Lagunitas - Final Case Study Analysis

Running head: Lagunitas Brewing Company1

Lagunitas Brewing Company

Contributors:

Meshal Alkhowaiter, Erin Hasenkamp, Jacqueline Jerez, Daniel Shamany, Gustavo Tolentino

California State University, Northridge

Professor Fox

November 30, 2015

Lagunitas Brewing Company 2

Table of Contents

Introduction ………………………………………………………………………………………3

Irrelevant Information……………………………………………………………………………..4

Additional Information Needed …………………………………………………………………..5

External Factors …………………………………………………………………………….…….7

Remote Environment ……………………………………………………………………..7

Industry Environment …………………………………………………………………….9

Operating Environment ………………………………………………………………….11

Internal Factors ………………………………………………………………………………….15

SWOT Analysis …………………………………………………………………………15

Value Chain Analysis …………………………………………………………………...20

Resource Based View Analysis …………………………………………………………23

Assumptions ……………………………………………………………………………………..25

Major Issues……………………………………………………………………………………...27

Minor Issues ……………………………………………………………………………………..28

Grand Strategies …………………………………………………………………………………29

Interrelations of Major Players ……….…………………………………………………………30

Central Problem …………………………………………………………………………………32

Solutions ………………………………………………………………………………………...32

Skills Needed ……………………………………………………………………………………35

Consequences ……………………………………………………………………………………35

Work Cited ………………………………………………………………………………………38

Appendix ………………………………………………………………………………………...40


Introduction

In the early 1990’s Lagunitas Brewing Company started in Tony Magee’s kitchen in

Lagunitas, California. Eventually he was kicked out of the kitchen and moved operations to the

back of a local grocery store. From there the brewery took off; customers loved the unique flavor

and home grown vibes of the beer. With little business experience Magee turned a hobby into

one of the most successful craft breweries in the nation. However, this growth and success was

not without issues.

In the following report we have analyzed and presented solutions for Lagunitas Brewing

Company’s (LBC) major issues and resulting weaknesses. From its inception, Lagunitas has

been wildly successful and has grown into a nationwide brand. However, although Lagunitas has

proved successful in the last 20 years, we believe that the company shows some weaknesses that

must be addressed. Should the company not address these issues, we firmly believe that the

company will not only fail to reach its goals, but it will not survive.

By analyzing the company’s internal and external environment, we have identified LBC’s

major and minor issues. Based on the issues we have identified, we have developed various

solutions that the company should adopt. The following sections cover the firm’s internal and

external environment, major and minor issues, possible solutions, and people or skills needed to

implement the solutions. We believe that by following our suggestions Lagunitas Brewing

Company will continue to grow, thrive and reach its goals.


Irrelevant Information

In the case we were presented, much of the information proved relevant to our goal of

providing insight to areas in which the company could improve. Much of this relevant

information is referenced throughout the case. However there was also information we felt was

not relevant to what we were trying to accomplish, but that still held importance to understanding

Lagunitas. In the following section we have identified and presented the information that was not

necessarily used to guide us in our decision making, but was none the less important.

Lagunitas started as a hobby in Tony Magee’s own kitchen; however within a few years

his wife forced him out of it. Magee was a printer at the time, but he hated the work and was

looking for a way out. Once Magee’s wife kicked him out of their kitchen, he moved operations

to the back of a small grocery store in Forest Knolls, CA (Gilinsky et al. 23-2). Although the

beer was no longer being brewed in Lagunitas, CA, its original name stuck. Magee stated that his

reasons for keeping the original name were that “...it’s a beautiful little word, it’s hard to say,

once you [sic] said it, you’re in, and it looks lovely in type.” (Gilinsky et al. 23-11).

In regards to growth, Magee’s original intention was to remain small and private. Early

on he stated, “I would do all the work myself and whatever crumbs were leftover, I’d feast on

them.” (Gilinsky 23-3). Once Magee realized the success of his product, his vision expanded to

international growth. Lagunitas was to become a global brand (Gilinsky et al. 23-10). In order to

make its product marketable at a global level, LBC focused on quirky labels and a simple

typeface (Gilinsky et al. 23-10).

In terms of the California market, the state has the highest number of breweries

nationwide. While that is important, Lagunitas should treat the market as one national market for


now because it is selling its products in 35 states; therefore, it is in the exact same market as

every other company. The exact number of cases provided as part of penetrating the market is

not entirely irrelevant, but it would have been more useful if more quantitative information

regarding the number of cases sold was available.

Additional Information Needed

Throughout our analysis of the case we discovered the information we were provided was

not complete. We have addressed the areas in which additional information was needed.

1. The specific sources of financing for expansion is needed to determine any possible

alternative solutions. It was addressed that Lagunitas did not have reliable financing, but

the source of the financing they had were unclear. A breakdown of the operation

activities would also have been extremely helpful to determine areas for improvement

and additional opportunities.

2. Financial statements could help reveal opportunities for the company. For instance, was

the company profitable from an operations standpoint? If not, then why? The statements

also would show if the company took advantage of tax breaks to maximize earnings

before income tax, depreciation and amortization.

3. How did the additional salespeople add value to the company (from an RBV)? It is not

clear what the sales team was doing to add revenue to the company. Also, why did

Lagunitas need a sales team if word-of-mouth marketing had worked so well? Did the

sales team perhaps create additional unneeded expenses that added stress to the

company’s growth?


4. What was the value added from the hiring of IT employees and creation of a Consumer

Relations Management (CRM) system? Lagunitas did perhaps use this system to keep

track of inventory it sent to multiple restaurants and bars; however, it is not clear how the

system reduced cost or added value to the company. This also begs the question: How

many bars and restaurants were purchasing Lagunitas beer? Were the bars and restaurants

selling Lagunitas beer successfully, and if so, how much in sales? The latter could

become part of customer profiling to determine buyer habits.

5. Why does Lagunitas and Music go hand in hand? Are there other combinations Lagunitas

could explore? What made Lagunitas successful during events? Could the company

duplicate its success elsewhere?

6. Why did the company ignore securing exclusive distribution to events before Ron

Lindenbusch, LBC’s chief marketing officer, seized the opportunity to do so? The

company was not assertive in its effort to retain its successful strategy once it had

realized the strategy had worked.

7. What type of assistance did the city of Petaluma offer Lagunitas? It is unclear how

Petaluma would be able to help Lagunitas reduce the problem associated with

wastewater. Would it help Lagunitas reduce water usage, or perhaps offer incentives to

build a water treatment plant?

