Millennials and the Take-Off of Craft Brands: Preference Formation in the U.S. Beer Industry

54 Pages Posted:

See all articles by Bart Bronnenberg

Bart Bronnenberg

Tilburg University; Centre for Economic Policy Research (CEPR)

Jean-Pierre Dubé

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Marketing Science Institute (MSI)

Joonhwi Joo

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: February 9, 2021

Abstract

We conduct an empirical case study of the U.S. beer industry to analyze the disruptive effects of locally-manufactured, craft brands on market structure, an increasingly common phenomenon in CPG industries typically attributed to the emerging generation of adult Millennial consumers. We document a generational share gap: Millennials buy more craft beer than earlier generations. We test between two competing mechanisms: (i) persistent generational differences in tastes and (ii) differences in past experiences, or, consumption capital. Our test exploits a novel database tracking the geographic differences in the diffusion of craft breweries 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 heterogeneous consumption capital accounts for 85% of the generational share gap between Millennials and Baby Boomers, with the remainder explained by intrinsic generational differences in preferences. Through the lens of our model, we predict the beer market structure will continue to fragment over the next decade, over-turning a nearly century-old structure dominated by a small number of national brands brewing homogeneous lager beer. The attribution of the share gap to consumption capital and availability highlights how barriers to entry, such as regulation and high traditional marketing costs, sustained a concentrated market structure.

Keywords: branding, consumption capital, formation of preferences, market structure, craft beer

JEL Classification: D12, L11, M31, M37

Suggested Citation

Bronnenberg, Bart and Dube, Jean-Pierre H. and Joo, Joonhwi, Millennials and the Take-Off of Craft Brands: Preference Formation in the U.S. Beer Industry (February 9, 2021). Available at SSRN: https://ssrn.com/abstract=3761978

Bart Bronnenberg

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jean-Pierre H. Dube (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://gsb.uchicago.edu/fac/jean-pierre.dube

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Marketing Science Institute (MSI) ( email )

1000 Massachusetts Ave.
Cambridge, MA 02138-5396
United States

Joonhwi Joo

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX TX 75083-0688
United States
75080 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
32
Abstract Views
159
PlumX Metrics