THE GIST
On May 23, Heineken Internal subsidiary Lagunitas announced it would close its 300,000-square-foot Chicago facility on August 1, shutting down operations in the brewery as well as the taproom. It’s the latest sign that all is not well for the pioneering craft brewery, which saw production volumes decline -20% from 2019-2022, from 1.07 million barrels to 860,000 barrels, according to Brewers Association data. The Chicago plant opened in 2014, when Lagunitas was on track to brew about 600,000 BBLs annually, at a reported cost of $26 million.
According to a written notice provided to the brewery’s Chicago employees and reviewed by Good Beer Hunting, a “small number” of employees will be retained at the warehouse. Lagunitas says the closure affects 86 people, some of whom will be offered remote jobs or the option to relocate to the brewery’s headquarters in Petaluma, California.
Lagunitas says moving all production to Petaluma will “allow for a more efficient and flexible supply chain, with a greater focus on innovation and the acceleration of more sustainable brewing practices.” It’s also a cost-saving move amid slumping sales for the brewery’s core brands: Lagunitas IPA was down about -9% in chain retail sales volume in the first quarter of 2024 against the same timeframe in 2023. The company’s #2, Little Sumpin’ Sumpin’ wheat IPA, declined about -13%.
One unknown from the change is the future of production—or even existence—of Newcastle Brown Ale, which was mostly made in Chicago with additional volume from Lagunitas’ Petaluma HQ. Unused capacity in California could easily be used to make the beer, although sales have fallen off a cliff since 2018, going from almost 1 million cases sold in chain retail to around 80,000 in 2023.
WHY IT MATTERS
While some of Lagunitas’ struggles are particular to the company and its corporate parent, a closure of this scale is also a notable signpost on the craft beer industry’s maturation timeline.
Lagunitas opened its Chicago brewery at nearly the height of growth in U.S. craft beer; today, the industry as a whole has more unused capacity than at any other time in its modern history, according to Bart Watson, chief economist and vice president of strategy for the Brewers Association trade group. Watson pegged craft beer’s unused capacity at 41% earlier this year.
In 2016, the Chicago Tribune reported Lagunitas was producing about 405,000 barrels annually from its Chicago facility, enough to be the equivalent of a top-10 craft brewery in the country at the time. Additional equipment could have brought capacity to 1.2 million barrels, but that level of demand never materialized. A similar situation unfolded in Azusa, California, where Lagunitas opened a second taproom and events space in 2017, but reportedly closed a few years later. Lagunitas shuttered a Seattle brewery and taproom in 2022 after five years of operation.
With production in decline, Lagunitas will now consolidate operations at its Petaluma headquarters to improve efficiency. The company’s assertion that its California location is also better poised to deliver innovation is also critical: While sales of its core beers lag, non-beer products grow in importance. The brewery’s non-alcoholic hop water, Hoppy Refresher, is the leader in that category with 42% market share last year.
The closure in Illinois gives up a significant geographic advantage: When the Chicago facility opened, it was meant to be a pivotal part of serving markets in the Midwest and East Coast with the freshest beer possible. In 2014, founder Tony Magee said that 55% of Lagunitas sales came from “east of Denver” and the second location would allow for rapid expansion in chain retail while providing significant savings on transportation costs. Now, the future of the company—financially and in trying to recapture consumer attention—will all stem from its California HQ.
Centralizing brewing in Golden State is a psychic blow to a fractured company still grappling with last year’s layoffs of roughly 20% of sales staff, including longtime employees. Former employees say company leaders—many of whom come from Heineken—have little appreciation for or experience with what made Lagunitas successful in the past. They describe a culture that’s far from the creative, risk-taking ideals espoused by founder Tony Magee. Like the man himself, the iconoclastic approach he embodied seems increasingly elusive today.
Related reading on Lagunitas:
Lost Dog — Lagunitas Tries to Find Itself After Leadership Turnover, Sales Slumps
Words by Kate Bernot