8. Who are the suppliers? There is no information about any suppliers in the case. From

where did Lagunitas receive its ingredients? Is the company able to reduce costs

associated with production through improved supplier relations?


9. More information is needed regarding the creditors of the company. What types of

financial institutions, banks, or investors were contributing money to the company? Also,

did the company give up equity in the process? If so, then how much?

10. Information about human resources is limited to common knowledge. What is the

reputation of Lagunitas as an employer? No information is available regarding the

number of employees at the company. What is the purpose of each employee? And how

efficient is the employee per task? Additionally, how did employees function in the

presence of an automated brewing system? How many employees are required for the

production process?

To begin our analysis of the case we will look at the internal and external environments of

Lagunitas. This analysis will help us to pinpoint the company’s major and minor issues and how

we can address them. We will start with an analysis of the external factors affecting the

company, then move to the internal factors.

External Factors

Remote Environment

The remote environment is concerned with factors the organization is not able to control,

such as the following: economic, social, political, ecological, and technological. These are

factors the organization may consider, yet it exerts minimal to no influence on them (Pearce 88).

Economic Factors


By using equity financing rather than debt financing, Lagunitas will be more attractive to

outside investors due to its low debt rates. Qualtrics is a perfect example of this approach.

Qualtrics sought to grow as much as possible on its own, but then realized it would benefit from

allowing external investors to finance its growth. Qualtrics was growing exponentially, so it

brought on Duff Thompson as an advisor to maintain positive relations with investors (Quigless

11).

With the exception of the last economic recession in 2008, LBC’s growth was generally

not affected by industry or economic downturns (Gilinsky et al. 23-5). This was largely due to

the increasing popularity of the craft beer industry among consumers. Lagunitas had a similar

strategy to that of Under Armor, which placed its products in the hand of the customer. Under

Armor was successful in penetrating the market in this way (Tolentino, Under Armor). By the

same token, LBC’s word-of-mouth strategy was extremely important to its early success. In

addition, Lagunitas realized that its pricing strategy would be important to the formation of the

brand. Magee realized that pricing was not something he could arbitrarily set because it was “the

world around [him].” This rationale explains why Magee chose to set the price of a six-pack at

$5.99: the price was the average price of the top twenty brands (Gilinsky et al. 23-11).

When the industry experienced a downturn, many breweries suffered and closed. Magee

saw this as an opportunity to purchase used equipment at low cost, enabling LBC to expand its

production capacity. The closing of these breweries also contributed to LBC’s growth because of

the lower level of competition (Gilinsky et al. 23-4). Finally, as the company grew, it incurred

additional costs relating to wastewater. The costs included further municipal compliance

regulations and a $250,000 monthly expense to transport its production waste 60 miles for

treatment (Gilinsky et al. 23-11).


Social FactorsConcert goers became the target market for Lagunitas. By providing free beer and gas,

the company built a brand around music. Lagunitas beer began identifying itself as a beer for

music lovers. The latter became the reason why Lagunitas began providing live music at its

tasting lounge. Overall, LBC’s beer fit into the lifestyle of music lovers (Gilinsky et al. 23-8).

Political FactorsRegulation became a major challenge for Lagunitas in regards to its wastewater issue.

The city of Petaluma was willing to help the company resolve the issue instead of incurring

fines. In the future, Lagunitas will face its unique political challenges (Gilinsky et al. 23-11).

Ecological FactorsLagunitas can follow Coca-Cola’s steps, where it can become more proactive in reducing

its wastewater. If Lagunitas succeeds in such a task, it may gain further core capabilities. In

addition, the company should explore ways to improve its water supply. Similar to Coca-Cola.

Lagunitas is dependent on water quality, and rainwater might be another option to maintain

consistency in its beer flavor (Karas 10).

Technological FactorsLagunitas has used technology to its advantage by investing in new equipment that

increases efficiency while minimizing production waste. For instance, in 2013, LBC installed

wastewater treatment machinery at its facilities (Gilinsky et al. 23-11).

Industry Environment

The concept of industry environment was popularized by Michael Porter’s “Five Forces

Driving Industry Competition.” Porter discusses determinants of entry, rivalry, supplier power,

buyer power, and substitutes (Pearce 100).


Determinants of EntryIt was not challenging for Magee to acquire the required equipment to begin brewing beer

(Gilinsky et al. 23-6); however, Lagunitas had to create a new distribution channel through bars

and restaurants. Due to the lack of economies of scale, Lagunitas marketed the beer as a private

label to bars and restaurants. The strategy focused on selling at low profit margins, but at high

volumes (Gilinsky et al. 23-8).

Determinants of RivalryIn 1997, as other breweries were closing, Lagunitas was still growing in the craft beer

segment. This allowed Magee to seize the opportunity to purchase used machinery to increase

production capacity (Gilinsky et al. 23-5). Lagunitas had found a niche market and continued to

grow (Gilinsky et al. 23-10). Lagunitas participated in music events in order to build brand

awareness. The company offered music lovers a chance to drink a new beer. The slogan adopted

by Lagunitas was “Fueled by Lagunitas,” which served to promote the name of the company

(Gilinsky et al. 23-3). Therefore, using a consistent message and a distinguishable beer taste has

enabled Lagunitas to increase its brand awareness (Gilinsky et al. 23-3).

Lagunitas reached maximum capacity several times throughout its history. Ever since its

foundation, Lagunitas has struggled with managing its growth. In 1994, it overwhelmed the

septic system of the small grocery store where it operated (Gilinsky et al. 23-9). After three

years, the company had grown from 600 to 10,000 barrels in production. In 2007, LBC reached

maximum capacity again. Lagunitas was forced, at the time, to increase production capacity to

150,000 barrels (Gilinsky et al. 23-10). Eventually, the company invested in a new Chicago

facility at 300,000 sq. ft. and a 500,000-barrel production capacity (Gilinsky et al. 23-6).

Determinants of Buyer Power


LBC’s strategy was to sell to bars and restaurants at low profit margins. The initial sale

price of $5.99 was the average price of that offered by industry leaders. The $5.99 per pack price

indicated that LBC’s beer is neither a low-quality nor an expensive product. Instead, LBC’s sale

price indicates that its beer is a good quality that is offered to customers at an affordable price

(Gilinsky et al. 23-6).

