News broke yesterday that Dutch brewing behemoth Heineken (the 2nd largest international brewer in the world) will be purchasing a 50% stake in American craft beer darling Lagunitas. Tony Magee, the iconoclastic, outspoken founder of Lagunitas described the purchase as the end of his brewery’s “start-up” phase. In his cheeky press release, Magee focused mostly on Heineken’s ability to expand Lagunitas’ brand internationally (something that American craft brewers have mostly struggled with). He noted that his company will be able to expand “in places from Tierra Del Fuego and Mongolia to the far-flung Isle of Langerhans.”*
*It should be noted that the islets of Langerhans are actually a part of your pancreas.
When word of the sale spread to the Aleheads (hat-tip to old friend Jukebox Pat), we were more than a little stunned. Doc asked how the rest of us felt about the acquisition and there was some debate about what it all “meant”. So…what does it mean?
First of all, no matter how you slice it, this is a big deal…both literally and figuratively. It’s likely the largest investment in an American craft brewery ever. Heineken International is enormous…a brewing powerhouse with over 250 labels in their portfolio including heavy hitters like Heineken, Amstel, Murphy’s and Birra Moretti. Second only to AB InBev in terms of revenue (third in volume behind AB and SABMiller), Heineken is indeed a major player in the world of beer. Because they don’t have the same presence domestically as Budweiser, Miller or Coors, they’re usually not spoken about in the same breath as those other companies. But make no mistake, Heineken is a card-carrying member of the Big Beer fraternity.
Lagunitas meanwhile has been an absolute comet in the American craft brewing industry. Rising out of the fertile NorCal brewing scene, Tony Magee founded Lagunitas in Petulama in 1993 and has built his baby into the 5th largest craft brewery by volume in the US (behind Yuengling, Boston Beer Co., Sierra Nevada and New Belgium). He opened a second production facility in Chicago recently and has a third on the way in Asuza, CA. By any possible metric, Lagunitas is one of the great success stories in American craft brewing (the 50% sale actually gives them a projected valuation of $1 billion!).
So why the sale? And what are the repercussions?
Without knowing Tony Magee’s mind (perhaps he’d like to do another interview with our esteemed Slouch Sixpack to discuss matters?), this is all just speculation. But we’re a poorly written, poorly researched, poorly edited beer blog. Speculation is more or less our stock-in-trade. There are a few potential reasons the Aleheads have bandied about for the timing of this sale:
1. We could simply take Magee at his word. This may strictly be because he wants to expand the reach of his brand internationally. Despite being a giant in the American craft brewing world, Lagunitas is still small potatoes compared to international giants like Heineken and AB InBev. By partnering with Heineken, a company that already has mastery of the tricky international beer distribution business AND has the nigh-unlimited resources to shove Lagunitas IPA down the throats of Sri Lankans, Hungarians and Chileans, Magee gets to see his brewery become the first truly international American craft brand. That’s no small thing.
2. Magee has stated that he’s “55 going on 80”. Presumably he’s feeling the stress and pressure of running an enormous private company and he’s never come across as your typical, polished, bloodless CEO. Furthermore, with his known penchant for weed and beer, he may be at the stage in life where he’s starting to have some concern for his overall health and well-being. Again, this is all speculation, but none of us know what Magee’s plan of succession is for his company. Aligning himself with Heineken gives him an opportunity for astronomic growth AND a safety net in case he burns out. If Magee can’t helm the company anymore and doesn’t trust anyone to handle his duties, he can simply let Heineken take a controlling interest in the brand. It might change the company culture, but it would certainly let the Lagunitas name live on.
3. Magee has always been somewhat prescient in his opinions on the American craft beer landscape and he may simply see something that the rest of us don’t…namely a “bubble” for breweries like Lagunitas. With his expansion into Chicago, Lagunitas now has the capacity to reach all 50 states in the US. But it’s possible that Magee sees only so much growth potential for a brewery the size of Lagunitas domestically. The big craft breweries like the Boston Beer Company and Sierra Nevada are battling dozens if not hundreds of local micro and nano-breweries in every market they enter. Craft beer is growing in leaps and bounds, but there will come a point where a brewery the size of Lagunitas can only attract so many new drinkers domestically. And while other breweries fire out dozens of new beers and push experimentation to untold heights, Lagunitas is a brand that his stood by a smaller line-up of rock-solid labels sold at reasonable prices. Perhaps Magee thinks the big regional craft brands are about to hit a wall and the only way to break through is by partnering with an international giant?
Interestingly, Magee has been more critical of “Big Beer” than almost any other major figure in the American craft beer scene. He has often taken jabs at AB InBev and MillerCoors (he even did so in his press release about the Heineken sale noting that if either of those companies had approached him, the deal would have been “dead on arrival”). Why would a brewery CEO who has been outspoken about Big Beer in the past make such a deal with the devil? In his own words:
Some might say I’ve changed my mind. Well, I have. But the world around us has changed too and if learning leads to new insight, that’s the best kind of change imaginable. The hard part is discovering truly positive change within the possible avenues forward.
In truth, we don’t know why Tony Magee made this decision. He has been very up front about Lagunitas’ financial success. He intentionally eschewed any outside investment for his big Chicago expansion. He said the brewing facility would pay for itself quickly and it did. Presumably the same will be true for the Asuza operation. I don’t have Tony Magee’s tax returns in front of me, but I assume he’s not hurting financially and clearly Lagunitas is doing exceptionally well. From my perspective, this isn’t about the money, this is about doing something no other craft brewer has been able to do. To quoth Hans Gruber:
When Alexander saw the breadth of his domain, he wept…for there were no more worlds to conquer.
