Lagunitas Brewing Company was founded in 1993 in California. They have since expanded to become one of the fastest growing craft breweries in the US. Key factors in their success include producing high quality, unique beers; expanding production capacity to meet demand; and securing effective distribution networks. While competition and potential substitute products present challenges, Lagunitas has built brand loyalty through their individualistic style and flavorful beers. In 2015, Heineken acquired a 50% stake in Lagunitas to help further their global expansion efforts.

1. Lagunitas Brewing Company

2. Table of Contents
I. Background
II. Strategy
III. Porter’s 5 Forces
IV. Driving Forces
V. Key Success Factors
VI. SWOT Analysis
VII. Analysis of Financials
VIII. Managerial Worry List
IX. Recommendations

3. Background
Lagunitas brewing company was founded by Tony Magee in 1993. Tony moved from
Chicago to Lagunitas, California in 1987. He started brewing beer after his brother bought him a
home brewery kit in 1992. He seemed to think that he perfected the art of brewing so he decided
to share his beer with the world. He began filling out the paperwork and wanted to open up his
brewery in the sleepy town of Lagunitas. In the midst of filling out all of this paperwork, he
realized the county would never let him open up a brewery in his house. He then decided to
move to the next town over, Forest Knolls. They quickly outgrew the Forest Knolls location and
moved to Petaluma, California in 1994.
Tony Magee did not drink beer when he was living in Chicago. As he says and I quote, “I
grew up in Chicago, and I didn’t drink beer. Old Style? Old Milwaukee? What the f***? It’s
barely even beer when it comes down to it. Once he moved out west he tried beers such as
Anchor and Sierra Nevada and decided he loved beer. He wanted to be able to make a great beer
people enjoy. Lagunitas is founded under the principle of individuality. They do not want to have
a beer anyone can copy. They communicate to the public that they are different and
individualistic by the labels and names of their beers.
For example, Lagunitas used to have parties every week featuring their beers, live bands,
and food. Word got around that there was marijuana usage at these parties. The state of
California brought in the California alcohol control board (ABC) to investigate these parties over
an eight-week time frame. After the eight week time frame, the state of California cited a couple
of people for marijuana usage. They also suspended Lagunitas license to sell beer for 20 days.
They were put on probation for a year as well. Lagunitas named a beer “Undercover
investigation shut down ale. Whatever. We’re still here” after the citation.
Lagunitas is expanding and becoming one of the fastest growing craft breweries in the
U.S. They opened up a new brewery in Chicago and plan to open another brewery in Asuza,
California in 2017. In September of 2015 Lagunitas announced that Heineken would obtain a
50% stake in the company to help them expand globally.
Strategy
Our business-level strategy classification as a focused differentiator stems from their
focus on unique beer and the confidence that their beer can satisfy their customer’s needs. LBC
believed that with profitability came responsibility to not only maintain high brewing standards
but also support the communities that support them. Their target market would be anyone who
likes to drink craft beer. The craft beer industry is extremely competitive. LBC tries to
differentiate their product by having their products be completely different than any other. They
accommodate what their buyers view as valuable and are able to create demand at a profitable
price. LBC has secured a competitive advantage with its unique, yet diversifying product
offerings.