Determinants of Substitution Threat

Lagunitas should maintain the strong flavor of its beer for two major reasons. First, it

differentiates LBC’s beer from others in the market. Second, it makes it more difficult for

competitors to imitate its competitive advantage. There are limited or no switching costs for

customers in the beer industry. Therefore, Lagunitas should seek to differentiate its product from

the rivals. A market development and product development strategy is recommended. First,

Lagunitas may find new use-cases for its product (market development). As an alternative,

Lagunitas may provide new and different flavors of its beer to the existing market (product

development) (Pearce 209-211). According to the Brewers Association, beer prices tend to

remain within a certain price range; therefore, buyers are less likely to switch beer brand due to

price (Gilinsky et al. 23-6). As a result, it may be concluded that consumers are very likely to

remain loyal to their current brand. However, it may also indicate that Lagunitas should penetrate

the market more efficiently using the above-mentioned strategies.

Determinants of Supplier Power

No information regarding constraints by suppliers or suppliers in general.


Operating Environment

The operating environment concerns the organization’s ability to acquire resources for its

operation (Pearce 116).

Competitive PositionThe competitive position of an organization consists of many situational factors.

However, not all factors apply to all organizations (Pearce 116). For Lagunitas, the financial

position, capacity, product quality, market position and Research and Development (R&D) are

considered.

Financial PositionWhile full financial statements are not available, evidence exists within the case that LBC

has encountered high debt issues, which limited its growth in the 1990s (Gilinsky et al. 23-5).

However, with higher revenues in the early 2000s, LBC was able to pay off its liabilities, which

has made it more attractive for investors. As a result, when Lagunitas had to raise funds for its

new Chicago facility, it easily raised $17.5 million from banks and independent investors

(Gilinsky et al. 23-7).

CapacityThe company has been conservative with its maximum production estimates. For

instance, while Magee thought that it would take LBC’s California facility about ten years to

reach maximum capacity with the newly installed equipment in 2009. However, LBC was able to

reach its maximum capacity in the California production plant within three years (Gilinsky et al.

23-6).


Product QualityThe company can use its core capacity to seek out better water quality in order to keep a

consistent flavor across its production facilities. It may leverage this quality to differentiate itself

from competitors (Gilinsky et al. 23-1).

Market PositionWhile using word-of-mouth as a marketing strategy may be effective for a startup, it

should not be a main strategy for company the size of LBC’s (Gilinsky et al. 23-10). For

instance, it could expand its market exposure by providing ads in restaurants and bars. Certain

bars hang neon-lights of drinks that they carry. Another alternative could be to provide coasters

to bars and restaurants. This would benefit Lagunitas in adding exposure of its brand at bars and

restaurants.

R&D AdvantageThe recipe to Lagunitas can be a well-kept secret, similar to that of Pepsi and Coca-Cola.

It is difficult to imitate. In addition, Lagunitas claims to have a solid recipe that only requires

some tweaking to get right (Gilinsky et al. 23-7), which adds to the consistency of the flavor.

Customer Profile

Organizations should determine who their customer is; therefore, a customer profile is

highly recommended. Factors such as the following should be included: (1) geographic: identify

regions where customers come from; (2) demographics identify the variables that differentiate

the group; (3) psychographic, to help predict customer lifestyle; (4) buyer behavior, help to the

organization identify customer usage, benefits, and loyalty (Pearce 118)


GeographicLagunitas should seize the opportunity it has in places like Chicago, Petaluma, and North

Carolina where it has acquired a larger loyal consumer base. It could further explore the areas for

specific needs. For instance, the company could identify key events of each location to provide

promotions. All locations are different in culture; thus, by identifying components that could

connect culture to its products, the company may enhance its presence.

DemographicWe mentioned the music lovers whom Lagunitas identified as possessing the habit of

listening to live music. The company should dig deeper and analyze the age group, occupation,

sex, and other qualitative information. It will assist the company in identifying new

opportunities.

PsychographicThe label “Fueled by Lagunitas” is a great start. The company should further identify

what its brand means to the consumer. For instance, Coca-Cola campaigns “the real thing” as its

slogan (Pearce 118).

Buyer BehaviorLagunitas should find a way to generate metrics for usage data and benefits, among other

metrics. The company could benefit from adding further responsibility to its IT director position

(Gilinsky et al. 23-7). By installing metrics, the company could more easily identify trends that it

can proactively respond to.

Suppliers

Within the operational environment, organizations consider supplier relations because it

could provide advantages to the company. Moreover, supplier relations are essential to a


successful firm (Pearce 118). For Lagunitas, the information is almost nonexistent; consequently,

we will not discuss suppliers any further.

Creditors

Creditors are entities the organization has borrowed money from; they have a claim on

assets of the organization as a collateral (Pearce 118). More information is needed for Lagunitas;

however, we can confirm that the company experienced difficulties when attempting to build the

Chicago facility and raised $17.5 million to finance the project. Initially, the company could not

retain a loan due to its high debt ratio (Gilinsky et al. 23-6).

Human ResourcesIt is essential for a company to attract and retain employees. Human resources considers

the company’s reputation, the turnover rates, labor availability, and labor unions (Pearce 119).

Information is limited for Lagunitas; nevertheless, Lagunitas is a small player in the industry.

Generally, it would be more difficult for the company to hire and retain the best talent in the

market. While the company might possess a positive reputation among its customers, it is still

difficult to determine how attractive the company is as an employer.

Internal Factors

An internal analysis identifies and evaluates an organization’s capabilities, resources, and

core competencies. Performing internal analysis is essential for two reasons: first it helps the

company identify their strength and weakness and second it is needed in order to make effective

strategic decisions. In the following sections we used a SWOT analysis, a value chain analysis

and a resource based view analysis to analyze LBC’s internal environment.


SWOT Analysis

The SWOT analysis is a traditional method in which managers create a quick overview of

a company's current strategic situation (Pearce 153). According to Strategic Management:

Planning for Domestic and Global Competition, a SWOT analysis is, “based on the assumption

that an effective strategy derives from a sound fit between a firm its internal and external

situation. A good fit maximizes a firm’s strengths and opportunities and minimizes its weakness

and threats” (Pearce 153).

Strengths Weaknesses

Brand loyalty

Unique product

Promotional niche

Lack of reliable cash flows

Poor forecasting

Heavy dependency on marketing strategy

Wastewater

Opportunities Threats

Increase its market share by continuing to

sponsor more local events such as music

concerts

Donate its products to charities and non-

profit organizations

Promote its product through TV ads and

local sport teams

Large number of competitors

Restrictions in location

StrengthsOver the course of its growth, Lagunitas has developed specific strengths that we feel

help fuel its success. These strengths are brand loyalty, a unique product, and a promotional

niche. Although Lagunitas has shown strength in various areas, we believe that the few we have

highlighted are their strongest and will continue to help the company thrive.


