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Case 7 Teaching Note Lagunitas Brewing Company, Inc.: 2013
355
Craft beer segment attractiveness: High
As is clear from the above, the craft beer segment is becoming far more competitive and the competition is
itself more localized than the wider beer market. The obvious question for LBC is whether there is a market
“sweet spot” between being a localized craft beer and the national big players, or if it is en route to becoming
3. How would you characterize Magee’s generic competitive strategy for the Lagunitas
brand? How well is this strategy working?
Coverage of generic strategies is in Chapter 5.
The generic competitive strategy of Lagunitas is integrated cost/focused differentiation.
From the beginning Magee has worked hard to minimize costs—from doing everything himself initially to
the introduction of technology to lessen costs and, finally, to the development of the Chicago brewery for
Resource Strengths and Competitive Capabilities
nDedicated leadership
n LBC brand strength
n Quality control
Resource Deficiencies and Competitive Liabilities
n Reliance on founder for direction
n Limited product offerings nationwide
External Market Opportunities
n Rapidly growing market for craft beers
n Promotions during special events
Case 7 Teaching Note Lagunitas Brewing Company, Inc.: 2013
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External Threats to Lagunitas Brewing’s Future Well-Being
n Proliferation of new entrants into craft beer segment
n Environmental concerns regarding wastewater
LBC’s differentiation has been critical to its success to date. As is quoted in the case—it is what is in the
The big change that is occurring in the craft beer/microbrewing segment is the broadening of the strategy on
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?
You should expect class members to use some of the financial ratios in Table 4.1 of Chapter 4 in performing
calculations to determine what aspects of LBC’s financial performance might qualify as impressive. As the
company is closely-held, there is not sufficient information to permit calculation of all ratios. Students will
Students should observe that:
nThe massive growth figures for LBC relative to the industry or even the craft brewing segment would
nLBC’s ales revenues have been growing at a compound annual growth rate (CAGR) of 52% over the
nThat growth—and the fact that LBC holds a market share position as sixth largest craft brewer in the
Table 2 presents calculations of LBC’s annual (year-on-year) growth rates in capacity, sales revenues, net
Case 7 Teaching Note Lagunitas Brewing Company, Inc.: 2013
357
TABLE 2. Selected Performance Data for Lagunitas Brewing Co.,
1996–2013
(Data prior to 1996 were not available)
Year
—Year on Year Growth, %— Return
on Sales, %Capacity Sales Profits
1996 58.5% 58.5% n.a. n.a.
1997 55.4% 55.4% n.a. n.a.
1998 23.8% 27.9% n.a. n.a.
1999 38.4% 41.1% n.a. n.a.
2000 20.8% 22.3% n.a. n.a.
2001 11.5% 13.6% n.a. n.a.
2002 20.6% 22.8% n.a. n.a.
2003 4.3% 6.8% n.a. n.a.
2004 8.2% 9.5% n.a. 5.9%
Calculated from case Exhibit 4.
Students should also be able to prepare a strategic group map of the U.S. beer industry as a component
of Lagunitas’ competitive strength. Strategic group maps are beneficial for determining relative company
Students can choose among any of several strategic variables to divide the beer industry into strategic groups
We have chosen to employ geographic scope (in distribution) and the degree of product differentiation
Case 7 Teaching Note Lagunitas Brewing Company, Inc.: 2013
358
FIGURE 1. Strategic Group Map of the U.S. Beer Industry
High
DIFFERENTIATION
DISTRIBUTION
Low
National
Global
Local
A-B
(InBev)
SAB Miller
Molson/Coors
Craft
brewers
LBC &
micros
Boston
Beer
Based on the strategic group map above, one can see that LBC is not alone in its segment and faces stiff
competition from Boston Beer, and to a lesser extent, from rivals in the craft beer segment.
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?
nLBC needs to go to significant lengths to make sure that the beer brewed in Chicago tastes exactly like
the beer brewed in Petaluma by ensuring that the water used is consistent in profile.
n This, along with the head brewer at least initially commuting between the breweries to oversee
production, should ensure product consistency.
Case 7 Teaching Note Lagunitas Brewing Company, Inc.: 2013
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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?
The principal danger for LBC is potential damage to the brand and culture of the business as it grows
exponentially outside of its “home territory” in Petaluma, CA.
