Working Paper: CEPR ID: DP15706
Authors: Bart Bronnenberg; Jean-Pierre Dubé; Joonhwi Joo
Abstract: 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.
Keywords: craft beer; branding; brand equity; formation of preferences
JEL Codes: D12; L11; M31; M37
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| changing demographics (J11) | market structure fragmentation (D49) |
| availability of craft beers (L66) | current consumption patterns (E21) |
| consumption capital (E21) | generational share gap in craft beer consumption (D15) |
| past availability (G14) | current consumption patterns (E21) |
| craft beer availability (L66) | generational differences in preferences (D15) |
| intrinsic preferences (D11) | generational share gap in craft beer consumption (D15) |