBC have the financial resources to withstand more competition or another downturn in the craft beer
industry segment or in the economy as a whole?
Suggestions for Using the Case
Strategy analysis. Adopters should find the LBC case to be extremely useful for a review of analytical tools,
such as the macro-environmental factors, competitive dynamics and industry forces covered in Chapter 3 and/
or the generic strategy concepts covered in Chapter 5. Average students should be able to apply industry forces
and drivers, SWOT, and quantitative analyses—at a minimum. Good students should be able to conduct a
“Porter five-force” analysis of macroeconomic forces and state the benefits and drawbacks of LBC apparent
generic “focused differentiation” strategy in light of those forces, though superior students might argue that
LBC, inasmuch as it has already committed to the capacity expansion and geographical diversification project in
Chicago, now needs to consider carefully its transition to attain a “broad differentiation” position in the national
microbrewing industry/segment.
Strategy formulation. Students should be pressed to weigh to what extent LBC balances its responsibilities to
its owner/workers in respect to increasing shareholder value, with its responsibilities to the planet and society,
topics that are covered in some detail in Chapter 9. That is, based on its commitment to the local community (in
Petaluma, CA) and wastewater treatment, can LBC be described as both a socially and financially responsible
business? Can it continue to do so in its second location in Chicago, unless some adjustments are made to
its strategy? Students need to reflect upon the importance of building and upgrading LBC’s organizational
capabilities that might not only provide greater sustainability, but also sustain some of the entrepreneurial élan
to propel future growth.
*
* This teaching note reflects the thinking and analysis of Professor Armand Gilinksy, Sonoma State University. We are most
grateful for his insight, analysis and contributions to how the case can be taught successfully.
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Strategy implementation. Adopters should find that the LBC case is quite suitable for a pre-final review case,
student team presentation, or final examination. For those purposes, instructors may find that the subject matter
and issues in the case pair nicely with the leadership and organizational culture topics, covered in Chapter 12.
After studying and discussing the LBC case, students should be able to:
nDevelop a greater awareness and understanding of the microbrewing segment of the beer industry and apply
various analytical tools (from Chapter 4) to evaluate the external forces impacting that industry segment.
nUnderstand the distinctive characteristics of decision-making in a privately held and still entrepreneurially
managed firm (covered in Chapter 12).
nApply SWOT analysis to develop a deeper understanding of the strength of external forces (Chapter 4) vis à
vis the company’s internal resource strengths and competitive weaknesses (Chapter 5) of being a late entrant
that is attempting to create and protect its competitive advantage.
nConduct and interpret analyses of pertinent quantitative data that lead to conclusions about how to foster or
constrain future strategic responses to a changing environment.
nEvaluate a firm’s generic strategy (covered in Chapter 5), particularly in response to increasingly rapid entry
of rivals in an industry segment that not only has competing standards, but also is still not dominated by
large, integrated, multinational brewers.
nDevelop, evaluate, and choose among strategic options through various ethical lenses (discussed in Chapter
9), such as balancing a high-involvement, ownership culture with the goals of achieving revenue and
profitability growth and doing so sustainably.
Video for Use with the Lagunitas Brewing Company Case. There is a 3:27 video entitled “Beer Talk
with Lagunitas Brewing Company Founder” that would be best viewed after students have read the case and
What to Tell Students in Preparing the Lagunitas Brewing Case for Class. To provide students with
guidance in what to do and think about in preparing the LBC case for class discussion, we strongly recommend
they master and then apply many of the concepts and analytical methods in Chapters 3–5. Be sure to:
nProvide class members with assignment questions and insist that they prepare good notes/answers to
these questions before coming to class. Our recommended assignment questions for the LBC case are
To facilitate your use of assignment questions and making them available to students, we have posted a file of
the Assignment Questions contained in this teaching note on the instructor resources section of the Connect
Library. In all instances, these assignment questions correspond to the assignment questions in the teaching
note for the case.
In our experience, it is quite difficult to have an insightful and constructive class discussion of an assigned case
unless students have conscientiously have made use of pertinent core concepts and analytical tools in preparing
substantive answers to a set of well-conceived study questions before they come to class. In our classes, we
expect students to bring their notes to the study questions to use/refer to in responding to the questions that
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Utilizing the Guide to Case Analysis. If this is your first assigned case, you may find it beneficial to have
class members read the Guide to Case Analysis that immediately follows Case 31 in the text. The content of this
Suggested Assignment Question for an Oral Team Presentation or Written Case Analysis. We
believe that, as beer is quite popular with students and they are in some instances perhaps too familiar with the
industry, the LBC case is quite well-suited for written assignments and oral team presentations. Our suggested
assignment question is as follows:
Tony Magee and Ron Lindenbusch have employed you as a consultant to assess LBC’s overall situation
and recommend a set of actions to improve the company’s future prospects. Please prepare a report to Mr.