As LBC seemingly has lesser aspirations about craft beer and more about becoming a major national brewer,
there is a danger that it will come to look increasingly similar to those large corporate brewers that are mass-
market companies. That is, shift from a focused differentiation to a broad (mass-market) differentiation
nThe rise of craft beer can to some extent be seen as a market reaction against large corporate beer makers
nThe LBC brand has traditionally been seen as somewhat “counter-culture” (in that it originated in
However, it is important to remember the scale that is being dealt with by LBC. Chicago would be a second
site.
nLBC’s capacity in 2012 was just over 1/10th of the largest craft brewing company (Boston) as seen in
case exhibit 5.
nEven with Chicago operating at maximum capacity, LBC would be a long way (in terms of size) from
Wrapping up the case: Most all of the front-burner issues at LBC relate to the inextricable linkage between
external market pressures to continue rapid growth while using sourcing and quality control functions to rein in
Epilogue
With a $25 million, 300,000 square-foot brewery expansion in Chicago set to open in December 2013, Lagunitas
became a case-study in the surging popularity, although the brewery “is far from alone,” said Tony Magee,
founder of the brewery who spoke at the November 12, 2013 North Bay Beer, Cider, and Spirits conference, as
reported by the North Bay Business Journal on November 18, 2013.
“Lagunitas and other craft breweries will be the next Anheuser,” Mr. Magee said, referring to the giant InBev-
owned Anheuser-Busch that currently dominates the beer market.
“It’s really something bigger than Lagunitas,” he added, noting that the beer giants have been forced to compete
with craft brews by either acquiring established brands like Blue Moon or Shock Top or making variations to
appeal to consumers increasingly attracted to a different style of beer.
Case 7 Teaching Note Lagunitas Brewing Company, Inc.: 2013
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Tony Magee is chief executive officer and president of Lagunitas Brewing Co., which he founded in 1993 in west
Marin County. It has since grown into the largest brewery in the North Bay and the sixth-largest craft brewery in
the U.S. in sales volume, according to the Brewers Association. The company produced 265,420 barrels of beer
in 2012. Mr. Magee, a Chicago native, brewed his first home batch in January 1993, and Lagunitas brewed its
first in December that same year. Before brewing, Mr. Magee studied music composition and worked in sales,
ranging from luggage to commercial printing. “I graduated from high school in the bottom one-fourth of my
class and later dropped out of college after four years when they told me I had three years left to go,” he said.
His favorite beer: “Lagunitas IPA, of course, with Anchor Steam a close second.”
According to a later February 10, 2014 report in in the North Bay Business Journal, Sonoma County, California,
where LBC is based, now had 21 craft breweries, which together with cider-makers and distilleries added $123
million to the county’s economy in 2012, according to a recently released map by the Sonoma County Economic
Development Board and a groundbreaking study of the sector released last year. Three of those breweries have
opened since June, with indication that yet more were in the works.
Demand for those high-end brews had so far left plenty of room for new entrants to the marketplace in California,
the largest producer of craft beer in the country. Over 300 new breweries opened in 2012, contributing to a 20
percent increase in production volume state-wide, according to the most recent data from the nonprofit California
Craft Brewers Association.
Locally made hard ciders and craft bourbons and gins were similarly gaining a strong foothold in the craft
market, panelists said, similarly capitalizing on Sonoma County’s love for all things made local—as long as it’s
good.
“There’s a high level of gastronomic appreciation,” said Ron Lindenbusch of Lagunitas.
David Cordtz, who founded Sonoma Cider in Healdsburg in 2013, said he and others are looking to emulate the
success of the county’s breweries. “We hope to take a page out of the craft beer industry,” he said.
Banks and other financiers also increasingly saw value in a well-made craft beer or spirit, pumping more capital
into a business that once seemed fringe and disparate. Similarly, financial backers weren’t too concerned about
market saturation, considering the size of the beer market, at $100 billion.
According to a report from Frank, Rimmerman + Co., CPAs, traditional brands such as Budweiser “are
experiencing massive volume declines, creating opportunities for craft beer (and wine) to increase market share
as consumers seek more avorful alternatives.”
“Most breweries are asset-rich,” said Brian Mulvaney, senior banker with Bank of America Merrill Lynch,
noting that brewery tanks and other expensive equipment are viewed as attractive collateral given the demand
for craft beer.
Richard Norgrove, owner and president of Healdsburg-based Bear Republic, which was started in 1995, agreed
that the market was increasingly favorable, both in terms of demand and available capital.
“The market will expand,” Mr. Norgrove said. “But you still need to make a great product.”
