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

57 Pages Posted: 6 Apr 2021

See all articles by Bart J. Bronnenberg

Bart J. Bronnenberg

Tilburg University, CentER

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, Department of Finance

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Date Written: March 28, 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.. 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. 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. The attribution of the share gap to consumption capital shaped through availability on the supply side of the market highlights how barriers to entry, such as regulation and high traditional marketing costs, sustained a concentrated market structure.

JEL Classification: D12,L1,M31

Suggested Citation

Bronnenberg, Bart J. and Dube, Jean-Pierre H. and Joo, Joonhwi, Millennials and the Take-Off of Craft Brands: Preference Formation in the U.S. Beer Industry (March 28, 2021). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2021-37, Available at SSRN: https://ssrn.com/abstract=3817880 or http://dx.doi.org/10.2139/ssrn.3817880

Bart J. Bronnenberg

Tilburg University, CentER ( email )

Warandelaan 2
Tilburg, 5037 AB
Netherlands
+31 13 466 8939 (Phone)
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Jean-Pierre H. Dube (Contact Author)

University of Chicago - Booth School of Business ( email )

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United States

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

National Bureau of Economic Research (NBER) ( email )

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Marketing Science Institute (MSI) ( email )

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Cambridge, MA 02138-5396
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Joonhwi Joo

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance ( email )

800 West Campbell
Richarson, TX 75080
United States

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