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Running head: Lagunitas Brewing Company1
Lagunitas Brewing Company
Contributors:
Meshal Alkhowaiter, Erin Hasenkamp, Jacqueline Jerez, Daniel Shamany, Gustavo Tolentino
California State University, Northridge
Professor Fox
November 30, 2015
Lagunitas Brewing Company 2
Table of Contents
Introduction ………………………………………………………………………………………3
Irrelevant Information……………………………………………………………………………..4
Additional Information Needed …………………………………………………………………..5
External Factors …………………………………………………………………………….…….7
Remote Environment ……………………………………………………………………..7
Industry Environment …………………………………………………………………….9
Operating Environment ………………………………………………………………….11
Internal Factors ………………………………………………………………………………….15
SWOT Analysis …………………………………………………………………………15
Value Chain Analysis …………………………………………………………………...20
Resource Based View Analysis …………………………………………………………23
Assumptions ……………………………………………………………………………………..25
Major Issues……………………………………………………………………………………...27
Minor Issues ……………………………………………………………………………………..28
Grand Strategies …………………………………………………………………………………29
Interrelations of Major Players ……….…………………………………………………………30
Central Problem …………………………………………………………………………………32
Solutions ………………………………………………………………………………………...32
Skills Needed ……………………………………………………………………………………35
Consequences ……………………………………………………………………………………35
Work Cited ………………………………………………………………………………………38
Appendix ………………………………………………………………………………………...40
Lagunitas Brewing Company 3
Introduction
In the early 1990’s Lagunitas Brewing Company started in Tony Magee’s kitchen in
Lagunitas, California. Eventually he was kicked out of the kitchen and moved operations to the
back of a local grocery store. From there the brewery took off; customers loved the unique flavor
and home grown vibes of the beer. With little business experience Magee turned a hobby into
one of the most successful craft breweries in the nation. However, this growth and success was
not without issues.
In the following report we have analyzed and presented solutions for Lagunitas Brewing
Company’s (LBC) major issues and resulting weaknesses. From its inception, Lagunitas has
been wildly successful and has grown into a nationwide brand. However, although Lagunitas has
proved successful in the last 20 years, we believe that the company shows some weaknesses that
must be addressed. Should the company not address these issues, we firmly believe that the
company will not only fail to reach its goals, but it will not survive.
By analyzing the company’s internal and external environment, we have identified LBC’s
major and minor issues. Based on the issues we have identified, we have developed various
solutions that the company should adopt. The following sections cover the firm’s internal and
external environment, major and minor issues, possible solutions, and people or skills needed to
implement the solutions. We believe that by following our suggestions Lagunitas Brewing
Company will continue to grow, thrive and reach its goals.
Lagunitas Brewing Company 4
Irrelevant Information
In the case we were presented, much of the information proved relevant to our goal of
providing insight to areas in which the company could improve. Much of this relevant
information is referenced throughout the case. However there was also information we felt was
not relevant to what we were trying to accomplish, but that still held importance to understanding
Lagunitas. In the following section we have identified and presented the information that was not
necessarily used to guide us in our decision making, but was none the less important.
Lagunitas started as a hobby in Tony Magee’s own kitchen; however within a few years
his wife forced him out of it. Magee was a printer at the time, but he hated the work and was
looking for a way out. Once Magee’s wife kicked him out of their kitchen, he moved operations
to the back of a small grocery store in Forest Knolls, CA (Gilinsky et al. 23-2). Although the
beer was no longer being brewed in Lagunitas, CA, its original name stuck. Magee stated that his
reasons for keeping the original name were that “...it’s a beautiful little word, it’s hard to say,
once you [sic] said it, you’re in, and it looks lovely in type.” (Gilinsky et al. 23-11).
In regards to growth, Magee’s original intention was to remain small and private. Early
on he stated, “I would do all the work myself and whatever crumbs were leftover, I’d feast on
them.” (Gilinsky 23-3). Once Magee realized the success of his product, his vision expanded to
international growth. Lagunitas was to become a global brand (Gilinsky et al. 23-10). In order to
make its product marketable at a global level, LBC focused on quirky labels and a simple
typeface (Gilinsky et al. 23-10).
In terms of the California market, the state has the highest number of breweries
nationwide. While that is important, Lagunitas should treat the market as one national market for
Lagunitas Brewing Company 5
now because it is selling its products in 35 states; therefore, it is in the exact same market as
every other company. The exact number of cases provided as part of penetrating the market is
not entirely irrelevant, but it would have been more useful if more quantitative information
regarding the number of cases sold was available.
Additional Information Needed
Throughout our analysis of the case we discovered the information we were provided was
not complete. We have addressed the areas in which additional information was needed.
1. The specific sources of financing for expansion is needed to determine any possible
alternative solutions. It was addressed that Lagunitas did not have reliable financing, but
the source of the financing they had were unclear. A breakdown of the operation
activities would also have been extremely helpful to determine areas for improvement
and additional opportunities.
2. Financial statements could help reveal opportunities for the company. For instance, was
the company profitable from an operations standpoint? If not, then why? The statements
also would show if the company took advantage of tax breaks to maximize earnings
before income tax, depreciation and amortization.
3. How did the additional salespeople add value to the company (from an RBV)? It is not
clear what the sales team was doing to add revenue to the company. Also, why did
Lagunitas need a sales team if word-of-mouth marketing had worked so well? Did the
sales team perhaps create additional unneeded expenses that added stress to the
company’s growth?
Lagunitas Brewing Company 6
4. What was the value added from the hiring of IT employees and creation of a Consumer
Relations Management (CRM) system? Lagunitas did perhaps use this system to keep
track of inventory it sent to multiple restaurants and bars; however, it is not clear how the
system reduced cost or added value to the company. This also begs the question: How
many bars and restaurants were purchasing Lagunitas beer? Were the bars and restaurants
selling Lagunitas beer successfully, and if so, how much in sales? The latter could
become part of customer profiling to determine buyer habits.
5. Why does Lagunitas and Music go hand in hand? Are there other combinations Lagunitas
could explore? What made Lagunitas successful during events? Could the company
duplicate its success elsewhere?
6. Why did the company ignore securing exclusive distribution to events before Ron
Lindenbusch, LBC’s chief marketing officer, seized the opportunity to do so? The
company was not assertive in its effort to retain its successful strategy once it had
realized the strategy had worked.
7. What type of assistance did the city of Petaluma offer Lagunitas? It is unclear how
Petaluma would be able to help Lagunitas reduce the problem associated with
wastewater. Would it help Lagunitas reduce water usage, or perhaps offer incentives to
build a water treatment plant?
