Lagunitas Brewing Co. sees craft beer opportunities while others fret
While many large players in the craft beer industry are signaling angst over slowing growth, Tony Magee of Lagunitas Brewing Co. remains bullish.
Magee, founder and chairman of the Petaluma-based brewery that is the nation’s ninth largest, remains optimistic as his company opens up its new taproom east of L.A. in Azusa. The move follows taproom openings in Barcelona and Seattle, where the facility serves as a fundraiser facility for local nonprofits. And its Charleston, South Carolina microbrewery just released its first beer: “Poirier’s Pale,” a low-alcohol, hoppy pale ale.
“The reports of craft beer’s demise have been overstated,” said Magee.
Still, he concedes to market realities in the sector, which show single-digit growth after years of soaring sales and volume. For Lagunitas, that means Lagunitas will delay producing beer out of the Azusa facility until 2018, even though construction is in progress. The packaging line for Azusa, the company’s third plant, is supposed to be installed in the next month.
“The industry has slowed down,” Magee said. “We just don’t need the capacity right away.”
Magee’s outlook is vastly different from rival Jim Koch, the founder of the Boston Beer Co., who recently wrote an op-ed in The New York Times entitled “Is It Last Call for Craft Beer?” and warned that anti-competitive behavior by the two largest American breweries, AB InBev and Miller Coors, could strangle the sector. The piece came as many top craft brewers were in Washington, D.C., lobbying lawmakers.
“Consumers are taking a breather,” said Magee, who noted that the craft sector, however it’s defined, is still a minority of the overall $108 billion domestic beer market and remains poised for long-term growth. “The industry is terribly healthy. It’s just a phase it’s going through.”
Lagunitas is in a much better position right now than other large craft brewers. Its sales over the last year have increased almost 20 percent in supermarkets, drugstores, convenience stores and other retail establishments tracked by IRI, a Chicago-based market research firm. In contrast, Boston Beer’s Samuel Adams was down 9 percent and Chico’s Sierra Nevada Brewing Co. was down more than 5 percent during the same time period.
“We were growing at 40 percent. Do I miss that? No. Growing at 40 percent is hard,” Magee said. Lagunitas looks to produce slightly more than 1 million barrels this year, up from 910,000 in 2016.
Lagunitas’ strategy remains the same: Keep the focus on its hoppy India Pale Ale style of beers - unlike the fruit flavors offered by its pricey competitor, Ballast Point Brewing Co. of San Diego - and focus on regions and cities where craft beer has made inroads but still has well below 50 percent of the market.
Based on that strategy, the company went into Charleston and also bought a stake in the Independence Brewing Co. in Austin, Texas, where it recently partnered on festivities for the popular South by Southwest festival.
“The fundamental thing is these guys are Texas... They can help us be more in tune with it (the local market),” Magee said of Independence. “We are not driving the ship.”
Magee said he has an eye out for more small domestic deals.
That Heineken International has a 50 percent ownership in Lagunitas gives it an advantage over most of its rivals. It provides firmer financial support than either a public company like Boston Beer or an employee-owned company like New Belgium Brewing Co. in Colorado would have. And that has allowed it to grow in the international market, with western Mexico being a recent focus.
The company will announce later this year that Heineken will build the first Lagunitas’ European brewery. Magee declined to disclose its location, but has hinted in the past that the United Kingdom would be a prime spot.
“There will be lots more deals” in the sector, Magee said, especially as some owners in larger and medium-sized craft breweries figure out their succession plans. “At some point, you want to take money off the table, and smell the daises,” he said.
The current slower environment may prompt those deals. For example, San Francisco-based TSG Partners, which explored an investment in Lagunitas, just announced the purchase of a 22-percent stake in Scottish craft beer brewer BrewDog for $264 million.
“It’s like a hard winter on a herd of elk,” Magee said of the current business climate for craft beer. “It’s great thinning of the herd.”
You can reach Staff Writer Bill Swindell at 707-521-5223 or firstname.lastname@example.org. On Twitter @BillSwindell.