I think Magee simply had no more worlds to conquer in the US. As an aging titan of the American craft beer industry, I think the Heineken offer gave him a chance to keep on swinging for the fences. I think it’s as simple as ego, legacy and the desire to keep making his mark. How’s THAT for speculation?
And the repercussions? For now, that’s pretty easy to answer. First of all, Lagunitas will no longer be a “craft” brewery. The Brewers Association (the trade organization that serves as something of a watch-dog for American craft beer) clearly notes that a brewery must be at least 75% controlled by a craft brewer. That’s why Terrapin still counts (MillerCoors owns less than 25% of them) and why Redhook doesn’t (it’s part of the Craft Brew Alliance…about a third of which is owned by AB InBev). With the 50% sale, Lagunitas falls outside of the Brewers Association’s definition of craft (whether or not you care about that definition is entirely up to you, of course).
Second, both Heineken and Tony Magee have stated that, domestically, Lagunitas will continue to run as it always has. Granted, EVERY craft brewery that has sold out recently has made the same statement, but there’s no reason to believe that won’t be the case with Lagunitas. Heineken would be foolish to mess with Magee’s success in the US. Despite their massive international reach, Heineken doesn’t know the American craft industry…Magee clearly does. I suspect they’ll let him continue to do what he’s always done (though they may muzzle his frequent social media outbursts). If you love Lagunitas and don’t care who they’re in bed with, I imagine nothing will change for you. Their recipes will stay the same and you’ll still be able to get your awesome 40-ounce bottle of Lagunitas Sucks.
Third, in a few months or years, you’ll be able to order a Lagunitas IPA in countries around the world. If you’re an international traveler who frequently laments the lack of American craft options overseas, well…you’re in luck. And who knows…this may be the start of a trend. After witnessing what Heineken can do for Lagunitas, other American craft outfits may begin seeking out international partners to take their brands global. Soon, you might have your choice of great American craft brands in a pub in London, a karaoke bar in Japan, or a brothel in Bangkok.
But what does this mean for the Aleheads (asked absolutely no one)? Well, I can’t speak for the rest of the crew, but this deal does change my opinion of Lagunitas somewhat. I stopped drinking Terrapin for less than this and I haven’t touched a Goose Island or Elysian since their recent sales to AB InBev. True, I don’t have the same animosity towards Heineken International as I do MillerCoors or AB InBev.* They’ve never fought local pro-craft legislation like the other two and they don’t engage in the same Alehead-baiting, women-bashing marketing. But I can’t say I’m indifferent to them. I truly dislike their beer (the “best” thing I can say about Heineken Lager is that it tastes like a skunk’s anus…and Amstel is basically just European Corona). And I’m not sure I really trust a brewery that packages their flagship in green bottles that do next to nothing in blocking out beer-destroying UV rays.
*Years ago, I noted that I didn’t really care which companies craft breweries chose to align themselves with as long as they weren’t AB InBev or MillerCoors. While Heineken International isn’t at the level of those two conglomerates in terms of engendering ire amongst Alehead Nation, they’re not THAT far behind. They built their empire on watery swill and an onslaught of marketing just like the other two. And unlike AB InBev and MillerCoors, Heineken International has the gall to market their products as “premium” beverages just because they’re imported. In the case of Lagunitas, this is also the biggest percentage of a craft brewery that we’ve seen given up to a larger company (other than breweries like Goose Island that were just bought outright). Giving up 50% control of a brewery is a big deal no matter who the buyer is. When it’s a company that makes a beer as awful as Heineken Lager, well…that’s tough to get behind.
Honestly, I’m not happy about this. I know no one cares what one cranky beer geek thinks, but I’m sure I’m not alone. Will I stop drinking Lagunitas entirely? Probably not. Will I stop drinking their beer as much? Yeah, I will. As I’ve always said, there are so many great beer options out there these days that if a company doesn’t really align with your preferences as a consumer, you’re not really missing much by moving on from them. I’ll be able to live without most of Lagunitas’s brands. But I’m not gonna lie to you…I’ll still partake of a Lagunitas Sucks, a Waldo’s Special Ale, a Little Sumpin’ Extra, and my beloved Hop Stoopid every so often. Perhaps not as much as I used to, but for now, I’d have a hard time quittin’ a brand that has brought me so much enjoyment over the years.
I’m curious about the rest of Alehead Nation. Will you keep on keepin’ on with Lagunitas as long as their beer doesn’t change? Will you boycott them since they’re no longer technically a craft brewery? Or, like me, will you mostly skip over the Lagunitas shelf while occasionally grabbing a bottle of one of your favorites?
I don’t fault Magee for making his decision. It’s his company and his vision…I’m just a nobody beer snob with a tiny, terrible beer blog. But I am a little sad about this news, I won’t lie. Magee was so vocal about his derision towards Big Beer in the past. This sale means one of our craft “heroes” fell for the siren song of Big Beer like so many other breweries have before and will again. It’s not the end of the world, but it is the end of an era.
Note: If you’d like to read Tony Magee’s personal thoughts about the sale, you can find them here. It’s thoughtful stuff as it always is with Magee. There seems to be a bit of confusion about whether this is a sale of a stake in the company or a true joint venture. Heineken said a stake, Magee said a joint venture. I’m going with the former since that’s generally what is being reported by other sources.