8. Who are the suppliers? There is no information about any suppliers in the case. From
where did Lagunitas receive its ingredients? Is the company able to reduce costs
associated with production through improved supplier relations?
Lagunitas Brewing Company 7
9. More information is needed regarding the creditors of the company. What types of
financial institutions, banks, or investors were contributing money to the company? Also,
did the company give up equity in the process? If so, then how much?
10. Information about human resources is limited to common knowledge. What is the
reputation of Lagunitas as an employer? No information is available regarding the
number of employees at the company. What is the purpose of each employee? And how
efficient is the employee per task? Additionally, how did employees function in the
presence of an automated brewing system? How many employees are required for the
production process?
To begin our analysis of the case we will look at the internal and external environments of
Lagunitas. This analysis will help us to pinpoint the company’s major and minor issues and how
we can address them. We will start with an analysis of the external factors affecting the
company, then move to the internal factors.
External Factors
Remote Environment
The remote environment is concerned with factors the organization is not able to control,
such as the following: economic, social, political, ecological, and technological. These are
factors the organization may consider, yet it exerts minimal to no influence on them (Pearce 88).
Economic Factors
Lagunitas Brewing Company 8
By using equity financing rather than debt financing, Lagunitas will be more attractive to
outside investors due to its low debt rates. Qualtrics is a perfect example of this approach.
Qualtrics sought to grow as much as possible on its own, but then realized it would benefit from
allowing external investors to finance its growth. Qualtrics was growing exponentially, so it
brought on Duff Thompson as an advisor to maintain positive relations with investors (Quigless
11).
With the exception of the last economic recession in 2008, LBC’s growth was generally
not affected by industry or economic downturns (Gilinsky et al. 23-5). This was largely due to
the increasing popularity of the craft beer industry among consumers. Lagunitas had a similar
strategy to that of Under Armor, which placed its products in the hand of the customer. Under
Armor was successful in penetrating the market in this way (Tolentino, Under Armor). By the
same token, LBC’s word-of-mouth strategy was extremely important to its early success. In
addition, Lagunitas realized that its pricing strategy would be important to the formation of the
brand. Magee realized that pricing was not something he could arbitrarily set because it was “the
world around [him].” This rationale explains why Magee chose to set the price of a six-pack at
$5.99: the price was the average price of the top twenty brands (Gilinsky et al. 23-11).
When the industry experienced a downturn, many breweries suffered and closed. Magee
saw this as an opportunity to purchase used equipment at low cost, enabling LBC to expand its
production capacity. The closing of these breweries also contributed to LBC’s growth because of
the lower level of competition (Gilinsky et al. 23-4). Finally, as the company grew, it incurred
additional costs relating to wastewater. The costs included further municipal compliance
regulations and a $250,000 monthly expense to transport its production waste 60 miles for
treatment (Gilinsky et al. 23-11).
Lagunitas Brewing Company 9
Social FactorsConcert goers became the target market for Lagunitas. By providing free beer and gas,
the company built a brand around music. Lagunitas beer began identifying itself as a beer for
music lovers. The latter became the reason why Lagunitas began providing live music at its
tasting lounge. Overall, LBC’s beer fit into the lifestyle of music lovers (Gilinsky et al. 23-8).
Political FactorsRegulation became a major challenge for Lagunitas in regards to its wastewater issue.
The city of Petaluma was willing to help the company resolve the issue instead of incurring
fines. In the future, Lagunitas will face its unique political challenges (Gilinsky et al. 23-11).
Ecological FactorsLagunitas can follow Coca-Cola’s steps, where it can become more proactive in reducing
its wastewater. If Lagunitas succeeds in such a task, it may gain further core capabilities. In
addition, the company should explore ways to improve its water supply. Similar to Coca-Cola.
Lagunitas is dependent on water quality, and rainwater might be another option to maintain
consistency in its beer flavor (Karas 10).
Technological FactorsLagunitas has used technology to its advantage by investing in new equipment that
increases efficiency while minimizing production waste. For instance, in 2013, LBC installed
wastewater treatment machinery at its facilities (Gilinsky et al. 23-11).
Industry Environment
The concept of industry environment was popularized by Michael Porter’s “Five Forces
Driving Industry Competition.” Porter discusses determinants of entry, rivalry, supplier power,
buyer power, and substitutes (Pearce 100).
Lagunitas Brewing Company 10
Determinants of EntryIt was not challenging for Magee to acquire the required equipment to begin brewing beer
(Gilinsky et al. 23-6); however, Lagunitas had to create a new distribution channel through bars
and restaurants. Due to the lack of economies of scale, Lagunitas marketed the beer as a private
label to bars and restaurants. The strategy focused on selling at low profit margins, but at high
volumes (Gilinsky et al. 23-8).
Determinants of RivalryIn 1997, as other breweries were closing, Lagunitas was still growing in the craft beer
segment. This allowed Magee to seize the opportunity to purchase used machinery to increase
production capacity (Gilinsky et al. 23-5). Lagunitas had found a niche market and continued to
grow (Gilinsky et al. 23-10). Lagunitas participated in music events in order to build brand
awareness. The company offered music lovers a chance to drink a new beer. The slogan adopted
by Lagunitas was “Fueled by Lagunitas,” which served to promote the name of the company
(Gilinsky et al. 23-3). Therefore, using a consistent message and a distinguishable beer taste has
enabled Lagunitas to increase its brand awareness (Gilinsky et al. 23-3).
Lagunitas reached maximum capacity several times throughout its history. Ever since its
foundation, Lagunitas has struggled with managing its growth. In 1994, it overwhelmed the
septic system of the small grocery store where it operated (Gilinsky et al. 23-9). After three
years, the company had grown from 600 to 10,000 barrels in production. In 2007, LBC reached
maximum capacity again. Lagunitas was forced, at the time, to increase production capacity to
150,000 barrels (Gilinsky et al. 23-10). Eventually, the company invested in a new Chicago
facility at 300,000 sq. ft. and a 500,000-barrel production capacity (Gilinsky et al. 23-6).
Determinants of Buyer Power
Lagunitas Brewing Company 11
LBC’s strategy was to sell to bars and restaurants at low profit margins. The initial sale
price of $5.99 was the average price of that offered by industry leaders. The $5.99 per pack price
indicated that LBC’s beer is neither a low-quality nor an expensive product. Instead, LBC’s sale
price indicates that its beer is a good quality that is offered to customers at an affordable price
(Gilinsky et al. 23-6).