4. Porter’s 5 forces Model
Porter’s 5 forces include these industry level forces; Rivalry, bargaining power of
suppliers, bargaining power of buyers, threat of new entry, and threat of substitute product. This
model is a framework for industry analysis and business strategy development.
Lagunitas rivals would be noted as other craft breweries such as Sierra Nevada and
Sweetwater. Some may think that their rivals would be all breweries. That would be a false
assumption. Individuals who buy craft beer buy beer for the taste, not to binge drink. Lagunitas
brewing company is known for their unorthodox way of operating, this causes a weak rivalry
within the market. Their beer names and labels are different and eye-popping, but they also have
their own individualistic way of operating. Other breweries would not name a beer after a
situation that almost shut them down. They are a one of a kind brewery with a rebellious
mindset.
The bargaining power of suppliers would be weak as well. Lagunitas manufactures their
own beer in house so they do not have to deal with suppliers outside of the company.
The bargaining power of buyers is moderate. Customers will only pay so much for a beer.
Lagunitas needs to make sure to keep their product a fair price that is comparable to other rival
craft beers.
The threat of new entry is strong. Lagunitas brewing company is considered a one of a
kind brewing company, but anyone can buy a home brewery kit and come up with a concoction
that could be the next best craft beer.
The threat of a substitute product is strong. The reason people drink Lagunitas is to enjoy
the taste and maybe catch a little buzz, but customers have the option to choose what they would
like to drink. They may try a Sierra Nevada while at the bar one night and decide to drink it from
now on.
In conclusion, Lagunitas has a weak bargaining power of suppliers and rivalry. They
have a moderate bargaining power of buyers. And they have a strong threat of new entry and
threat of a substitute product. Lagunitas is doing well within the industry and they will continue
to do so as long as they continue to be individualistic and brew phenomenal beer. There is
nothing they can do about the strong threat of new entry and a strong threat of a substitute
product. That is just a fact of the market they decided to pursue.
Driving Forces
1. Competition
2. Flavor Variety
3. State/City Taxes
4. Pricing

5. With the change in consumer tastes towards more flavorful beer came the blossoming of
the craft beer industry. This explosion of success and growth was capitalized upon within a few
years by a mixture of microbreweries, brewpubs, contract brewers, regional, and large breweries
alike. This influx of competition saturated the market and those without stable financing and
location were soon pushed out of business.
With the fast growth of the craft beer industry came a variety of tastes and preferences to
be catered to. It became necessary for craft breweries to produce a variety of flavors in the form
of ales, porters, stouts, and dark lagers to remain competitive. Even the largest beer companies
such as Anheuser-Busch Inc. and MillerCoors started breweries for beers such as Shock Top,
Blue Moon, Landshark, and Killian’s to cater to the flavor variety consumers now craved and the
market demanded.
Due to the difference in both State and City laws nationwide, it was long a custom for
beer producers to be selective in choosing the locations for their breweries to avoid a variety of
taxes they could be subject to. These State and City taxes still apply to this day as certain states
and cities are costlier than others to brew in.
Many craft brews contain higher quality of flavor and alcohol content then traditional
domestic beers. The processes and resources necessary to produce this are a common factor in
raising the selling price. Due to the majority of craft breweries being founded privately, the need
for higher prices is necessary to cover costs. With the extensive growth within the craft beer
industry brings an additional competitive element, pricing. Due to market saturation, companies
must now provide competitive prices coupled with flavor varieties in order to consistently attract
consumers.
Key Success Factors
1. Water Supply
2. High Quality Flavor
3. Capacity
4. Distribution
Once crucial resource used in producing beer that must be accounted for is water. To be
more specific, the water supply. Water being the lifeblood of beer makes the quality and
quantity crucial in creating a consistent product. The beer must taste the same regardless of
where it’s brewed or risk losing customers, and the water will dictate the flavor profile of the
beer.
The entire personality of craft beer is flavor. Each brew contains unique ingredients that
give it a certain flavor profile, even within the same brew style they taste different. Each
brewery must produce a beer of high quality flavor in order to compete within the craft brew
industry. Everything must be carefully taken into account ranging from brewing practices,
temperatures, water quality, and quality, quantity and origin of ingredients to accurately
represent both the brand and the style of brew.

