USA, CA & SC & TX: Lagunitas Brewing Co. takes stakes in three other craft breweries

Less than a year after embarking on an unprecedented partnership with Heineken International to expand its global business, Lagunitas Brewing Co. is now turning its sights on local taprooms across the American craft beer landscape, Santa Rosa Press Democrat reported.

The Petaluma-based brewery announced on June 29 it is taking stakes in three beer businesses: Southend Brewery and Smokehouse in Charleston, S.C.; Independence Brewing Co. in Austin, Texas; and Moonlight Brewing Co., the Santa Rosa, CA brewery operated by one of the pioneers of the modern craft beer movement, Brian Hunt.

Hunt, 59, said the opportunity “to secure Moonlight’s future into the next generation” was the driving factor along with his friendship of Lagunitas founder Tony Magee, who he has known since 1993.

“I’m almost 60 now and I don’t know how long I’m going to keep doing this,” said Hunt, who like Magee has never shied away from giving an unvarnished opinion of the industry. “I got other things going on my life. I don’t want to run a brewery until the day I fall under.”

The moves by Magee go in the opposite direction of recent activity in the $22 billion craft beer market, where AB InBev, MillerCoors and Constellation Brands are in a race to capture market share by buying up the hottest and fastest-growing craft beer brands.

Instead, Lagunitas is taking a more hyperlocal approach to growth, Magee said. He wants to tap into local communities where Lagunitas does not have a significant presence and learn from local beer lovers what they want, making it akin to a research and development project.

“These aren’t conquests ... It’s not for scale,” said Magee, who has built a reputation in the beer business for his iconoclastic views. “This is a thread to make more local connections.”

Lagunitas is in a position where it doesn’t have the same pressures as other brewers to build market share domestically. It was the 10th largest brewer overall in the United States last year, according to the Brewers Association, a trade group for independent brewers. The company expects to produce 960,000 barrels this year, Magee said. Next year, it will open its third plant in Azusa, enabling it to expand production and better serve the Southwest and Mexico.

Lagunitas had almost $150 million in sales in the 12-month period ending June 12 through supermarkets, drugstores, convenience stores and other retail establishments tracked by IRI, a Chicago-based market research firm. Its sales jumped 33 percent, nearly three times faster than the overall craft beer category.

In September, Heineken acquired a 50 percent stake in Lagunitas in a deal that valued the entire Petaluma company at about $1 billion at the time, according to people familiar with industry valuations. The partnership has helped Lagunitas expand into new markets overseas. Magee said his brewery has recently entered five new foreign markets: the Netherlands, France, Mexico, Denmark and the Bahamas.

Financial terms of the trio of brewery investments announced Wednesday were not disclosed. The purchases were all funded by Lagunitas and did not require any capital outlay from Heineken, Magee said.

The most notable Lagunitas investment announced on June 29 — both locally as well as nationally — is its 50 percent stake in Moonlight. Hunt, who founded the brewery in 1992, is considered one of the pioneers of the modern craft beer movement and is a ubiquitous presence on the scene.

Moonlight’s flagship beer, the black lager Death and Taxes, has an “outstanding” rating of 92 on the BeerAdvocate website with one review calling it “incredibly fresh the deep malt flavors, yet still light and extremely quaffable.”

Hunt’s two children weren’t interested in taking over the business, he said, necessitating more thought on a succession plan. In addition, his brewery has four full-time employees and three part-timers. Moonlight finally opened a taproom early this year on Coffey Lane, which has attracted a considerable following among local beer consumers.

Moonlight produces 3,000 barrels annually, but Hunt noted that he has long list of people who would like to serve his beer — which is only available on draft — mostly in Northern California. He also has had retailers ask him to sell Moonlight in bottles.

“It tugs at my heart strings,” Hunt said of the taprooms that he has to turn down because he doesn’t have enough capacity. “People keep demanding more beer than I can make by myself.”

Hunt stressed that Moonlight will not seek to be in every state by partnering with Lagunitas, but rather grow organically by placing a premium on its quality. “I don’t care about Moonlight getting big,” Hunt said. “I care about Moonlight being a delicious beer.”

When asked what Lagunitas could do for Moonlight, Magee said: “I want to find out what Brian wants to do.”

Hunt said the partnership will free him up to concentrate on brewing beer. He built up Moonlight over more than a decade of 80-hour workweeks, with almost no task too menial. He is known to personally deliver kegs to bars around Sonoma County on Friday nights.

“Between Tony’s creativity and mine ... there’s no end to the things we can do,” Hunt said.

In Charleston, Lagunitas acquired a majority stake in Southend and will turn it into a Lagunitas taproom, its first one outside of its breweries in Petaluma and Chicago. It will offer small batches of beer that will be exclusive to the taproom from a 10-barrel brewhouse in the historic quarter of the city, which is a major tourist destination.

But Magee cautioned that Lagunitas does not expect to open standalone taprooms across the country. “Eventually they all become like an Applebee’s,” he said. In the past, Magee has said he would like to build more domestic breweries.

Other major craft breweries are starting to branch out with taprooms that are not attached to a major brewery. For example, Stone Brewing Co. of Escondido announced last month it would open a taproom and a small-scale brewery in downtown Napa by refurbishing the historic Borreo building. Sierra Nevada Brewing Co. of Chico operates a small taproom in Berkeley.

In Austin, Lagunitas will take a minority stake in Independence to help it expand production. The brewery was opened in 2004 by the husband-and-wife team of Rob and Amy Cartwright.

“It would be easy to summarize this as an investment story bound by dollars and cents but the exceptional growth of craft beer over the last 30 years is a more complex story — a story of collaboration and innovation — being written by breweries like Lagunitas and Independence who are willing to forge new paths while embracing brewing traditions and building the brewing community,” the Cartwrights wrote on the Independence website.

30 June, 2016