Determinants of Substitution Threat
Lagunitas should maintain the strong flavor of its beer for two major reasons. First, it
differentiates LBC’s beer from others in the market. Second, it makes it more difficult for
competitors to imitate its competitive advantage. There are limited or no switching costs for
customers in the beer industry. Therefore, Lagunitas should seek to differentiate its product from
the rivals. A market development and product development strategy is recommended. First,
Lagunitas may find new use-cases for its product (market development). As an alternative,
Lagunitas may provide new and different flavors of its beer to the existing market (product
development) (Pearce 209-211). According to the Brewers Association, beer prices tend to
remain within a certain price range; therefore, buyers are less likely to switch beer brand due to
price (Gilinsky et al. 23-6). As a result, it may be concluded that consumers are very likely to
remain loyal to their current brand. However, it may also indicate that Lagunitas should penetrate
the market more efficiently using the above-mentioned strategies.
Determinants of Supplier Power
No information regarding constraints by suppliers or suppliers in general.
Lagunitas Brewing Company 12
Operating Environment
The operating environment concerns the organization’s ability to acquire resources for its
operation (Pearce 116).
Competitive PositionThe competitive position of an organization consists of many situational factors.
However, not all factors apply to all organizations (Pearce 116). For Lagunitas, the financial
position, capacity, product quality, market position and Research and Development (R&D) are
considered.
Financial PositionWhile full financial statements are not available, evidence exists within the case that LBC
has encountered high debt issues, which limited its growth in the 1990s (Gilinsky et al. 23-5).
However, with higher revenues in the early 2000s, LBC was able to pay off its liabilities, which
has made it more attractive for investors. As a result, when Lagunitas had to raise funds for its
new Chicago facility, it easily raised $17.5 million from banks and independent investors
(Gilinsky et al. 23-7).
CapacityThe company has been conservative with its maximum production estimates. For
instance, while Magee thought that it would take LBC’s California facility about ten years to
reach maximum capacity with the newly installed equipment in 2009. However, LBC was able to
reach its maximum capacity in the California production plant within three years (Gilinsky et al.
23-6).
Lagunitas Brewing Company 13
Product QualityThe company can use its core capacity to seek out better water quality in order to keep a
consistent flavor across its production facilities. It may leverage this quality to differentiate itself
from competitors (Gilinsky et al. 23-1).
Market PositionWhile using word-of-mouth as a marketing strategy may be effective for a startup, it
should not be a main strategy for company the size of LBC’s (Gilinsky et al. 23-10). For
instance, it could expand its market exposure by providing ads in restaurants and bars. Certain
bars hang neon-lights of drinks that they carry. Another alternative could be to provide coasters
to bars and restaurants. This would benefit Lagunitas in adding exposure of its brand at bars and
restaurants.
R&D AdvantageThe recipe to Lagunitas can be a well-kept secret, similar to that of Pepsi and Coca-Cola.
It is difficult to imitate. In addition, Lagunitas claims to have a solid recipe that only requires
some tweaking to get right (Gilinsky et al. 23-7), which adds to the consistency of the flavor.
Customer Profile
Organizations should determine who their customer is; therefore, a customer profile is
highly recommended. Factors such as the following should be included: (1) geographic: identify
regions where customers come from; (2) demographics identify the variables that differentiate
the group; (3) psychographic, to help predict customer lifestyle; (4) buyer behavior, help to the
organization identify customer usage, benefits, and loyalty (Pearce 118)
Lagunitas Brewing Company 14
GeographicLagunitas should seize the opportunity it has in places like Chicago, Petaluma, and North
Carolina where it has acquired a larger loyal consumer base. It could further explore the areas for
specific needs. For instance, the company could identify key events of each location to provide
promotions. All locations are different in culture; thus, by identifying components that could
connect culture to its products, the company may enhance its presence.
DemographicWe mentioned the music lovers whom Lagunitas identified as possessing the habit of
listening to live music. The company should dig deeper and analyze the age group, occupation,
sex, and other qualitative information. It will assist the company in identifying new
opportunities.
PsychographicThe label “Fueled by Lagunitas” is a great start. The company should further identify
what its brand means to the consumer. For instance, Coca-Cola campaigns “the real thing” as its
slogan (Pearce 118).
Buyer BehaviorLagunitas should find a way to generate metrics for usage data and benefits, among other
metrics. The company could benefit from adding further responsibility to its IT director position
(Gilinsky et al. 23-7). By installing metrics, the company could more easily identify trends that it
can proactively respond to.
Suppliers
Within the operational environment, organizations consider supplier relations because it
could provide advantages to the company. Moreover, supplier relations are essential to a
Lagunitas Brewing Company 15
successful firm (Pearce 118). For Lagunitas, the information is almost nonexistent; consequently,
we will not discuss suppliers any further.
Creditors
Creditors are entities the organization has borrowed money from; they have a claim on
assets of the organization as a collateral (Pearce 118). More information is needed for Lagunitas;
however, we can confirm that the company experienced difficulties when attempting to build the
Chicago facility and raised $17.5 million to finance the project. Initially, the company could not
retain a loan due to its high debt ratio (Gilinsky et al. 23-6).
Human ResourcesIt is essential for a company to attract and retain employees. Human resources considers
the company’s reputation, the turnover rates, labor availability, and labor unions (Pearce 119).
Information is limited for Lagunitas; nevertheless, Lagunitas is a small player in the industry.
Generally, it would be more difficult for the company to hire and retain the best talent in the
market. While the company might possess a positive reputation among its customers, it is still
difficult to determine how attractive the company is as an employer.
Internal Factors
An internal analysis identifies and evaluates an organization’s capabilities, resources, and
core competencies. Performing internal analysis is essential for two reasons: first it helps the
company identify their strength and weakness and second it is needed in order to make effective
strategic decisions. In the following sections we used a SWOT analysis, a value chain analysis
and a resource based view analysis to analyze LBC’s internal environment.
Lagunitas Brewing Company 16
SWOT Analysis
The SWOT analysis is a traditional method in which managers create a quick overview of
a company's current strategic situation (Pearce 153). According to Strategic Management:
Planning for Domestic and Global Competition, a SWOT analysis is, “based on the assumption
that an effective strategy derives from a sound fit between a firm its internal and external
situation. A good fit maximizes a firm’s strengths and opportunities and minimizes its weakness
and threats” (Pearce 153).
Strengths Weaknesses
Brand loyalty
Unique product
Promotional niche
Lack of reliable cash flows
Poor forecasting
Heavy dependency on marketing strategy
Wastewater
Opportunities Threats
Increase its market share by continuing to
sponsor more local events such as music
concerts
Donate its products to charities and non-
profit organizations
Promote its product through TV ads and
local sport teams
Large number of competitors
Restrictions in location
StrengthsOver the course of its growth, Lagunitas has developed specific strengths that we feel
help fuel its success. These strengths are brand loyalty, a unique product, and a promotional
niche. Although Lagunitas has shown strength in various areas, we believe that the few we have
highlighted are their strongest and will continue to help the company thrive.
