lagunitas change thorn brewing

Things’ll Never Change…

Heineken owned Lagunitas Brewery recently announced that they laid off more than 100 employees or about 12% of their entire workforce. Most of the layoffs were at their Petaluma headquarters and were across all departments. Punctuating this bummer-of-a-day for the ex-employees was a resurfaced 2013 tweet from Lagunitas founder, and now Heineken’s Director of Global Craft, Tony Magee:

thorn brewing change

These are prophetic words for the more than 100 people getting the pink slip. While he did express sadness about the layoffs (“today was a rough day as were the last week of considerations.”), this tweet definitely cuts deep from someone that once fiercely supported independent beer and then framed selling out to Heineken as “buying in” and described the sale as “using Lagunitas’ equity to buy deeper into an organization that will help us go farther more quickly than we could have on our own.” This last quote is from last year so what exactly has changed?

It’s not surprising that Lagunitas is feeling the pinch that many other large, regional breweries have been feeling the last couple of years. The pinch that comes from increased hyper-local competition and the immense amount of choice a beer consumer faces in an ever-changing landscape of craft beer. This sentiment was expressed by Lagunitas CEO, Maria Stipp, in her prepared statement to the press after announcing the layoffs. “The craft beer market is rapidly evolving and, in many ways, more challenging. More breweries, more choices …”

The Times They Are A-Changin’

What is surprising, however, is the change of tune this seems to be from a recent interview that Stipp gave to Brewbound. In the late-August piece, Stipp said that Lagunitas “ranks fourth in dollar share (up 4 percent) and sixth in volume (up 5 percent) through July 14, according to data from market research firm Nielsen.”

Furthermore, Brewbound reported that Lagunitas ranks No.1 in craft beer brands by dollar share and volume, both up 3%. In 2017, Lagunitas’ beer production rose 7%, to 984,000. That means they hold a 16% share of volume and dollar share in California. With this healthy outlook from August, it’s interesting that they are in enough financial trouble right now that they need to cut out 12% of their staff.

Parent Companies Just Don’t Understand

What good is selling out to a mega-brewery if they don’t provide somewhat of a safety net when it comes to financial issues at the once-independent brewery? When the Cox Brothers were interviewed a year after 10 Barrel sold to AB InBev, they gushed about their new access to capital and cash flow they received from their parent company.

Also, it was only last year that Heineken bought the last half of Lagunitas. In 2015, they paid nearly $500 million for 50%, so let’s assume with the slowing growth in craft beer Heineken got the second half for much less. Even if it was around $200 million, where did that money go exactly? To Magee and other investors? One would think that some of that cash could have been used to keep these 100 employees on the payroll.

In many of the articles written about these layoffs, they are compared to a few other recent layoffs including those weathered at Constellation, New Belgium laying off 4% of their workers and the Green Flash downsizing that happened earlier in the year. But all of these are different than the situation at Lagunitas because they weren’t posting the growth or market dominance that Lagunitas reported in August, the last two don’t have billion-dollar parent companies looking out for them, and the Constellation move was a conglomerate streamlining their sales team across all of their craft breweries, Ballast Point, Funky Buddha, and Four Corners.

These layoffs could be just another symptom of the craft beer market slowing along with regional breweries’ struggle to stay relevant in an ever-changing market. However, it seems like the sentiment that “things won’t change around here, we have the same awesome people brewing the same awesome beer,” a common expression from breweries that sell to big beer, just isn’t true in the end.