6. Many craft breweries, once attracting a sufficient consumer base, must expand quickly
lest they be overshadowed by the competition once demand isn’t met. The ability for craft
breweries to expand their capacity to meet demand is costly upfront and financing must be
acquired to achieve this. While financing a privately founded brewery greatly complicates the
matter, for a craft brewery to sustain success they must be able to grow with the demand. Once
increased capacity is achieved it becomes easier to cover costs and retain profits in the long run.
Distribution is critical to growth for a brewery in the craft beer industry. Beyond
production costs come additional logistical costs from trucking and bottling companies. The
locations and routes used to distribute the product could make or break a company in terms of
efficiency in costs associated. Certain cities become crucial for this not only by consumer
population but because of their access to nationwide distribution pipelines that other cities lack.
SWOT
Strengths:
 Brand Loyalty
 Unique Product
 Promotional Niche
 Strong Management
One of the major strengths for Lagunitas is brand loyalty, by keeping it simple, through
catchy and quirky labels with easy to read typeface and interesting copy. Also they are successful
by not doing any of your typical thrills and frills. They do not install any fancy copper pipes or
any other unnecessary items. They put the customer up front and personal with the brewing
process by installing a tasting platform above the equipment so that the customers can focus on
the beer and feel connected with the product. This begins the deep-rooted connection that
Lagunitas wants the customer to feel.
Lagunitas continues to adopt customers by offering a unique product with its strong
flavored high alcohol content beers that failed to be categorized in your typical categories. With
this combination of strong flavored high alcohol content beer paired together with a competitive
price, this differentiates Lagunitas from all the other breweries and gives them a competitive
advantage.
Additionally another part of Lagunitas strength comes from its promotional niche, they
did this by the “giving away beer and making friends,” campaign. Which is donating cases of
beer to festivals and events. By doing this they are able to show the story of how their beer is
brewed, by telling the story through the artwork on the bottle. The artwork matched the art that
went into brewing any batch of their product. Lagunitas wants to be known as an American
brewery with American owners and employees, without the label of craft or microbrewer.
Lagunitas promotes mostly by word of mouth with the campaign “personality of Lagunitas”.
They put personality into everything from the name “Lagunitas” to the recipes.
Lastly Lagunitas continues to grow and reach its potential by utilizing its strong
management. While Lagunitas was expanding it added key people from major corporations and

7. made them CEO, CFO, COO, and VP of marketing, sales, and packaging. These key upper
management people have showed that they are loyal and committed to Lagunitas successful
future.
Weaknesses:
 Cash Flow
 Capacity Issues
 Marketing Campaign
 Wastewater
From the very beginning Lagunitas has struggled with cash flow, even though with
incredible growth, financing remained an issue. Although the company grew nearly every day,
the “time of arrival” money makes it harder to see the profits. In order for Lagunitas to continue
to operate the company was consistently needing more money than it was generating, but the
banks did not believe in the craft brewing business. Most of Lagunitas money from the beginning
came from old and new friends, and by selling stock.
Additionally while Lagunitas struggled with money they also struggled with capacity
issues. Ever since the initial first sell Lagunitas has constantly exceeded capacity. It became
difficult for Lagunitas to maintain the perfect balance of equipment and space for the company.
In 2008 Lagunitas purchased new equipment that would take 10 years to reach maximum
capacity, but after nearly 2 years they reached that point. So capacity issues plagued Lagunitas
again and in 2010 it forced them to buy a new 250-barrel automated brew house which cost
Lagunitas $9.2 million.
Another weakness for Lagunitas is the marketing campaign. The company’s marketing
mostly revolves around music, whether it’s at a festival or a concert. The key to this campaign is
to donate beer and make friends, which seems to work for a short amount of time, however, this
strategy has proven to be a weak one primarily because Lagunitas has now been blocked from
participating in certain music festivals due to competitors. With the threat of the booming craft
beer market Lagunitas has a strong foothold, but in order to keep this they need to evolve to stay
relevant.
Lastly, the process of making beer involves lots of water, with that water comes
excessive wastewater, that wastewater contains high levels of organic matter that causes
problems for the municipal treatment systems. Lagunitas could not let the wastewater into the
sewers because it would cause major problems, and the city would fine them as well. As a result
Lagunitas had to buy a plot of land nearby to build their own wastewater treatment plant.
Opportunities:
 Marketing TV campaign
 Global Expansion
 Continue Event Exposure
 Loyalty Restaurant Program
 Community Involvement

