Scraping the Bottom of the Beer Barrel: Consumer Preferences for Localness and Responses to Brewery Acquisitions

Abstract

The U.S. beer industry has shifted dramatically over the past two decades from a highly concentrated and homogeneous industry to one composed of thousands of small, heterogeneous producers, primarily focused on local markets. This shift evokes the question: how much do consumers prefer locally produced craft beer? I use large, newly developed datasets, based on beer reviews and observations of weekly sales, to explore the market for craft beer in America and address this question. Analysis of ratings data provides clear evidence of preferences for local and independently owned craft beer among avid craft beer drinkers. Examination of sales data extends these results to the general U.S. population, also showing that consumer demand is less price elastic for local beer than nonlocal beer. In econometric analysis, “natural experiments” created by mergers and acquisitions act as exogenous shifts in localness, and they are found to cause reductions in ratings but mixed changes in demand. Finally, ratings and sales are combined to infer an implicit value for local preferences.

Keywords: Consumer Preferences, Acquisitions, Local, Craft Beer

JEL Classification: L66, D12, G34