The deep connections customers have with Lagunitas is at the top of their strengths.

Historically the brand loyalty that many customers have to Lagunitas has been a huge factor in

its success. At its brewery tours, Lagunitas customers are put on the company's front lines

(Gilinsky et al. 23-1). This allows them to see the production process and creates connection

with the brand (Gilinsky et al. 23-1). Due to their loyalty these customers are more likely to

purchase Lagunitas products over others, and are likely to introduce LBC products to other

customers. Therefore, creating and maintaining this relationship is beneficial to Lagunitas.

Additionally, part of Lagunitas’ strength comes from its unique taste and competitive

pricing. Lagunitas continues to lead the craft beer industry by producing a strong flavored beer

that is high in alcohol content (Gilinsky et al. 23-8). The taste and alcohol content of the beer

differentiates them from other breweries and gives them a competitive edge. When determining

the pricing for the beer, Magee wanted it to remain competitive with other craft brews as well as

mainstream beers (Gilinsky et al. 23-11). To do this he priced his beer right in the middle at

$5.99 per six pack (Gilinsky et al. 23-11). This pricing strategy allowed Lagunitas to market

itself as a craft beer for a bargain price, something few other craft breweries had at the time.

Weakness Lagunitas had several limitations that it faced in implementing its strategy. The most

prevalent limitations were its lack of cash flows, poor forecasting, heavy dependency on

marketing, and its wastewater issue. The following paragraphs go more into detail on each of the

weaknesses.

Since its inception, lack of cash flows has been a consistent weakness for LBC (Gilinsky

et al. 23-4). In order to maintain operations, Lagunitas was consistently needing more money

than what it was generating (Gilinsky et al. 23-4). As Lagunitas grew and expanded it became


more and more profitable. However, collection of receivables from customers was difficult and

profit margins were thin; therefore, money was scarce.

A second weakness of Lagunitas was its poor forecasting of demand. Lagunitas

continually failed to accurately forecast demand; thus, it was constantly exceeding capacity. In

2008, when the company installed new equipment, maximum capacity was forecasted not to be

reached until 2018 (Gilinsky et al. 23-6). However, due to poor forecasting, maximum capacity

was reached two years later in 2010 (Gilinsky et al. 23-6). As a result, LBC was not able to

handle the demand and again had to install new equipment, yet again costing the company

money (Gilinsky et al. 23-6).

Lagunitas’ heavy reliance on its marketing strategy creates an inherent weakness. Word

of mouth and quality of products were the foundation of Lagunitas’ marketing (Gilinsky et al.

23-10). Although these marketing tactics benefited the company in many ways, many of these

benefits became irrelevant as LBC grew (Gilinsky et al. 23-8). Lagunitas’ strategy included

giving away free beer at music festivals (Gilinsky et al. 23-10). However, as Lagunitas grew as a

company, sponsorship of these music festivals became scarce because many other beer

companies had already secured rights for distribution at these major musical events (Gilinsky et

al. 23-8). In order for the brand to main success, LBC will have to adopt new marketing

strategies.

The last weakness that Lagunitas had was its issue with wastewater. Lagunitas was

penalized with fines from the city of Petaluma for going over regulatory limits (Gilinsky et al.

23-11). Along with these fines, Lagunitas had other costs associated with the excess of

wastewater that they couldn’t release into sewers (Gilinsky et al. 23-11). As a result, Lagunitas

had to purchase a nearby plot of land where it could build its own wastewater treatment plant


(Gilinsky et al. 23-11). The funds that LBC continues to put into wastewater issues, is money

that could be invested more effectively.

OpportunityThe beer industry, although heavy in competition, has provided Lagunitas with many

opportunities as well. Of these opportunities we feel that the growing popularity of craft beers is

its greatest. At the beginning of 2012 craft breweries represented 6.5 percent of U.S. beer sales;

by the end of the year that figure grew by 15 percent (Gilinsky et al. 23-2). U.S. craft beer

markets have been and continue to be in the midst of an explosive growth, providing a lucrative

market for Lagunitas (Gilinsky et al. 23-11).

While LBC’s popularity has increased in recent years among music lovers, the company

can focus on increasing its market share using the same strategy, but targeting a new market

segment. For instance, Lagunitas can increase its product recognition by continuing to sponsor

additional local events, particularly in areas where the Lagunitas already has a high market share

such as California, Chicago, and North Carolina (Gilinsky et al. 23-8). Lagunitas may also

increase its brand awareness by donating more of its products to charities and non-profit

organizations. The use of such strategy will enable Lagunitas to not only reach new market

segments, but to also illustrate the company’s intent to have a positive impact on the

communities it operates in.

In 2012, Lagunitas became the 6th largest beer producer in the country and Magee has

constantly stated that he wants LBC to compete with major competitors such as Bud Light

(Gilinsky et al. 23-6). Given the aforementioned goals and accomplishments of Lagunitas, a

valuable opportunity for Lagunitas could be to run nationwide TV advertisements during big


sporting events in order to broaden its customer base. Finally, Lagunitas can sponsor sporting

events in cities where it has a large customer base.

ThreatsIn addition to its strengths, weaknesses and opportunities, Lagunitas faces threats that

could prevent it from achieving its ultimate strategic goals. Through our analysis of the company

we feel that the large number of new craft breweries and LBC’s restrictions on location present

the greatest threats.

Due to the growing demand for craft beers, many new breweries have entered the market.

According to the Brewers Association, there were an estimated 1,500 new craft breweries under

construction in 2013 (Gilinsky et al. 23-11). In addition to these new entries into the market,

Lagunitas is already competing with 2,400 existing craft breweries (Gilinsky et al. 23-11).

Further, much of this competition is moving into areas where Lagunitas has major markets

(Gilinsky et al. 23-10). For example, Sierra Nevada and New Belgium, two major craft brewers,

are planning to open breweries in North Carolina, one of LBC’s top markets (Gilinsky et al. 23-

10).

Another threat that will have to be addressed is its water restrictions. In terms of location

for its breweries, LBC is restricted due to the specific water chemistry used for its beers. The

inability to put breweries where demand is highest puts LBC at a competitive disadvantage.