Lagunitas Brewing Company 17
The deep connections customers have with Lagunitas is at the top of their strengths.
Historically the brand loyalty that many customers have to Lagunitas has been a huge factor in
its success. At its brewery tours, Lagunitas customers are put on the company's front lines
(Gilinsky et al. 23-1). This allows them to see the production process and creates connection
with the brand (Gilinsky et al. 23-1). Due to their loyalty these customers are more likely to
purchase Lagunitas products over others, and are likely to introduce LBC products to other
customers. Therefore, creating and maintaining this relationship is beneficial to Lagunitas.
Additionally, part of Lagunitas’ strength comes from its unique taste and competitive
pricing. Lagunitas continues to lead the craft beer industry by producing a strong flavored beer
that is high in alcohol content (Gilinsky et al. 23-8). The taste and alcohol content of the beer
differentiates them from other breweries and gives them a competitive edge. When determining
the pricing for the beer, Magee wanted it to remain competitive with other craft brews as well as
mainstream beers (Gilinsky et al. 23-11). To do this he priced his beer right in the middle at
$5.99 per six pack (Gilinsky et al. 23-11). This pricing strategy allowed Lagunitas to market
itself as a craft beer for a bargain price, something few other craft breweries had at the time.
Weakness Lagunitas had several limitations that it faced in implementing its strategy. The most
prevalent limitations were its lack of cash flows, poor forecasting, heavy dependency on
marketing, and its wastewater issue. The following paragraphs go more into detail on each of the
weaknesses.
Since its inception, lack of cash flows has been a consistent weakness for LBC (Gilinsky
et al. 23-4). In order to maintain operations, Lagunitas was consistently needing more money
than what it was generating (Gilinsky et al. 23-4). As Lagunitas grew and expanded it became
Lagunitas Brewing Company 18
more and more profitable. However, collection of receivables from customers was difficult and
profit margins were thin; therefore, money was scarce.
A second weakness of Lagunitas was its poor forecasting of demand. Lagunitas
continually failed to accurately forecast demand; thus, it was constantly exceeding capacity. In
2008, when the company installed new equipment, maximum capacity was forecasted not to be
reached until 2018 (Gilinsky et al. 23-6). However, due to poor forecasting, maximum capacity
was reached two years later in 2010 (Gilinsky et al. 23-6). As a result, LBC was not able to
handle the demand and again had to install new equipment, yet again costing the company
money (Gilinsky et al. 23-6).
Lagunitas’ heavy reliance on its marketing strategy creates an inherent weakness. Word
of mouth and quality of products were the foundation of Lagunitas’ marketing (Gilinsky et al.
23-10). Although these marketing tactics benefited the company in many ways, many of these
benefits became irrelevant as LBC grew (Gilinsky et al. 23-8). Lagunitas’ strategy included
giving away free beer at music festivals (Gilinsky et al. 23-10). However, as Lagunitas grew as a
company, sponsorship of these music festivals became scarce because many other beer
companies had already secured rights for distribution at these major musical events (Gilinsky et
al. 23-8). In order for the brand to main success, LBC will have to adopt new marketing
strategies.
The last weakness that Lagunitas had was its issue with wastewater. Lagunitas was
penalized with fines from the city of Petaluma for going over regulatory limits (Gilinsky et al.
23-11). Along with these fines, Lagunitas had other costs associated with the excess of
wastewater that they couldn’t release into sewers (Gilinsky et al. 23-11). As a result, Lagunitas
had to purchase a nearby plot of land where it could build its own wastewater treatment plant
Lagunitas Brewing Company 19
(Gilinsky et al. 23-11). The funds that LBC continues to put into wastewater issues, is money
that could be invested more effectively.
OpportunityThe beer industry, although heavy in competition, has provided Lagunitas with many
opportunities as well. Of these opportunities we feel that the growing popularity of craft beers is
its greatest. At the beginning of 2012 craft breweries represented 6.5 percent of U.S. beer sales;
by the end of the year that figure grew by 15 percent (Gilinsky et al. 23-2). U.S. craft beer
markets have been and continue to be in the midst of an explosive growth, providing a lucrative
market for Lagunitas (Gilinsky et al. 23-11).
While LBC’s popularity has increased in recent years among music lovers, the company
can focus on increasing its market share using the same strategy, but targeting a new market
segment. For instance, Lagunitas can increase its product recognition by continuing to sponsor
additional local events, particularly in areas where the Lagunitas already has a high market share
such as California, Chicago, and North Carolina (Gilinsky et al. 23-8). Lagunitas may also
increase its brand awareness by donating more of its products to charities and non-profit
organizations. The use of such strategy will enable Lagunitas to not only reach new market
segments, but to also illustrate the company’s intent to have a positive impact on the
communities it operates in.
In 2012, Lagunitas became the 6th largest beer producer in the country and Magee has
constantly stated that he wants LBC to compete with major competitors such as Bud Light
(Gilinsky et al. 23-6). Given the aforementioned goals and accomplishments of Lagunitas, a
valuable opportunity for Lagunitas could be to run nationwide TV advertisements during big
Lagunitas Brewing Company 20
sporting events in order to broaden its customer base. Finally, Lagunitas can sponsor sporting
events in cities where it has a large customer base.
ThreatsIn addition to its strengths, weaknesses and opportunities, Lagunitas faces threats that
could prevent it from achieving its ultimate strategic goals. Through our analysis of the company
we feel that the large number of new craft breweries and LBC’s restrictions on location present
the greatest threats.
Due to the growing demand for craft beers, many new breweries have entered the market.
According to the Brewers Association, there were an estimated 1,500 new craft breweries under
construction in 2013 (Gilinsky et al. 23-11). In addition to these new entries into the market,
Lagunitas is already competing with 2,400 existing craft breweries (Gilinsky et al. 23-11).
Further, much of this competition is moving into areas where Lagunitas has major markets
(Gilinsky et al. 23-10). For example, Sierra Nevada and New Belgium, two major craft brewers,
are planning to open breweries in North Carolina, one of LBC’s top markets (Gilinsky et al. 23-
10).
Another threat that will have to be addressed is its water restrictions. In terms of location
for its breweries, LBC is restricted due to the specific water chemistry used for its beers. The
inability to put breweries where demand is highest puts LBC at a competitive disadvantage.