8. With the beer/craft beer industry on the verge of explosive growth, with 1,500 new
breweries under construction in 2013, Lagunitas has the opportunity to lead the market by
developing a new TV campaign to compete with the other top beer companies, continue to
expand to the east coast, and stay involved with the festival, and music industry to brand
recognition, increase brand loyalty with a program, and lastly show interest in the community by
volunteering and sponsoring.
In 2013 Lagunitas grabbed the 13th spot for overall U.S. brewers, and with the companies
CMO Ron Lindenbusch stating that Lagunitas wants to be known as a American brewery with
American owners and employees, like the other major competitors such as Budweiser, they need
to advertise like the big companies. Lagunitas needs to start a nationwide TV campaign that
showcases the company’s core values and beliefs. They should show these during major sporting
events such as the Super Bowl, and finally they should sponsor minor sporting events in local
cites.
Secondly, with the expansion into the Chicago area it brings new markets and with it new
customers. Again with trying to align with the companies vision of being known as a major
American brewery they need to continue to expand into new markets such as Europe. Years ago
the idea of moving into Europe would have been met with mockery, but now American craft
beer is a huge deal, that has gotten massive respect over the years. Last year craft beer exports
has increased by 35.7% which equals nearly $100 billion.
(https://www.brewersassociation.org/press-releases/us-craft-beer-exports-near-100-million/)
With these numbers it would only be smart to expand globally. Another place the company
should expand is to the east coast. With 9.5 million people that live in North Carolina this would
help Lagunitas grow it brand in an already major market. Also helps out with shipping efficiency
that means beer will always be available in stores.
Another opportunity is to continue event exposure, with the help of Lagunitas promotion
niche they should continue to fight to get into music festivals and events. Since Lagunitas and
music go hand and hand they should continue to pursue their “Fueled by Lagunitas” by
expanding the campaign to include more bands. The company should install a new amphitheater
in the new Chicago brewery to show that the company and music go together.
With almost every successful company comes with a customer loyalty program.
Lagunitas should develop and implement a customer loyalty program that would involve the
restaurants, bars, and music festivals. This program will require the customer to download an
app, which is free, and sign up. This program is free and a free beer is included when you sign
up. The customer will get one point for every dollar spent, and when they hit two hundred points
they will receive a free six. Also, if the customer saves the boxes and turns in 50 they will
receive a half keg, and 15 for a free six pack. Also, they will receive a coupon for a free six pack
at any participating location. This program will benefit everyone involved, the bars and
restaurant will see an increase in sells, and this will increase a festivals population. This will help
improve Lagunitas brand loyalty as well.

9. Lastly, Lagunitas can increase its brand image and awareness by participating in local
community events. They should encourage their employees to engage and donate their time at
local events, charities, and at non-profit organizations. This would help with not only the
company’s brand image but also on the company’s intent to have a positive impact in the
communities it operates in.
Threats:
 Competitors
 Water Supply
 Market Fatigue/Saturation
 Uncertain future
Although Lagunitas has many strengths and opportunities within this market, due to the
explosive growing demand in the consumer market for craft beer, and with an estimated 1,500
new craft breweries coming to the market in 2013 according to the Brewers Association, it also
comes with many threats. Lagunitas is already competing with 2,400 and combine that with the
cyclical nature in the craft industry, it all guarantees for a difficult time ahead.
Another big threat to Lagunitas is the water supply, water is the lifeblood used to make
their beer. Many locations around the country uses water supplies that are not up to the standards
of Lagunitas, which would cause the beer to taste differently. According to Lagunitas CMO the
customer should not be able to distinguish between batches brewed in any location. So this
restricts the company greatly to only a few locations.
If any of you walked down the beer section of the supermarket, then you have seen the
dozens or even hundreds of different brands and choices that retailers have stocked. The craft
beer has become so complex that even store owners find it hard to figure out how to stock their
shelves. This explosive growth and market saturation has put a stress to the company to innovate
to stay alive and also it has put stress on distribution.
Lagunitas is facing companies that have deep roots, some of them with more than 100
years under their belts, pair that with the high volatility of the craft beer market and the
increasing orientation toward taking on the “big boys” plus the upcoming competition makes for
a very unknowable future.