Value Chain Analysis

Customers demand value from the goods and services they purchase. This value is

derived from three basic sources: the uniqueness of the product, the affordability of the product


or service, and the organization’s responsiveness to customer needs. A value chain analysis

examines these activities and determines how the company gains value from them. The

following is a value chain analysis of Lagunitas (Pearce 159).

In 2012, Lagunitas emerged as one of the top ten brewery in the United States because of

its distinguished taste from other craft beers (Gilinsky et al. 23-8). In a highly competitive

environment such as the beer industry, product differentiation is crucial. Therefore, the

company’s research and development department is always seeking for new, innovative formulas

(Gilinsky et al. 23-11). The company’s founder, believes that Lagunitas unique taste that will be

what gets the brand recognized (Gilinsky et al. 23-11).

Lagunitas has major market segments in California, Colorado, Texas, New York, and

Illinois (Gilinsky et al. 23-11). Outside California, the company’s second biggest market is

Illinois (Gilinsky et al. 23-6). Thus, the placement of a second brewery in Illinois allowed the

company to quickly meet customer’s needs.

Primary Activities Operations

Operations is a primary activity that should be investigated because Lagunitas is

committed to maintaining its beer quality. Magee stated, “A customer should not be able to

distinguish between batches brewed in Chicago [or] Petaluma” (Gilinsky et al. 23-7). Quality is a

high priority for Lagunitas and it plays a vital role in its expansion strategy. A major reason for

LBC’s decision to locate in Chicago was the city’s abundance of water and its quality (Gilinsky

et al. 23-7). Water is a main ingredient in beer making and it can affect the flavor profile of the

beer (Gilinsky et al. 23-7). Therefore, the right water was important in the decision to moving to

Chicago because this helped maintain its quality of beer (Gilinsky et al. 23-7).


Outbound logisticsOutbound logistics is the second primary activity that should be assessed further.

Lagunitas has major markets on the east coast and the establishment of the second brewery has

benefited Lagunitas tremendously (Gilinsky et al. 23-12). Chicago is one of the major

distribution centers in the United States and has allowed LBC to harness a distribution network

that is ideal for distributing their product to customers efficiently and effectively (Gilinsky et al.

23-12).

Marketing and salesIn addition to its quality, Lagunitas has differentiated itself from competition through its

marketing and sales activity. Thus, evaluation of this activity is necessary. The Lagunitas brand

has become recognized domestically and internationally due to its promotional efforts and

distribution support. Lagunitas has 100 distributors that sell LBC products nationwide and in a

few foreign countries, and within the next coming years, LBC expects to further expand

internationally (Gilinsky et al. 23-10). Lagunitas’ unique marketing plan has also helped

differentiate it from competitors. Word of mouth helped Lagunitas customers become aware of

the brand. Under Armour, an excellent example of innovative marketing, would deliver its

product for free to professional athletes who would then give advice in how to improve their

product. (Harvard 3). These athletes would then recommend Under Armor’s products to friends

and other athletes (Kraft 113). Similarly, Lagunitas would distribute hundreds of cases of free

beer for free at music festivals (Gilinsky et al. 23-10). Customers at these music festivals would

then recommend to other customers and as the message spread so did the brand. Eventually,

Lagunitas stood out in the market and was able to create a distinctive product that customers

valued.


Support Activities

Research, Technology, and Systems DevelopmentLagunitas is rapidly fulfilling customer needs with its second brewery in Chicago, but

now Lagunitas must accurately project these needs. Lagunitas IT department developed customer

relationship software to better equip its sales team as they go into bars, restaurants, and events

(Gilinsky et al. 23-7). Efficiently dealing with customers and fulfilling their actual needs will

increase customer satisfaction. This increases the chance of getting more business which

enhances profitability.

Resource Based View Analysis

A resource based view (RBV) is based on the premise that firms build a competitive

advantage based on the unique resources, skills, and capabilities they control or develop, which

can become the basis of unique, sustainable competitive advantages that allow them to craft

successful competitive strategies (Pearce 183). The RBV provides a useful conceptual frame to

inventory a firm’s potential competitive advantages among its tangible assets, intangible assets,

and its organizational capabilities (Pearce 183). Once inventoried, the RBV provides four

fundamental guidelines that managers can use to value these resources and capabilities (Pearce

183). Those with major value, defined as ones that are valuable for several reasons, become the

basis for building strategies linked to sustainable competitive advantage (Pearce 183). Lagunitas’

most valuable resources that helped it develop competitive advantage are described below. First,

tangible assets will be mentioned followed by intangible assets, and finally organizational

capabilities.


Tangible AssetsLagunitas’ most valuable tangible asset was the location of its facility in Chicago. The

Chicago expansion was a key step in being able to break out of the craft beer label and compete

on a larger national and global stage (Gilinsky et al. 23-12). The tangible asset, location, helped

fulfill needs better than competitors, resulting in greater profitability and sales volume for the

conveniently located facility (Pearce 169). This is exemplified in the Excel worksheet provided

in the Appendix, Exhibits 2 and 3. LBC’s profit margin in 2011, 2012, and 2013 was 4.4%,

5.3%, and 8.1%, respectively. In 2013, when Lagunitas expanded operations to Chicago, both its

profit margin and sales increased significantly. A 8.1% profit margin in 2013, indicates that

Lagunitas retained 8.1% of the $105 million total revenue in 2013, after subtracting all raw

material, operating expenses, and tax expenses. Therefore, Lagunitas plant proved to be valuable

because customers’ needs were better met by LBC than other competitors and thus LBC was

rewarded with higher profits and sales.

Intangible AssetsLagunitas’ strong relationship with Chicago, trade secrets, and its research facilities are

all valuable intangible resources that Lagunitas possesses. These intangible resources are

valuable to Lagunitas because they cannot be simply copied from competitors, thus creating a

competitive advantage over the competition in the craft beer industry. Their value to the firm are

described in more depth next. The relationship with Chicago is first examined, followed by trade

secrets and its research facilities.

Chicago would be considered a hometown for Lagunitas by Chicagoans (Gilinsky et al.

23-6). Lagunitas has deep connections to Chicago because founder, Tony Magee, was from

Chicago and had family living there (Gilinsky et al. 23-6). This intangible asset is a one-of-a-


kind relationship most other companies cannot have in Chicago. Lagunitas has a competitive

advantage because it has strong relationships with two cities, Petaluma and Chicago, while other

breweries only have one with the city where they were founded.