Value Chain Analysis
Customers demand value from the goods and services they purchase. This value is
derived from three basic sources: the uniqueness of the product, the affordability of the product
Lagunitas Brewing Company 21
or service, and the organization’s responsiveness to customer needs. A value chain analysis
examines these activities and determines how the company gains value from them. The
following is a value chain analysis of Lagunitas (Pearce 159).
In 2012, Lagunitas emerged as one of the top ten brewery in the United States because of
its distinguished taste from other craft beers (Gilinsky et al. 23-8). In a highly competitive
environment such as the beer industry, product differentiation is crucial. Therefore, the
company’s research and development department is always seeking for new, innovative formulas
(Gilinsky et al. 23-11). The company’s founder, believes that Lagunitas unique taste that will be
what gets the brand recognized (Gilinsky et al. 23-11).
Lagunitas has major market segments in California, Colorado, Texas, New York, and
Illinois (Gilinsky et al. 23-11). Outside California, the company’s second biggest market is
Illinois (Gilinsky et al. 23-6). Thus, the placement of a second brewery in Illinois allowed the
company to quickly meet customer’s needs.
Primary Activities Operations
Operations is a primary activity that should be investigated because Lagunitas is
committed to maintaining its beer quality. Magee stated, “A customer should not be able to
distinguish between batches brewed in Chicago [or] Petaluma” (Gilinsky et al. 23-7). Quality is a
high priority for Lagunitas and it plays a vital role in its expansion strategy. A major reason for
LBC’s decision to locate in Chicago was the city’s abundance of water and its quality (Gilinsky
et al. 23-7). Water is a main ingredient in beer making and it can affect the flavor profile of the
beer (Gilinsky et al. 23-7). Therefore, the right water was important in the decision to moving to
Chicago because this helped maintain its quality of beer (Gilinsky et al. 23-7).
Lagunitas Brewing Company 22
Outbound logisticsOutbound logistics is the second primary activity that should be assessed further.
Lagunitas has major markets on the east coast and the establishment of the second brewery has
benefited Lagunitas tremendously (Gilinsky et al. 23-12). Chicago is one of the major
distribution centers in the United States and has allowed LBC to harness a distribution network
that is ideal for distributing their product to customers efficiently and effectively (Gilinsky et al.
23-12).
Marketing and salesIn addition to its quality, Lagunitas has differentiated itself from competition through its
marketing and sales activity. Thus, evaluation of this activity is necessary. The Lagunitas brand
has become recognized domestically and internationally due to its promotional efforts and
distribution support. Lagunitas has 100 distributors that sell LBC products nationwide and in a
few foreign countries, and within the next coming years, LBC expects to further expand
internationally (Gilinsky et al. 23-10). Lagunitas’ unique marketing plan has also helped
differentiate it from competitors. Word of mouth helped Lagunitas customers become aware of
the brand. Under Armour, an excellent example of innovative marketing, would deliver its
product for free to professional athletes who would then give advice in how to improve their
product. (Harvard 3). These athletes would then recommend Under Armor’s products to friends
and other athletes (Kraft 113). Similarly, Lagunitas would distribute hundreds of cases of free
beer for free at music festivals (Gilinsky et al. 23-10). Customers at these music festivals would
then recommend to other customers and as the message spread so did the brand. Eventually,
Lagunitas stood out in the market and was able to create a distinctive product that customers
valued.
Lagunitas Brewing Company 23
Support Activities
Research, Technology, and Systems DevelopmentLagunitas is rapidly fulfilling customer needs with its second brewery in Chicago, but
now Lagunitas must accurately project these needs. Lagunitas IT department developed customer
relationship software to better equip its sales team as they go into bars, restaurants, and events
(Gilinsky et al. 23-7). Efficiently dealing with customers and fulfilling their actual needs will
increase customer satisfaction. This increases the chance of getting more business which
enhances profitability.
Resource Based View Analysis
A resource based view (RBV) is based on the premise that firms build a competitive
advantage based on the unique resources, skills, and capabilities they control or develop, which
can become the basis of unique, sustainable competitive advantages that allow them to craft
successful competitive strategies (Pearce 183). The RBV provides a useful conceptual frame to
inventory a firm’s potential competitive advantages among its tangible assets, intangible assets,
and its organizational capabilities (Pearce 183). Once inventoried, the RBV provides four
fundamental guidelines that managers can use to value these resources and capabilities (Pearce
183). Those with major value, defined as ones that are valuable for several reasons, become the
basis for building strategies linked to sustainable competitive advantage (Pearce 183). Lagunitas’
most valuable resources that helped it develop competitive advantage are described below. First,
tangible assets will be mentioned followed by intangible assets, and finally organizational
capabilities.
Lagunitas Brewing Company 24
Tangible AssetsLagunitas’ most valuable tangible asset was the location of its facility in Chicago. The
Chicago expansion was a key step in being able to break out of the craft beer label and compete
on a larger national and global stage (Gilinsky et al. 23-12). The tangible asset, location, helped
fulfill needs better than competitors, resulting in greater profitability and sales volume for the
conveniently located facility (Pearce 169). This is exemplified in the Excel worksheet provided
in the Appendix, Exhibits 2 and 3. LBC’s profit margin in 2011, 2012, and 2013 was 4.4%,
5.3%, and 8.1%, respectively. In 2013, when Lagunitas expanded operations to Chicago, both its
profit margin and sales increased significantly. A 8.1% profit margin in 2013, indicates that
Lagunitas retained 8.1% of the $105 million total revenue in 2013, after subtracting all raw
material, operating expenses, and tax expenses. Therefore, Lagunitas plant proved to be valuable
because customers’ needs were better met by LBC than other competitors and thus LBC was
rewarded with higher profits and sales.
Intangible AssetsLagunitas’ strong relationship with Chicago, trade secrets, and its research facilities are
all valuable intangible resources that Lagunitas possesses. These intangible resources are
valuable to Lagunitas because they cannot be simply copied from competitors, thus creating a
competitive advantage over the competition in the craft beer industry. Their value to the firm are
described in more depth next. The relationship with Chicago is first examined, followed by trade
secrets and its research facilities.
Chicago would be considered a hometown for Lagunitas by Chicagoans (Gilinsky et al.
23-6). Lagunitas has deep connections to Chicago because founder, Tony Magee, was from
Chicago and had family living there (Gilinsky et al. 23-6). This intangible asset is a one-of-a-
Lagunitas Brewing Company 25
kind relationship most other companies cannot have in Chicago. Lagunitas has a competitive
advantage because it has strong relationships with two cities, Petaluma and Chicago, while other
breweries only have one with the city where they were founded.