10. Analysis of Financials
2013 2012 2011 2009 2007
Sales
Revenue
105,000 59,000 39,700 17,100 9,500
Net Profit 8,500 3,107 1,737 563 804
NPM (%) 8.10 5.27 4.38 3.29 8.46
In 1997, the craft beer industry hit hard times. Financing dried up and many breweries
folded. As many breweries were closing or stagnating, LBC was thriving and growing fast. In
2000, increased debt and overhead expenses pushed LBC to pursue faster growth. The next
several years were used to “clean up” production with efficiency purchases such a new bottling
line that did not waste as much beer and a new high speed centrifuge separator. Both strategies
paid for themselves by getting more beer to the consumer without additional inputs.
By the end of 2007, production was reaching maximum capacity again. In 2008, Magee
purchased an automated 80-barrel brew house. The new equipment allowed significant growth.
Magee told local newspapers it would take 10 years to reach maximum production. Two years
later, LBC was quickly approaching the maximum production level. In March 2010, amid an
annual growth rate of 46 percent, Magee announced an additional 250-barrel automated brew
house, which would allow for annual capacity of over 150,000 barrels at a cost of $9.2 million.
In 2012 and 2013, LBC expanded again to nearly 230,000 and 400,000 barrels annual
capacity. LBC began planning a second brewery. Magee knew he couldn’t finance this
expansion phase in the same way he has in Petaluma, which was borrowing from friends and
family and taking second mortgages. In the early days LBC was paying 1.5 percent on
receivables and 10 to 14 percent of equipment. This made it difficult for them to acquire bank
loans or further investors.
Before 1995, LBC had been bleeding cash and showed little profits. Once the debts were
all paid, LBC was flush with cash. This made its Chicago endeavor an attractive opportunity for
banks and investors, as the investors saw the brewery was growing. Obviously, LBC has grown
substantially since the start of this company. The financials above prove that they had rough
times as did the entire craft beer industry, but, the continuous growth strategy worked in LBC’s
favor and now they are one of the top craft brewers in the country.

11. Managerial Worry List
Lack of Marketing Presence – Although Lagunitas strategy of promotion through word of
mouth and free beer at events has served them well to date, with the saturated craft beer industry
now flooding consumers with additional options the strategy must evolve to reach farther.
Threat of New Entrants is Strong – With craft breweries popping up more and more each
year the market has reached the point of saturation. With too many craft beers comes the threat
of the market digressing after reaching peak maturity.
Lack of Cash Flow – Lagunitas was blessed with the wonderful problem of demand
almost exceeding supply. This presents a problem of needing to brew beer faster before
receiving all the proceeds from previous batches. Lagunitas must find a way to cut costs in order
to keep more cash on hand for expansion.
Untapped Global Market – While the market for craft beer in the U.S. may have reached
the point of maturity, the market is wide open across the globe.
Major Breweries Intruding on Craft Beer Market – Major beer companies such as
MillerCoors and Annheuser- Busch have developed their own craft beers like Blue Moon and
Shocktop to tap into the saturated market. This is a major threat due to the financial and
marketing power these competitors possess that could push many out of contention.

12. Recommendations
Marketing Ad Campaign – With the plethora of options in the craft beer industry,
Lagunitas must develop a marketing campaign to stand out amongst the competition. Major
industry players like Annheuser-Busch and MillerCoors already have national TV and radio ads
for major sporting events and have developed their own craft beers and the marketing to
compliment them. Although the word of mouth strategy has worked to date, it’s not sustainable
in advancing market position. Lagunitas must begin sponsoring and advertising for
internationally recognized major sporting events like the UFC (Ultimate Fighting
Championship), to reach the untapped global market, expand national brand awareness, and keep
pace with the industry leaders.
Use Cans to Reduce Production Costs and Increase Cash Flow - By implementing a
canned beer Lagunitas can benefit in multiple ways. Besides simply being cheaper to use than
colored glass, cans are lighter, reduce CO2 emissions, block light which preserves flavor, and are
more environmentally friendly and accepted than glass bottles. This not only reduces production
costs, but allows Lagunitas to promote their beers in places such as beaches, pools, golf courses,
and parks to further ingrain there image into the perception of consumers. This will help free up
cash flow to be redistributed into areas for expansion such as capacity, distribution, or marketing.
Customer Loyalty Rewards Initiative – With fierce competition growing every day,
Lagunitas must find ways to keep consumers coming back even with similar substitutes
available. Pricing can only be maneuvered so much so another avenue must be explored. By
using a customer rewards initiative they can achieve this. Giving customers free beer in
exchange for a specific number of empty beer boxes gives them initiative for continued
purchases. For example:
• 15 empty six-pack boxes = 1 free six pack
• 50 six-pack boxes = free half keg
• 100 six pack boxes = free full keg
This can also be expanded to include numbers of bottles or bottle caps to further increase
environmental awareness and positive brand image.