DP15706 Millennials and the Take-Off of Craft Brands: Preference Formation in the U.S. Beer Industry
|Author(s):||Bart Bronnenberg, Jean-Pierre Dube, Joonhwi Joo|
|Publication Date:||January 2021|
|Keyword(s):||brand equity, Branding, craft beer, formation of preferences|
|JEL(s):||D12, L11, M31, M37|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=15706|
We conduct an empirical case study of the U.S. beer industry to analyze the disruptive effects of locally-manufactured, craft brands on the market structures, an increasingly common phenomenon in CPG industries typically attributed to the emerging generation of adult Millennial consumers. We document a substantial gap in the shares of craft beer consumption across generations. To understand the determinants of this generational share gap, we test between two competing mechanisms: (i) intrinsic generational differences in tastes and (ii) the role of availability on the formation of consumption capital. Our test exploits a novel database tracking the geographic differences in the diffusion of craft brewers across the U.S., dating back to the deregulation of home brewing in 1979 that initialized the launch of craft breweries. Using a structural model of demand with endogenous consumption capital stock formation, we find that consumption capital accounts for 85% of the generational share gap between Millennials and Baby Boomers, with the remainder explained by intrinsic preferences. Through the lens of our model, we predict the beer market structure will continue to fragment over the next decade, with craft beer reaching almost 30% of the market as the distribution of adult consumers shifts increasingly towards young adults with a wide variety of craft beer available as they turn 21 and begin forming a preference.