Lagunitas has a unique formula, strong in flavor and high in alcohol content, and this
secret formula cannot be easily replicated (Gilinsky et al. 23-10). Lagunitas competitors have a
difficult time understanding exactly what Lagunitas creates. Competitors cannot figure out the
combination of resources used to create the same product. Therefore, Lagunitas enjoys this
competitive advantage because competitors do not have the same resource as Lagunitas. In
addition, Lagunitas furthers this advantageous gap by continuously investing in its research and
development to find new material (Gilinsky et al. 23-11).
Organizational CapabilitiesThe founder’s skill of creating beer is not easily imitated. However the resources that
Lagunitas utilized are standard and can be easily used by other competitors. For instance, Magee
would get the standard supplier for producing beer: 5-gallon plastic pail, a strainer, the hop
packets, and the malt syrup. However, the skills that Magee had to create a craft beer taste that
customers distinguished could not be imitated by competitors. The unique knowledge and skills
that LBC’s workers apply when creating its beer has been the company’s major competitive
advantage.
Assumptions
The case study provided a lot of information, but certain details not found in the case led
us to make certain assumptions. The first assumption about Lagunitas was that the founder and
Lagunitas Brewing Company 26
CEO, Tony Magee, was competent in running business operations. Prior to beginning Lagunitas
Magee was a printing salesman and brewed beer as a hobby. The assumption we made is that he
must have had some type of business knowledge in order to turn his hobby into the successful
business that it is today.
The next assumption was that Lagunitas was able to meet its financial obligations.
Throughout the years, the company continued to expand; therefore it is assumed that the
company met its obligations and maintained a net profit in its early years. The business would
have not continued if Magee was not receiving some type of benefit from the company. If certain
obligations were not met, the company would not be able to grow.
The company found itself in a difficult situation when the founder realized that there
were more craft breweries emerging in the market. In addition to the rising competition, some of
the craft brewers became contract brewed by large American brewers (Gilinsky et al 23-8). It is
assumed that Magee did not want Lagunitas to just be another craft beer, even though his starting
intent was just to be a craft beer. Due to the emergence of craft breweries with larger breweries,
Lagunitas intends to compete and forgoes its values. The company wanted to differentiate itself
from other brewery companies and felt that it needed to grow.
All while trying to compete with other craft breweries; it is assumed that Lagunitas
wanted to continue growing in order to compete with big domestic competitors such as Miller-
Coors. It can be assumed that the company had established itself as unique and no longer
competing with other craft breweries, due to their rapid growth. The decision makers at
Lagunitas then feared the larger domestic competitors would seize their opportunity and would
be able to do so because they were larger than Lagunitas. This led the company to believe that
Lagunitas Brewing Company 27
they need to continue expanding until they were competing right alongside these large
companies.
Our next assumption, is that due to their focus on expanding, the company did not focus
on their product as much as it should have. It is assumed that the company only had one type of
beer for the first 15 years. This assumption is made because the company focused on generating
sales and the various issues it had with capacity and production.
All the assumptions are made to develop a better understanding of the business. These
assumptions help analyze the company and allow for adequate recommendations Lagunitas
should implement.
Major Issues
While Lagunitas has encountered several issues throughout its history, we have identified
five major challenges that have had a profound impact on the company. The main issue in the
case is a lack of clarity and consistency between the company’s goals and values. LBC’s
founder, Magee, would like to maintain the company’s position as a traditional craft brewery, but
at the same time, Magee wants to make LBC’s beer available to all customers (Gilinsky et al. 23-
8). The inconsistency between LBC’s values and objectives has constrained its growth and
limited its financing options, especially during the first ten years.
The second major challenge is financing. Whether the company attempts to finance its
current operations or fund a future plan, Lagunitas has always struggled with finding a steady
source of funding. During the 1990’s and early 2000’s, financing issues forced LBC’s founders
to rely on unstable financing sources such as borrowing from friends and relatives. At that time,
Lagunitas Brewing Company 28
Magee also had to sell some of his ownership shares to raise necessary funds, which has
hindered LBC’s growth at that time (Gilinsky et al. 23-5).
Third, Lagunitas has constantly struggled to create a clear expansion strategy that fits
both, the company’s values and its strategic intent. For instance, Magee’s objective to expand
nationwide and compete with industry leaders does not necessarily match his intent that
Lagunitas should continue using the same type of water when making its beer (Gilinsky et al. 23-
7). The lack of a clear expansion has also caused Magee to delay the Chicago expansion plan
several times before finally opening in 2014 (Gilinsky et al. 23-1). This has occurred despite the
great support that the plan had from LBC’s chief marketing officer and the willingness of outside
investors to finance the plan (Gilinsky et al. 23-1).
The fourth issue is production waste. The treatment of wastewater has been a major
challenge for Lagunitas, particularly during its first fifteen years. We believe this is a main issue
because it may negatively affect LBC’s reputation in the communities it operates in and it
drains the company’s financial resources. At one point, Lagunitas spent $250,000 per month to
transport its wastewater 60 miles away to nearby districts (Gilinsky et al. 23-11).
Marketing was a major issue for Lagunitas during its early years because the company
primarily relied on word-of-mouth as a marketing strategy. However, as LBC grew, the founders
realized that maintaining the same advertising strategy would limit LBC’s market segment.
Therefore, the company began using other means to market its beer by sponsoring local
musical events and distributing its product to charities (Gilinsky et al. 23-8). This has enabled
LBC to broaden its customer base in California and other states.
Minor Issues
Lagunitas Brewing Company 29
While LBC deals with major issues such as financing, growth, marketing and wastewater,
these are not the only issues it faces. While they prove to be the biggest issues, LBC faces many
others. Of these we feel that water chemistry, distribution, and competition impact their ability to
meet goals and ultimately become one of the top breweries in the world.
The type of water Lagunitas uses has a huge impact on the way its beer turns out. When
Magee first started brewing in Petaluma, CA, he was able to perfect his beer using the Petaluma
water supply; going forward, Magee knew that in order to keep all breweries as similar as
possible he would have to use water with the same chemistry. (Gilinsky et al. 23-7) However,
this reliance on specific water chemistry causes issues with expansion; if Magee’s goal is to get
beer to the most people as possible, restrictions in brewery locations due to water will become a
huge detriment.
Distribution plays into the issue with water chemistry: if Lagunitas beer can only be
brewed in certain locations, distribution will suffer. In order for LBC to compete with national
and international breweries, they must be able to distribute their product efficiently and at low
cost. If LBC is only produced in a few places due to water restraints, their distribution channels
will not be sufficient. For example, if the East Coast demand cannot be covered by their Chicago
brewery, it would not make sense to put the burden on the California brewery. Instead, LBC
would need to open a new brewery elsewhere on the East Coast.