Lagunitas has a unique formula, strong in flavor and high in alcohol content, and this

secret formula cannot be easily replicated (Gilinsky et al. 23-10). Lagunitas competitors have a

difficult time understanding exactly what Lagunitas creates. Competitors cannot figure out the

combination of resources used to create the same product. Therefore, Lagunitas enjoys this

competitive advantage because competitors do not have the same resource as Lagunitas. In

addition, Lagunitas furthers this advantageous gap by continuously investing in its research and

development to find new material (Gilinsky et al. 23-11).

Organizational CapabilitiesThe founder’s skill of creating beer is not easily imitated. However the resources that

Lagunitas utilized are standard and can be easily used by other competitors. For instance, Magee

would get the standard supplier for producing beer: 5-gallon plastic pail, a strainer, the hop

packets, and the malt syrup. However, the skills that Magee had to create a craft beer taste that

customers distinguished could not be imitated by competitors. The unique knowledge and skills

that LBC’s workers apply when creating its beer has been the company’s major competitive

advantage.

Assumptions

The case study provided a lot of information, but certain details not found in the case led

us to make certain assumptions. The first assumption about Lagunitas was that the founder and


CEO, Tony Magee, was competent in running business operations. Prior to beginning Lagunitas

Magee was a printing salesman and brewed beer as a hobby. The assumption we made is that he

must have had some type of business knowledge in order to turn his hobby into the successful

business that it is today.

The next assumption was that Lagunitas was able to meet its financial obligations.

Throughout the years, the company continued to expand; therefore it is assumed that the

company met its obligations and maintained a net profit in its early years. The business would

have not continued if Magee was not receiving some type of benefit from the company. If certain

obligations were not met, the company would not be able to grow.

The company found itself in a difficult situation when the founder realized that there

were more craft breweries emerging in the market. In addition to the rising competition, some of

the craft brewers became contract brewed by large American brewers (Gilinsky et al 23-8). It is

assumed that Magee did not want Lagunitas to just be another craft beer, even though his starting

intent was just to be a craft beer. Due to the emergence of craft breweries with larger breweries,

Lagunitas intends to compete and forgoes its values. The company wanted to differentiate itself

from other brewery companies and felt that it needed to grow.

All while trying to compete with other craft breweries; it is assumed that Lagunitas

wanted to continue growing in order to compete with big domestic competitors such as Miller-

Coors. It can be assumed that the company had established itself as unique and no longer

competing with other craft breweries, due to their rapid growth. The decision makers at

Lagunitas then feared the larger domestic competitors would seize their opportunity and would

be able to do so because they were larger than Lagunitas. This led the company to believe that


they need to continue expanding until they were competing right alongside these large

companies.

Our next assumption, is that due to their focus on expanding, the company did not focus

on their product as much as it should have. It is assumed that the company only had one type of

beer for the first 15 years. This assumption is made because the company focused on generating

sales and the various issues it had with capacity and production.

All the assumptions are made to develop a better understanding of the business. These

assumptions help analyze the company and allow for adequate recommendations Lagunitas

should implement.

Major Issues

While Lagunitas has encountered several issues throughout its history, we have identified

five major challenges that have had a profound impact on the company. The main issue in the

case is a lack of clarity and consistency between the company’s goals and values. LBC’s

founder, Magee, would like to maintain the company’s position as a traditional craft brewery, but

at the same time, Magee wants to make LBC’s beer available to all customers (Gilinsky et al. 23-

8). The inconsistency between LBC’s values and objectives has constrained its growth and

limited its financing options, especially during the first ten years.

The second major challenge is financing. Whether the company attempts to finance its

current operations or fund a future plan, Lagunitas has always struggled with finding a steady

source of funding. During the 1990’s and early 2000’s, financing issues forced LBC’s founders

to rely on unstable financing sources such as borrowing from friends and relatives. At that time,


Magee also had to sell some of his ownership shares to raise necessary funds, which has

hindered LBC’s growth at that time (Gilinsky et al. 23-5).

Third, Lagunitas has constantly struggled to create a clear expansion strategy that fits

both, the company’s values and its strategic intent. For instance, Magee’s objective to expand

nationwide and compete with industry leaders does not necessarily match his intent that

Lagunitas should continue using the same type of water when making its beer (Gilinsky et al. 23-

7). The lack of a clear expansion has also caused Magee to delay the Chicago expansion plan

several times before finally opening in 2014 (Gilinsky et al. 23-1). This has occurred despite the

great support that the plan had from LBC’s chief marketing officer and the willingness of outside

investors to finance the plan (Gilinsky et al. 23-1).

The fourth issue is production waste. The treatment of wastewater has been a major

challenge for Lagunitas, particularly during its first fifteen years. We believe this is a main issue

because it may negatively affect LBC’s reputation in the communities it operates in and it

drains the company’s financial resources. At one point, Lagunitas spent $250,000 per month to

transport its wastewater 60 miles away to nearby districts (Gilinsky et al. 23-11).

Marketing was a major issue for Lagunitas during its early years because the company

primarily relied on word-of-mouth as a marketing strategy. However, as LBC grew, the founders

realized that maintaining the same advertising strategy would limit LBC’s market segment.

Therefore, the company began using other means to market its beer by sponsoring local

musical events and distributing its product to charities (Gilinsky et al. 23-8). This has enabled

LBC to broaden its customer base in California and other states.

Minor Issues


While LBC deals with major issues such as financing, growth, marketing and wastewater,

these are not the only issues it faces. While they prove to be the biggest issues, LBC faces many

others. Of these we feel that water chemistry, distribution, and competition impact their ability to

meet goals and ultimately become one of the top breweries in the world.

The type of water Lagunitas uses has a huge impact on the way its beer turns out. When

Magee first started brewing in Petaluma, CA, he was able to perfect his beer using the Petaluma

water supply; going forward, Magee knew that in order to keep all breweries as similar as

possible he would have to use water with the same chemistry. (Gilinsky et al. 23-7) However,

this reliance on specific water chemistry causes issues with expansion; if Magee’s goal is to get

beer to the most people as possible, restrictions in brewery locations due to water will become a

huge detriment.

Distribution plays into the issue with water chemistry: if Lagunitas beer can only be

brewed in certain locations, distribution will suffer. In order for LBC to compete with national

and international breweries, they must be able to distribute their product efficiently and at low

cost. If LBC is only produced in a few places due to water restraints, their distribution channels

will not be sufficient. For example, if the East Coast demand cannot be covered by their Chicago

brewery, it would not make sense to put the burden on the California brewery. Instead, LBC

would need to open a new brewery elsewhere on the East Coast.

