Beer, Wine & Spirits

Chicago is Lagunitas Brewing’s kind of town

Tony Magee, founder and CEO of Lagunitas Brewing Company, is returning to sweet home Chicago.

Magee recently cut the ribbon on a 300,000-square-foot brew house and tap room in Chicago's Douglas Park neighborhood.

While the $26 million facility is now the largest brewery in Chicago, for Lagunitas it was simply the smartest way to add more capacity.

Courtesy Lagunitas Brewing Company

Founded in Petaluma, California, in 1993, Lagunitas has been operating its brewery there for several years at its max capacity of 600,000 barrels per year. The new Chicago brewery will initially add 600,000 barrels annually on its way to a total increase of 1.2 million barrels.

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The expansion will allow Lagunitas to meet the increased demand for its beer, including its flagship and best-selling brand IPA.

"We were very constrained for capacity for the last 21 years and this is the first time that we'll be able to put the reins forward on the horse," Magee said. "Now we're just going to let the horse go and see how fast it wants to run."

If the past is any indication, Lagunitas will be moving at a pretty fast pace. Already the fifth largest craft brewer, according to Brewery Association, Magee estimates the brewery has been growing sales by as much as 70 percent in the last couple of years.

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Currently available in 36 states, Lagunitas expects to be in all 50 states by the end of the summer because of the new brewery.

A natural choice

Chicago was a natural choice for expansion. The city's central location allows for increased access and reduced transportation costs to Midwest and East Coast markets and provides the security of being next to a major fresh water supply.

Then there is also the fact that Magee himself is from Chicago.

"I know Chicago well. I know the geography, I know the landscape, I know the neighborhoods and understand something of the culture because it's who I am," he said. "I felt like I had a reasonable chance of there being few enough unknowns that I could get the brewery built in the 18 months that we did."

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For Magee, speed was a critical component to the process, and he was willing to put his money where his mouth was.

Relying on a business plan that was fully prepared before he approached Chicago officials, he rejected the city's offers for grants and other types of tax breaks. What he wanted was to avoid the red tape often associated with big-city bureaucracies.

"I told them what I really want is a strong and expedited process. That was more valuable to me than money," he said. "Ten million is great but if I get the brewery up and running six months earlier that 10 million is chump change."

More 'open field' ahead

Magee sees Lagunitas' continued growth as a result of a generational shift in the beer business, and while Chicago represents a significant expansion, it's just the second of five breweries Magee said he believes is possible.

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"The truth is there is a lot of open field available to all of the craft business right now. The beer industry is turning itself inside out," he said.

Magee cites the decline in sales among industry giants as a sign of a downward spiral from which the larger brewers may never recover. He said many of today's smaller but fast-growing craft brewers can become the Budweiser, Miller and Coors of tomorrow.

"People think of brands as being eternal, but I always point out that in all the old 'Dirty Harry' movies, he's drinking Schlitz, because that was the biggest band in the country at the time," he said. "Tomorrow will not be like yesterday."

—By CNBC's Tom Rotunno