Although LBC has done a fantastic job rising to one of the top craft breweries in the
nation, their competition is steep in both the craft brewery market and the commercial beer
markets. Regardless of which market LBC chooses to pursue, their competition will constantly
be at their feet. As the craft brewery market grows, LBC must reevaluate themselves to ensure
they are staying on top of their competition.
Lagunitas Brewing Company 30
Grand Strategies
Throughout the case we observed that of all the possible grand strategies, LBC
consistently maintained a strategy of concentrated growth. Concentrated growth is defined by
being in a single market with a dominant product (Pearce G-1). In LBC’s case, its market is the
craft beer industry and its dominant product is its unique brew. Concentrated growth is also the
least costly and risk of all strategies; this, in its early years it was smart for LBC to follow it; the
strategy allowed them to establish themselves in the industry. We see this strategy of
concentrated growth throughout the company’s life. Magee stated LBC with one type of beer and
focused on perfecting that beer. Knowing that the brew he had was being received well, he stuck
with it and built his company around it.
Major Players
Throughout LBC’s history, three major events had a major impact on limiting or
contributing to LBC’s growth. First, the craft beer industry’s downturn in the late 1990s had a
positive effect on LBC. Second, the 2008 economic recession limited LBC’s growth between
2008 and 2009 (Gilinsky et al. 23-5). Finally, the aftermath of the financial crisis created a
favorable environment to growing firms such as Lagunitas that had to borrow to finance further
expansion.
Companies in the craft beer industry faced major financial challenged in between 1997 and
1998, during which approximately 23 brands closed or temporarily stopped operations due to the
slow sales and growth in the industry (Gilinsky et al. 23-4). However, LBC’s founders used the
Lagunitas Brewing Company 31
beer industry’s downturn to its advantage. LBC realized that it was a great time to purchase
additional equipment to increase its capacity. Many brewers at the time had closed their
operations, so they were willing to sell their machinery at low costs. In addition, LBC’s founders
took advantage of the industry’s stagnating growth by leasing a larger facility that was
previously used by a brewery that had recently closed. The results of LBC’s investments during
the industry’s decline in 1997 paid off within two years. By 1999, LBC doubled its sales revenue
by over a 100%, generating $2,278,000, compared to $1,263,000 revenue in 1997. The
company’s capacity has nearly increased by 80%, from 8,420 barrels in 1997 to 14,420 barrels in
1999 (Gilinsky et al. 23-5).
While the industry’s downturn in the late 1990s had favorable consequences for LBC, the
financial crisis in late 2007 played a vital role in negatively affecting LBC’s profits in 2008 and
2009 (Gilinsky et al. 23-5). A combination of adverse economic conditions and expensive
investments in 2008 made matters even worse for LBC. In 2008, Lagunitas had just bought a
completely automated 80-bbl brew house. The new investment was purchased early in 2008
when the impacts of the economic recession were not apparent. Despite an increase in both sales
and production capacity in 2008 due to the new investment, LBC’s profits declined from
$804,000 in 2007 to $595,000 in 2008 (Gilinsky et al. 23-5). In 2010, however, LBC’s net profits
reached $1,500,000, exceeding $1 million for the first time in its history. This has mainly been
attributed to the economic recovery and the expensive investment that LBC had bought in 2008,
which enabled the company to raise its annual production capacity by 233.6% from 43,420
barrels in 2007 to 101,420 barrels in 2010 (Gilinsky et al. 23-6).
In the first three years after the financial crisis, the cost of borrowing reached historical-lows
as part of the Federal Reserve’s policy to encourage companies to invest in the economy. Thus,
Lagunitas Brewing Company 32
Mr. Magee realized that it was an ideal time to expand nationally for two major reasons. First, it
was the right time to obtain a loan, given the low interest rates. Second, LBC had paid off most
of its debts, which attracted more investors and banks. As a result, LBC was able to expand its
investor base beyond family and friends, thus enabling it to raise $17.5 million by 2011
(Gilinsky et al. 23-7). During the same year, LBC used the funds to purchase a new facility in
Chicago. The new Chicago brewery will eliminate $1.5 million of transportation costs that LBC
incurred to transport bottles from a glass manufacturer in the Midwest to LBC’s headquarters,
then back to the Midwest and East Coast after filling the bottles (Gilinsky et al. 23-6).
Central Problem
Due to our analysis of LBC’s internal and external environments and their major and
minor issues, we believe that the central problem in the case is the lack of a consistent vision,
mission and strategy. Lagunitas must develop an effective strategy to finance its current/future
operations and maintain growth and expansion.
Lagunitas Brewing Company 33
Solutions
Lagunitas has managed to be extremely successful despite their lack of a consistent
vision, mission and strategy. In the beginning Magee wanted to keep it small, have a private
label and serve around 20 bars. He wanted the brewery to be a one man show (Gilinsky et al.23-
3). From there, without ever truly hammering down a vision of what the brewery would be, they
grew rapidly. According to Magee, they “it was like making decisions on the back of a galloping
horse” (Gilinsky et al. 23-6). By 2013, the company’s vision had evolved into: remaining an
American brewery while getting beer to the most people possible, they wanted to compete with
beer giants like Miller-Coors and Anheuser-Busch but they lacked any vision or strategy on how
to do so (Gilinsky et al. 23-8).
The fast food company Chick-Fil-A is an excellent example of a company that has been
able to survive and thrive in a competitive market. They have done so by maintaining their
vision, mission and strategies. Chick-Fil-A, now the leading fast food restaurant in term of sales
per unit, desired to “To glorify God by being a faithful steward of all that is entrusted to us and
to have a positive influence on all who come into contact with Chick-Fil-A” (“The QSR 50”;
“Facts and History”). By consistently doing just that, they have become a leader in their industry.
Chick-Fil-A built their strategy around their mission statement; they focus on great customer
service, employee satisfaction and giving back to the community. We believe, and the proof is in
their reviews and numbers, that Chick-Fil-A’s success is a result of following their mission and
strategy from day one.
The lack of a specific vision, mission, and strategy constantly caused issues for
Lagunitas. The biggest issues that have resulted from not having a consistent vision, mission and
Lagunitas Brewing Company 34
strategy are the inability to handle growth, exceeding capacity, and lack of appropriate financing,
and unclear values. We have analyzed various solutions and graded them based on how well they
would resolve each individual issue. The grading scale can be found in the Appendix, Exhibit 1.
We believe that the following solutions will not only help Lagunitas maintain its current success,
but also surpass its issues or resolve its issues.
