Petaluma's Lagunitas Brewing Co. goes global to compete as US craft beer market flattens

Lagunitas Brewing Co. of Petaluma has grown into a craft beer behemoth across the United States over the past 25 years through its simple formula of producing extra-hoppy beers paired with an irreverent marketing vibe.

But 2019 is shaping up to be a difficult year for the domestic beer industry, offering many challenges: slowing sales, cramped retail shelf space, fewer distributors and a crowded marketplace with about 7,000 breweries nationwide at the end of last year.

Lagunitas has not been immune from having to adjust for those hurdles and remain competitive. In October, Chief Executive Officer Maria Stipp made the tough decision to cut 12 percent of the company’s workforce - more than 100 people - given the bleak forecast.

At the same time, the formidable brewer, which has been fully owned by Heineken International since 2017, is preparing for its next act: growing on the world stage. Lagunitas is now in 30 countries, but its ambitions are grander as competition emerges among the American craft beer sector to establish market share around the globe, where consumer acceptance of beers lags at least 10 years behind the United States.

“The craft explosion is everywhere. We saw it when we went to Milan. We saw it in Barcelona. We saw it in Rio. We saw it in São Paulo. It’s not just a U.S. phenomenon,” Stipp said in an interview. “It (the growth) is happening in a really truncated period of time.”

To that end, Lagunitas will open its first international taproom on Feb. 7 in Amsterdam - the headquarters city of its parent company that’s also famous for its cannabis coffeehouses - with plans for more in Europe. Lagunitas also is brewing beers overseas for the first time, starting in Wijlre, Netherlands, at a facility that produces the Brand label for Heineken.

“Fresh IPA (India pale ale) for the very first time born in the country. It’s going to make a difference,” said Stipp, who is targeting Brazil for the company’s next foreign brewery. “At any brewery, from what I have learned, there is a house taste where you brew. We really had to dial in the IPA to make it really represent the Petaluma IPA.”

Today, the international market is about 10 percent of annual business for Lagunitas, Stipp said, but is expected to comprise the majority of its growth in the next couple of years.

Working with Heineken

The job falls to Stipp to work with Heineken executives to navigate the foreign market where the corporation has almost 150 years of experience and to grow the Lagunitas brand in the United States through innovative products. The new brews include DayTime IPA, which has only 98 calories and 4 percent alcohol content. That beer is a major departure from the Lagunitas portfolio that has some of the booziest brews in the sector. It follows another new twist the company unveiled last year: its cannabis-infused HiFi Hops drink produced in conjunction with Cannacraft Inc. of Santa Rosa.

Stipp, a 51-year-old former executive at the major video game publisher Activision, has so far successfully taken the reins from beloved hands-on Lagunitas founder Tony Magee. She has managed to keep the DNA of the local craft brewing company in place - dogs still roam the office - while figuring out how to leverage the “added muscle” from Dutch giant Heineken to better compete against other major global brewers such as Anheuser-Busch InBev and Constellation Brands Inc. that have acquired their own craft brands in recent years.

“She is a phenomenal business leader,” said Bill Silver, CEO of Cannacraft, which is taking the HiFi Hops product into a half dozen states this year. “What Maria has done is honoring Tony’s legacy while working with this European business conglomerate. She is in the middle.”

Stipp credited Magee with helping her learn the culture of Lagunitas when he hired her in June 2015, a few months before he sold Heineken a 50 percent stake in the company.

“I went through a pretty good MBA (business training) on Lagunitas before I had more of my hands on the steering wheel,” said Stipp, who earlier in her career worked at Miller Brewing Co. in the sales department.

She still seeks Magee’s input, though. “The good thing about Tony is that he’s got a real strong point of view. There are times when I might be faced with a decision and I certainly appreciate his perspective,” she said. “We don’t always have to agree, but 99 percent of the time we do. That’s been the good news.”

Brewers take the lead

One key decision for Stipp has been to trust her brewing team, led by brewmaster Jeremy Marshall, to help navigate the trends that are coming to the forefront in the beer marketplace. That is one of the areas where Lagunitas hasn’t changed much under the Heineken ownership, she said.

“I have been really impressed that the brewing department at Lagunitas leads in the decision-?making,” said Brian Hunt, founder of Moonlight Brewing Co. in Santa Rosa. Under a deal worked out by Magee and Hunt, Lagunitas took an ownership stake in Moonlight in 2016.

“There are always people who take something over and try to put their ego on it,” Hunt said. “That’s the really awesome thing to say about Maria. … She has been more of: How can we take this and run with it with the same goal in mind?”

DayTime is one of the many products Lagunitas has unveiled as the craft sector has matured. For example, as many craft beer enthusiasts get older, they are looking for less-filling beers. The product follows on the tremendous success Founders Brewing Co. of Grand Rapids, Michigan, has with its All Day IPA with a lower alcohol content.

