Lagunitas Brewing undertakes big expansion

Tony Magee just can't make beer fast enough.

Since November, his homegrown Lagunitas Brewing Company has been running production shifts around the clock, 24/7, to keep up with demand for its increasingly popular India pale ale and other beers.

The Petaluma brewery is planning a $9.5 million expansion that will dramatically boost production capacity early next year, vaulting Lagunitas into the realm of the nation's largest craft brewers.

Lagunitas, which produced more than 100,000 barrels of beer last year, was already the 26th largest craft brewer in America in 2009.

But by gaining the ability to ramp up to 600,000 barrels a year, Lagunitas one day could approach the output of the nation's second-largest craft brewer, Sierra Nevada Brewing Co., a Chico-based company that produced 760,000 barrels in 2010.

Magee said he had expected to get several years of use out of his current brewhouse. But based on the incredible demand, he needs to expand now.

"This is one of those big stair steps we have to make," he said.

The 18-year-old Lagunitas wears an irreverent, at times rebellious, streak on its labels. Its seasonal beers include names like "Harry Eyeball" and "Brown Shugga."

When state alcohol regulators imposed a 20-day suspension in 2006 for pot smoking at the brewery's weekly tasting parties, Magee responded by producing a new beer: "Undercover Investigation Shut-Down Ale." It's billed as "unforgiven and unrepentant."

"We started the business so we wouldn't be beholden to anybody, and that includes convention," Magee said. He suggested such an approach might seem out of place for cheese makers or olive canners, but "beer is like a rebel platform to start with."

The company's expansion comes as demand continues to steadily grow for craft beer.

Sales of craft beer in the U.S. jumped 9 percent in the first half of 2010, according to the Brewer's Association, a trade group based in Boulder, Colo. In the same period, overall beer sales fell nearly 3 percent.

However, craft beer accounts for only about 5 percent of the beer sold in America. The nation's $100 billion beer market is dominated by large U.S. beer companies, and imports still overshadow domestic craft brews.

Even so, the number of breweries continues to grow as American beer-drinkers expand their palates. In 1978, the nation had 42 brewing companies. Today, there are 1,700 U.S. breweries, up 9 percent from a year ago, according to the Brewer's Association, which ranks craft breweries by volume.

Over the last three decades, craft beer has come of age and now gets featured on the beverage lists at white tablecloth restaurants. The latest issue of Wine Spectator magazine featured a story about matching craft beer with food.

"The United States makes world-class beer and world-class wine," said Brewer's Association spokeswoman Julia Herz.

But brewers maintain that compared to fine wine, craft beer is the more affordable luxury. While beer prices are rising, beer makers said it still doesn't cost that much extra to go from the ordinary to the extraordinary.

For just a few bucks more, "you can get a world-class beer," said Bill Manley, a spokesman for Sierra Nevada Brewing Co.

Magee, 50, began Lagunitas in west Marin County in 1993. A year later he moved to Petaluma and has been there ever since.

In 2004 the company's facility on North McDowell Boulevard was producing about 27,000 barrels a year. Last year production exceeded 100,000 barrels, said Lagunitas chief marketing officer Ron Lindenbusch. Each barrel is 31 gallons, and a keg is 15.5 gallons, a half-barrel.

The company has 92 employees and sells its beer in 32 states. Its flagship brand, India pale ale, or IPA, constitutes 70 percent of the company's sales.

"We're selling more and more through the same stores," said Lindenbusch. Such increases help demonstrate that "there's a lot more enthusiasm for our brand than there was five years ago."

Charles W. Bamforth, a professor of malting and brewing science at UC Davis, said Lagunitas is an example of why the craft beer industry keeps growing.

"They do it right," Bamforth said. "They're very mindful of quality."

Craft brewers like Lagunitas can command top dollar on the beer aisle. Over the last year, U.S. beer prices averaged $31 a case for craft brands, $18 for "premium" lagers and nearly $14 for budget brews.

On Friday at three Santa Rosa supermarkets, a six-pack of Lagunitas IPA ranged in price from $7.99 to $8.49.

Beer prices have been rising. Craft beer prices increased 42 cents for a 24-bottle case, a Brewer's Association official told Fox News last week. Others said beer prices rose more than 5 percent this year, due partly to rising barley prices.

Magee said he thought a six-pack of Lagunitas IPA probably costs about 80 cents more than a few years ago.

To meet demand, Lagunitas is replacing its 80-barrel brewhouse with a much larger production facility.

In November, Magee said, a ship will dock in Oakland with a new 250-barrel brewhouse from Germany aboard it. The company plans to convert an existing warehouse into a new bottling facility next summer. The old bottling building then will have its roof raised 12 feet and become home to the two-story brewhouse.

Despite the plant expansion, Magee said he expects to hire only a few more workers in Petaluma because of the automated nature of the state-of-the-art brewing equipment.

For 2011, the company is on pace to see sales jump more than 60 percent, Magee said.

He said he's trying to prepare himself for a day when craft beer isn't booming.

But today, Magee said, "I don't know another brewer in the county who is not growing."