After analyzing various possibilities, we propose Lagunitas adopt one of the following
solutions. First, hiring consultants to assist in the creation of a mission, vision, and strategy for
the firm. Second, seeking outside venture capitalists and investors with corporate experience that
could assist in the restructure of the firm; selling the majority of the shares to an established
competitor, while remaining the CEO of the company; or, creating a joint venture with other
established beer companies. We believe that these solutions are among the best for what the
company needs.
Like many small companies that are growing rapidly, Lagunitas has experienced issues
financing its productions and meeting demand. One way to resolve these issues is to sell the
company to an established competitor that would be able to handle the growth, demand and
financial issues. Magee would ideally remain in charge of operations and would maintain some
equity in the company. However, this solution does not address Magee’s main concern, which is
his desire for the company to remain organic and American. Selling to a large competitor would
put Magee’s core values for the company at risk and the label would potentially no longer be
American. Although this solution would be effective it also does not address Lagunitas’ main
issue: lack of a consistent vision, mission, and strategy.
Our second solution would be to seek outside venture capitalists and investors. Attracting
successful businessmen with experience would all but solve the company’s financial issues and
Lagunitas Brewing Company 35
would provide much needed support for its expansion. While our solutions can be effective in
creating a consistent vision and strategy for the company, they may result in outcomes that differ
from what Magee has envisioned.
A joint venture would allow Lagunitas to join forces with a company or multiple
companies that have what they want and need: vision and strategy, growth, and financial
stability. Tesla is a great example of this. They have collaborated with various companies to
gain resources they did not have access to. This allowed them to turn an idea into a profitable
reality (Foroughi 3). Joining forces with another company or companies with consistent visions
and strategies would help LBC tremendously, however they would risk the possibility that the
visions of those other companies don’t match what they originally wanted for the brewery.
However, joint venture also presents the possibility of growth and financial stability. Just by
partnering with other breweries LBC’s presence in the beer industry would grow instrumentally.
They would also potentially benefit from the stability of another company’s financial situation,
assuming it was better and LBC’s.
Hiring consultants to work with Magee and his management team is the most effective
solution. Lagunitas is a great product and has done well up to this point, but we firmly believe
that if they continue without a specific vision, they will not stand the test of time. We suggest
that Lagunitas hire a financial expert that could better forecast what the firm will need financially
in the future. Furthermore, consultants would work with Magee to develop LBC’s mission and
vision statements for the company. We acknowledge that this solution would be costly for
Lagunitas, however, we believe that if Magee wants to maintain his ideals for the company,
while maintaining its success, this an ideal option.
Lagunitas Brewing Company 36
Lagunitas Brewing Company 37
Skills Needed
The three solutions that have been selected for Lagunitas to solve its issues require
specialized skills. The issue that Lagunitas encounters with conflicting values would require
individuals who have experience within in the beer industry. An individual with experience in
the beer industry can help lead the company in the right direction and set the values that it must
lead by. To solve the financing problem, the individuals who will be assisting throughout the
process; in any of the solutions that is chosen, must have a finance or accounting background.
The experience these individuals have will help Magee resolve this issue. They will understand
the struggles the financing department is having and seek the best solutions to solve it through
different strategies. The following issue with expansion would involve professionals with
backgrounds in finance, accounting, and economics. In order for Lagunitas to continue
expanding they need to make sure that they are able to do so financially and have professionals
that understand how business is conducted globally. It would also be important to have a
professional with an international marketing experience and operations management.
Consequences
If the following solutions are not implemented, then Lagunitas could face serious
consequences. The alternative solutions that are provided will assist the company in its values,
financial area, and expansion. If none of the solutions is implemented, then the company will
continue to operate in disorder and limit its potential growth in various areas.
If no solution is implemented and the company remains inconsistent on its values, it can
damage the company in different aspects because the company does not know in which direction
Lagunitas Brewing Company 38
to continue in. They are unsure of how to categorize them and will make decisions that can later
hurt the company. If they cannot decide on what direction they will take, then it will be difficult
for them to keep expanding into different areas. During expansion, the true values that they
wanted to hold could diminish if they do not make them a priority. Magee needs to have a
strategic intent to get others to understand what he wants the company to be and how they will
do it. It is important for the employees to have a clear vision of what the company will be as it
expands globally.
The recommendations that are specified will ensure more financial stability for
Lagunitas. If the company decides to not implement the given solutions, their financial mistakes
can turn over the company’s success. They will continue to obtain capital from friends and
family but eventually run out of people to ask. They will not be able to continue their production
at a level that will allow them to expand without the necessary capital. If they do not have a
professional who can forecast and budget its plans, they will lack a clear direction. If they do not
manage their profits appropriately, they could even face a divestiture. They would be limiting
themselves and prevent the business from growing.
The last way the company would be affected if the presented solutions are not executed
would be to impede further expansion of Lagunitas. LBC will lack the sufficient resources to
continue operations or expand. They will not have the financial means to expand or the human
capital to even implement realistic goals and strategies to attain their desired vision. If they try to
expand without setting in place any of the recommendations, it may cause the company to
decline due to hardships they are unprepared to handle.
Lagunitas Brewing Company 39
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Lagunitas Brewing Company 40
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Lagunitas Brewing Company 41
AppendixExhibit 1Grading mechanism: 1 through five, 5 being the highest and 1 the lowest
Tier One solutions Issue 1 - Financing
Issue 2 - Expansion/ growth
Issue 3 - Vision, Strategy, mission
Total
Solution 1- Hire consultants to restructure
5 5 5 15*
Solution 2 - Restructure company (no help)
3 3 3 9
Solution 3 - Seek outside investors and venture capitalists with corporate experience
5 4 3 12*
Solution 4 - Hire interns/business students to aid with company restructure
1 2 2 5
Solution 5 - Write mission statement
1 1 5 7
Solution 6 - Sell 90% of capital - remain CEO
5 4 3 12*
Solution 7 - Create better business plan
1 2 3 6
Solution 8 - Focus only on being a craft brewery rather than competing with industry giants
5 2 2 9
Solution 9 - Increase prices to raise revenues
4 3 1 8
Solution 10 - Merge with major competitor
5 4 1 10
Solution 11 - Downsize company to control/limit growth
5 1 3 9
Solution 12 – Joint venture with similar company
4 5 4 13*
Lagunitas Brewing Company 42
Exhibit 2Purpose: The profit margin ratio measures the amount of total Revenue that a company retains after considering all of its operating costs (including raw material purchases) and tax expense during the year.
Lagunitas Brewing Company 43
Exhibit 3
Average Profit Margin.