Although LBC has done a fantastic job rising to one of the top craft breweries in the

nation, their competition is steep in both the craft brewery market and the commercial beer

markets. Regardless of which market LBC chooses to pursue, their competition will constantly

be at their feet. As the craft brewery market grows, LBC must reevaluate themselves to ensure

they are staying on top of their competition.


Grand Strategies

Throughout the case we observed that of all the possible grand strategies, LBC

consistently maintained a strategy of concentrated growth. Concentrated growth is defined by

being in a single market with a dominant product (Pearce G-1). In LBC’s case, its market is the

craft beer industry and its dominant product is its unique brew. Concentrated growth is also the

least costly and risk of all strategies; this, in its early years it was smart for LBC to follow it; the

strategy allowed them to establish themselves in the industry. We see this strategy of

concentrated growth throughout the company’s life. Magee stated LBC with one type of beer and

focused on perfecting that beer. Knowing that the brew he had was being received well, he stuck

with it and built his company around it.

Major Players

Throughout LBC’s history, three major events had a major impact on limiting or

contributing to LBC’s growth. First, the craft beer industry’s downturn in the late 1990s had a

positive effect on LBC. Second, the 2008 economic recession limited LBC’s growth between

2008 and 2009 (Gilinsky et al. 23-5). Finally, the aftermath of the financial crisis created a

favorable environment to growing firms such as Lagunitas that had to borrow to finance further

expansion.

Companies in the craft beer industry faced major financial challenged in between 1997 and

1998, during which approximately 23 brands closed or temporarily stopped operations due to the

slow sales and growth in the industry (Gilinsky et al. 23-4). However, LBC’s founders used the


beer industry’s downturn to its advantage. LBC realized that it was a great time to purchase

additional equipment to increase its capacity. Many brewers at the time had closed their

operations, so they were willing to sell their machinery at low costs. In addition, LBC’s founders

took advantage of the industry’s stagnating growth by leasing a larger facility that was

previously used by a brewery that had recently closed. The results of LBC’s investments during

the industry’s decline in 1997 paid off within two years. By 1999, LBC doubled its sales revenue

by over a 100%, generating $2,278,000, compared to $1,263,000 revenue in 1997. The

company’s capacity has nearly increased by 80%, from 8,420 barrels in 1997 to 14,420 barrels in

1999 (Gilinsky et al. 23-5).

While the industry’s downturn in the late 1990s had favorable consequences for LBC, the

financial crisis in late 2007 played a vital role in negatively affecting LBC’s profits in 2008 and

2009 (Gilinsky et al. 23-5). A combination of adverse economic conditions and expensive

investments in 2008 made matters even worse for LBC. In 2008, Lagunitas had just bought a

completely automated 80-bbl brew house. The new investment was purchased early in 2008

when the impacts of the economic recession were not apparent. Despite an increase in both sales

and production capacity in 2008 due to the new investment, LBC’s profits declined from

$804,000 in 2007 to $595,000 in 2008 (Gilinsky et al. 23-5). In 2010, however, LBC’s net profits

reached $1,500,000, exceeding $1 million for the first time in its history. This has mainly been

attributed to the economic recovery and the expensive investment that LBC had bought in 2008,

which enabled the company to raise its annual production capacity by 233.6% from 43,420

barrels in 2007 to 101,420 barrels in 2010 (Gilinsky et al. 23-6).

In the first three years after the financial crisis, the cost of borrowing reached historical-lows

as part of the Federal Reserve’s policy to encourage companies to invest in the economy. Thus,


Mr. Magee realized that it was an ideal time to expand nationally for two major reasons. First, it

was the right time to obtain a loan, given the low interest rates. Second, LBC had paid off most

of its debts, which attracted more investors and banks. As a result, LBC was able to expand its

investor base beyond family and friends, thus enabling it to raise $17.5 million by 2011

(Gilinsky et al. 23-7). During the same year, LBC used the funds to purchase a new facility in

Chicago. The new Chicago brewery will eliminate $1.5 million of transportation costs that LBC

incurred to transport bottles from a glass manufacturer in the Midwest to LBC’s headquarters,

then back to the Midwest and East Coast after filling the bottles (Gilinsky et al. 23-6).

Central Problem

Due to our analysis of LBC’s internal and external environments and their major and

minor issues, we believe that the central problem in the case is the lack of a consistent vision,

mission and strategy. Lagunitas must develop an effective strategy to finance its current/future

operations and maintain growth and expansion.


Solutions

Lagunitas has managed to be extremely successful despite their lack of a consistent

vision, mission and strategy. In the beginning Magee wanted to keep it small, have a private

label and serve around 20 bars. He wanted the brewery to be a one man show (Gilinsky et al.23-

3). From there, without ever truly hammering down a vision of what the brewery would be, they

grew rapidly. According to Magee, they “it was like making decisions on the back of a galloping

horse” (Gilinsky et al. 23-6). By 2013, the company’s vision had evolved into: remaining an

American brewery while getting beer to the most people possible, they wanted to compete with

beer giants like Miller-Coors and Anheuser-Busch but they lacked any vision or strategy on how

to do so (Gilinsky et al. 23-8).

The fast food company Chick-Fil-A is an excellent example of a company that has been

able to survive and thrive in a competitive market. They have done so by maintaining their

vision, mission and strategies. Chick-Fil-A, now the leading fast food restaurant in term of sales

per unit, desired to “To glorify God by being a faithful steward of all that is entrusted to us and

to have a positive influence on all who come into contact with Chick-Fil-A” (“The QSR 50”;

“Facts and History”). By consistently doing just that, they have become a leader in their industry.

Chick-Fil-A built their strategy around their mission statement; they focus on great customer

service, employee satisfaction and giving back to the community. We believe, and the proof is in

their reviews and numbers, that Chick-Fil-A’s success is a result of following their mission and

strategy from day one.

The lack of a specific vision, mission, and strategy constantly caused issues for

Lagunitas. The biggest issues that have resulted from not having a consistent vision, mission and


strategy are the inability to handle growth, exceeding capacity, and lack of appropriate financing,

and unclear values. We have analyzed various solutions and graded them based on how well they

would resolve each individual issue. The grading scale can be found in the Appendix, Exhibit 1.