Magee and Mr. Lindenbusch that includes: (1) an evaluation of the environmental factors and competitive
Assignment Questions
1. Identify the key environmental changes in the beer industry. Which have most aided the growth in the US
craft beer market?
2. How attractive is the US beer market? Use Porter’s five forces to assess the market attractiveness. Does the
craft beer segment vary in terms of the five forces’ impact on industry attractiveness?
3. How would you characterize Magee’s competitive strategy for the Lagunitas brand?
4. What is your assessment of LBC’s performance relative to its peers? What does a strategic group map of the
brewing industry reveal? Has LBC been successful?
5. What recommendations would you make concerning expansion and the construction of the new brewery?
How will Magee ensure consistency of the Lagunitas brand across multiple breweries?
6. What are the risks that Magee faces in expanding the brand away from a craft orientation toward ‘playing
against the largest breweries’ on a national scale?
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Teaching Outline and Analysis
1. Identify the key environmental changes in the beer industry. Which have most aided
the growth in the US craft beer market?
Students should have read Chapter 4 carefully and be able to identify those environmental forces/factors
TABLE 1. “PESTEL” Analysis for Lagunitas Brewing Co. and the
Microbrewing Segment
Macro-Environmental Force U.S. Brewing Industry
Political factors +
•
Energy and waste management policies
•
Planning permission
•
Tariffs & taxes
Economic conditions +
•
Changes in GDP & inflation
Socio-cultural forces ++
•
Lifestyle choices, ‘buy local’ movements
Technological factors +/-
•
Improvements in brewing technology
Environmental forces +/-
•
Natural disasters
•
Weather, climate change
Legal & regulatory factors ++
•
1976 laws permitting production and sales of craft beer
•
Labor laws
KEY:
++ = Strong impact
+ = Moderate impact
+/- = Possible impact
Of the six environmental forces listed above, two—Legal and Regulatory factors as well as Socio-cultural
nGovernment/regulatory/legal
• Clearly, without the repeal of prohibition there could not be a beer industry at all, but the first
dramatic change helping craft beer specifically was the 1976 federal legislation that enabled smaller
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• Water usage—particularly in a drought-prone state like California—and wastewater treatment are
major environmental issues for brewers, as beer production is a water-intensive process. It is not
at all clear that LBC is in the vanguard of environmental responsibility, but the company at least
nConsumer/social demographics
• The case mentions changes in consumer tastes as a prominent factor—and more specifically there
has been a broadening of tastes. A greater proportion of the market became willing to try beers that
2. How attractive is the US beer market? Use Porter’s five-force analysis to assess the
market attractiveness. Does the craft beer segment vary in terms of the five forces’
impact on industry attractiveness?
Below presents a representative five-forces model of competition for companies that brew beer.
Suppliers
Rivalry
Among
Competing
Breweries
market position
and competitive
advantage
Competitive pressures coming
Competitive pressures coming
from the threat of entry of new rivals
Substitutes
for Beer
Threat of New
Entrants into the
Brewing Industry
Beer
Competitive
pressures
stemming
Competitive
pressures
stemming
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Threat of New Entrants: (Very High)
With 2,400 breweries already and another 1,500 planned, there is clearly no barrier that is proving effective
at deterring entry into the microbrewing segment of the beer industry. The decline in brewery numbers
historically was driven by the increasing benefits of scale—in production, distribution and marketing. The
Bargaining Power of Suppliers: (Low)
Although there is limited information about suppliers and supply chains in the case, most students should
know that the core ingredients in beer include malt, barley, hops and water, all of which (with the possible
exception of hops) are largely undifferentiated commodity products that are widely available and competitive.
Bargaining Power of Buyers: (High)
Where in the past there were a limited number of options for US consumers, there is in 2013 a plethora of
choice among beers. The saving grace for the industry is the degree of differentiation that now exists in the
market—in terms of styles and brands. There are, however, a limited number of styles available of ales and
Threat of Substitutes: (Moderate-High)
Porter notes that an industry is defined by products or services that can be considered close substitutes for
one another; hence, other beer brand cannot be considered as substitutes for microbrewed beer. There are,
nevertheless, a wide array of alcoholic and non-alcoholic beverages (not to mention other mood enhancing
substances) that can substitute for beer. However, the range of beers itself, the relatively low cost of beer
Intensity of Rivalry: (Moderate-High)
The explosive growth in brewery numbers and future projections suggest the market has seen a large increase
in rivalry and will continue to increase. Lessening the impact has been the growth in the craft beer market
demand. But it is also important to remember that most of the new entrants have been on a very small
Overall attractiveness of the beer industry: Moderate to high
While the beer industry as a whole is unattractive to new entrants, the craft and microbrewing niches still
present higher growth and superior return on investment (ROI) opportunities due to relative (that is, to