Faced with surging sales, plant would triple production

[caption id="attachment_30830" align="alignright" width="300" caption="Lagunitas Brewing Co.'s Petaluma plant (Herb Lingl Aerial Archives photo)"][/caption]

PETALUMA -- Lagunitas Brewing Co. is rushing a $9.5 million expansion just two years after a major production upgrade to keep up with what the company founder describes as a surge in demand.

Two years ago, Tony Magee had a high-tech 80-barrel brewhouse built and installed at a cost of $2.5 million to automate more of the eight- or nine-batch-a-day process while having more quality options. A brewhouse basically is a kettle, and that one can make enough to fill 1,280 kegs a day.

At the end of January this year, he realized depletions of Lagunitas beers from distributors had increased 68 percent from the same period last year.

"We thought it would last six to eight years, and instead we grew through it in two," he said. By summer, he said "We're expecting to be …  running the plant flat out to keep with orders."

The new 250-barrel brewhouse, the company's sixth, will arrive in a couple months and be installed over the following few months. Meanwhile, bottling will be moved from the brewery to new Italian equipment in an adjacent 18,000-square-foot distribution warehouse to make room for the new brewhouse.

Then Lagunitas will be able to ramp up production to 600,000 barrels annually. The brewery made 106,000 31-gallon barrels last year, ending the year at a production pace of 150,000 barrels a year. Mr. Magee expects to produce 160,000 barrels this year at a pace of 180,000 to 190,000.

At 600,000 barrels, Lagunitas would be in the realm of where the largest craft brewers are now. Sierra Nevada made about 750,000 barrels last year, Belgian 500,000 and Sam Adams maker Boston Beer Co. 2.26 million last year. Last week Boston Beer reported 2010 depletion growth of about 12 percent from 2009.

Craft breweries have a 4.8 percent share of total U.S. beer sales, up from 4.4 percent in 2009 and 3.0 percent in 2005, according to the Brewers Association, a Colorado-based trade group that represents more than 1,500 breweries and brewpubs that make less than 6 million barrels annually.

Craft beer fits with consumer sales trends increasingly toward local products from small independent companies, according to Paul Gatza, director of the association.

"Another trend is people looking for what’s new and different, and craft brewers are nimble and innovative, regularly creating new seasonal beers and special batches," he said.

Mr. Magee is pushing for fast growth to capture market share as distributors and retailers consolidate. Lagunitas beer currently is sold in 32 states.

"Being an important brand matters to them," he said.

The planned growth would be a long way from 1993 when Mr. Magee started the brewery in West Marin and nearly saw it fold.

The brand has done well in the beer belt of the West Coast, but the rest of the country is starting to appreciate craft beer, Mr. Magee said.

He noted that the best beer comes at small premium relative to the best spirits and wine that can demand hundreds of dollars or much more.

"People like craft brews for that reason," Mr. Magee said.

Lagunitas employs 92 people.

CORRECTION, March 14, 2011: The total cost of the expansion will be $9.5 million, including the $3.5 million new brewhouse. The existing 80-barrel brewhouse can produce 1,280 kegs per day, or 160 per each of the eight batches per day. The original story had incorrect information.