Among IPAs, the hoppy varieties still are dominant as the style now represents 4 percent of all U.S. beer purchases, a 150 percent increase over the last five years, said Bart Watson, chief economist for the Brewers Association, the trade group that represents independent breweries in the United States.

But consumers, especially younger ones, are looking for more. The Lagunitas lineup has expanded to include more fruit-forward beers such as Mozango, an ale brewed with mango juice, and Dark Swan, a sour ale fermented with red wine grapes. Both of them were introduced as seasonal brews but are being brought back again because of their popularity.

“I really rely on the expertise of my brewers. They know the flavors they are seeing in the wild. That’s their hobby and not just their job,” Stipp said.

Products that stand out

The HiFi Hops collaboration also spawned another new product, Hop Water, a hop-flavored tonic drink that can attract consumers who want no alcohol or calories. Stipp thinks the product can stand out in the nonalcoholic beer sector.

“We are going to position it as a nonalcoholic beer even though it has not been fermented. I’m not sure the average consumer cares if it has been fermented,” Stipp said. “It drinks like a beer; it doesn’t drink like a sparkling water.”

Such moves, however, do not mean Lagunitas has given up on hop-centered beers. In fact, another limited-release beer, Super Cluster Ale, has been placed in the core lineup because of consumer acceptance, even though it is a bitter beer packed with Citra hops and an 8 percent alcohol content.

“It was a surprise. We saw everyone was dialing back the alcohol by volume, so we thought, when they zig, we zag,” Stipp said.

Going forward, Lagunitas intends to keep the focus on its flagship IPA and its other hop-forward beers. In fact, the flagship IPA is now available in 19.2-ounce “tall boy” cans to court younger consumers who prefer them over bottles.

Focus on the future

Stipp has a simple message to her staff, which includes a leadership team split almost 50/50 men and women: “We don’t lose focus and get so distracted with different categories. We have our beers, which is sure the lion’s share of our business. And we have layered two new innovations on top of our beer business,” she said of the cannabis and nonalcoholic drinks.

Indeed, the brewer’s core beers have held up relatively well as the shakeout continues in the U.S. craft sector. Sales for Lagunitas last year increased 0.7 percent in supermarkets, drugstores, convenience stores and other retail establishments tracked by IRI, a Chicago-based market research firm. That equaled $183 million and placed Lagunitas as the fifth-largest national craft beer brand under IRI’s classification.

Overall, sales of the craft category in 2018 grew 2.5 percent, but major notable competitors slid. Boston Beer Co. reported a 7.2 percent decline; New Belgium Brewing Co. of Fort Collins, Colorado, dropped 3.3 percent; and Anheuser-Busch’s Goose Island label was down 11.5 percent, according to IRI.

Meanwhile, the painful layoffs - the first in the history of Lagunitas - were a tactical move to position the company for the forthcoming shakeout in the overcrowded craft beer market and allow her management team to reevaluate staffing needs for the long run, Stipp said.

“It was a very difficult decision to make, but also it was needed so we could take the pressure off my shoulders and really say that’s what we needed for the first 20-some years,” she said. “What do we need today going forward? It allowed us for the first time to ask: What is the structure, what are the jobs? What does the future look like, and what do we really need?”

Global ambitions

The future looks global, with Lagunitas relying on Heineken’s veteran expertise. The Dutch parent company owns, markets and sells more than 300 brands in 190 countries as of 2017. Lagunitas can rely on the knowledge and experience of Heineken’s sales and distribution team in all those places to help get its beers into more bars and store shelves. Meanwhile, brewing in the home country of the new locales will give Lagunitas an advantage on price, rather than shipping the beer from its Chicago plant.

“With being able to brew across the pond, I can do a really good job on my price. They can be really competitive,” Stipp said.

Other U.S. craft beer pioneers also are also looking outside the country. Stone Brewing Co. of Escondido has opened taprooms in Berlin and Shanghai, in addition to one in Napa last year. But Stipp said she has seen a concerted overseas effort by rival Anheuser-Busch’s Goose Island craft segment, because the parent company has deep pockets as the world’s largest brewer.

Goose Island, started in 1988 in Chicago as craft brewer with a single taproom, has opened taprooms in Brazil, South Korea, London, Mexico, Toronto and China and is brewing its beers overseas, company spokeswoman Lisa Derus said.

Lagunitas is eager to tap its beers on a global stage, Stipp said, having Heineken as a crucial backstop.

“This gives us some additional help to be a sustainable company,” she said. “It’s a really nice thing to have a big brother.”

You can reach Staff Writer Bill Swindell at 707-521-5223 or bill.swindell@pressdemocrat.com. On Twitter @BillSwindell.