We believe that the following solutions will not only help Lagunitas maintain its current success,

but also surpass its issues or resolve its issues.

After analyzing various possibilities, we propose Lagunitas adopt one of the following

solutions. First, hiring consultants to assist in the creation of a mission, vision, and strategy for

the firm. Second, seeking outside venture capitalists and investors with corporate experience that

could assist in the restructure of the firm; selling the majority of the shares to an established

competitor, while remaining the CEO of the company; or, creating a joint venture with other

established beer companies. We believe that these solutions are among the best for what the

company needs.

Like many small companies that are growing rapidly, Lagunitas has experienced issues

financing its productions and meeting demand. One way to resolve these issues is to sell the

company to an established competitor that would be able to handle the growth, demand and

financial issues. Magee would ideally remain in charge of operations and would maintain some

equity in the company. However, this solution does not address Magee’s main concern, which is

his desire for the company to remain organic and American. Selling to a large competitor would

put Magee’s core values for the company at risk and the label would potentially no longer be

American. Although this solution would be effective it also does not address Lagunitas’ main

issue: lack of a consistent vision, mission, and strategy.

Our second solution would be to seek outside venture capitalists and investors. Attracting

successful businessmen with experience would all but solve the company’s financial issues and


would provide much needed support for its expansion. While our solutions can be effective in

creating a consistent vision and strategy for the company, they may result in outcomes that differ

from what Magee has envisioned.

A joint venture would allow Lagunitas to join forces with a company or multiple

companies that have what they want and need: vision and strategy, growth, and financial

stability. Tesla is a great example of this. They have collaborated with various companies to

gain resources they did not have access to. This allowed them to turn an idea into a profitable

reality (Foroughi 3). Joining forces with another company or companies with consistent visions

and strategies would help LBC tremendously, however they would risk the possibility that the

visions of those other companies don’t match what they originally wanted for the brewery.

However, joint venture also presents the possibility of growth and financial stability. Just by

partnering with other breweries LBC’s presence in the beer industry would grow instrumentally.

They would also potentially benefit from the stability of another company’s financial situation,

assuming it was better and LBC’s.

Hiring consultants to work with Magee and his management team is the most effective

solution. Lagunitas is a great product and has done well up to this point, but we firmly believe

that if they continue without a specific vision, they will not stand the test of time. We suggest

that Lagunitas hire a financial expert that could better forecast what the firm will need financially

in the future. Furthermore, consultants would work with Magee to develop LBC’s mission and

vision statements for the company. We acknowledge that this solution would be costly for

Lagunitas, however, we believe that if Magee wants to maintain his ideals for the company,

while maintaining its success, this an ideal option.


Skills Needed

The three solutions that have been selected for Lagunitas to solve its issues require

specialized skills. The issue that Lagunitas encounters with conflicting values would require

individuals who have experience within in the beer industry. An individual with experience in

the beer industry can help lead the company in the right direction and set the values that it must

lead by. To solve the financing problem, the individuals who will be assisting throughout the

process; in any of the solutions that is chosen, must have a finance or accounting background.

The experience these individuals have will help Magee resolve this issue. They will understand

the struggles the financing department is having and seek the best solutions to solve it through

different strategies. The following issue with expansion would involve professionals with

backgrounds in finance, accounting, and economics. In order for Lagunitas to continue

expanding they need to make sure that they are able to do so financially and have professionals

that understand how business is conducted globally. It would also be important to have a

professional with an international marketing experience and operations management.

Consequences

If the following solutions are not implemented, then Lagunitas could face serious

consequences. The alternative solutions that are provided will assist the company in its values,

financial area, and expansion. If none of the solutions is implemented, then the company will

continue to operate in disorder and limit its potential growth in various areas.

If no solution is implemented and the company remains inconsistent on its values, it can

damage the company in different aspects because the company does not know in which direction


to continue in. They are unsure of how to categorize them and will make decisions that can later

hurt the company. If they cannot decide on what direction they will take, then it will be difficult

for them to keep expanding into different areas. During expansion, the true values that they

wanted to hold could diminish if they do not make them a priority. Magee needs to have a

strategic intent to get others to understand what he wants the company to be and how they will

do it. It is important for the employees to have a clear vision of what the company will be as it

expands globally.

The recommendations that are specified will ensure more financial stability for

Lagunitas. If the company decides to not implement the given solutions, their financial mistakes

can turn over the company’s success. They will continue to obtain capital from friends and

family but eventually run out of people to ask. They will not be able to continue their production

at a level that will allow them to expand without the necessary capital. If they do not have a

professional who can forecast and budget its plans, they will lack a clear direction. If they do not

manage their profits appropriately, they could even face a divestiture. They would be limiting

themselves and prevent the business from growing.

The last way the company would be affected if the presented solutions are not executed

would be to impede further expansion of Lagunitas. LBC will lack the sufficient resources to

continue operations or expand. They will not have the financial means to expand or the human

capital to even implement realistic goals and strategies to attain their desired vision. If they try to

expand without setting in place any of the recommendations, it may cause the company to

decline due to hardships they are unprepared to handle.


Works Cited"Facts and History - Company Highlights | Chick-fil-A." Facts and History - Company

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AppendixExhibit 1Grading mechanism: 1 through five, 5 being the highest and 1 the lowest

Tier One solutions Issue 1 - Financing

Issue 2 - Expansion/ growth

Issue 3 - Vision, Strategy, mission

Total

Solution 1- Hire consultants to restructure

5 5 5 15*

Solution 2 - Restructure company (no help)

3 3 3 9

Solution 3 - Seek outside investors and venture capitalists with corporate experience

5 4 3 12*

Solution 4 - Hire interns/business students to aid with company restructure

1 2 2 5

Solution 5 - Write mission statement

1 1 5 7

Solution 6 - Sell 90% of capital - remain CEO

5 4 3 12*

Solution 7 - Create better business plan

1 2 3 6

Solution 8 - Focus only on being a craft brewery rather than competing with industry giants

5 2 2 9

Solution 9 - Increase prices to raise revenues

4 3 1 8

Solution 10 - Merge with major competitor

5 4 1 10

Solution 11 - Downsize company to control/limit growth

5 1 3 9

Solution 12 – Joint venture with similar company

4 5 4 13*


Exhibit 2Purpose: The profit margin ratio measures the amount of total Revenue that a company retains after considering all of its operating costs (including raw material purchases) and tax expense during the year.


Exhibit 3

Average Profit Margin.

Lagunitas - Final Case Study Analysis

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