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Why Craft Beer’s Rise Is a Warning Flag for All Sorts of Big Brands
Research suggests a supply-driven explanation for millennials’ taste for craft beer.
- By
- June 28, 2021
- CBR - Marketing
Over the past 20 years, the largest consumer packaged goods companies have seen their sales erode while smaller companies selling artisanal and locally sourced products have grown. These changes, many believe, occurred as millennials came of age and used their buying power to disrupt established brands with significantly different preferences from those of their forebears.
Those who buy into this demand-side explanation can point to countless surveys in which millennials—born after 1980—profess a desire to support companies that align with their values, offer more sustainably produced or nutritious foods, or take part in social causes.
But Tilburg University’s Bart J. Bronnenberg, Chicago Booth’s Jean-Pierre Dubé, and University of Texas at Dallas’s Joonhwi Joo analyze the recent surge in sales of craft beers and reject the demand-side explanation in favor of an alternative supply-side one. Millennials often have a wider selection of craft beers to choose from than past generations did, as artisanal products have disrupted a century-old market structure dominated by a small number of big players, and they developed preferences on the basis of that experience, the researchers argue. It’s important to understand the mechanisms, the researchers note, because the same dynamics could erode the dominance of major brands in other categories, or alter how they maintain control.
To test between these demand- and supply-side hypotheses, the researchers used the NielsenIQ Datasets at Booth’s Kilts Center for Marketing to build a database that tracks beer purchases made by more than 100,000 US households from 2004 to 2018. In 2004, craft brews made up 5 percent of the beer sold in the US take-home market and generated 5.3 percent of revenue. By 2018, they more than doubled their volume share to 12 percent and quadrupled their revenue share to 20 percent. Millennials accounted for only 1 percent of the craft beer purchased by volume in 2004, simply because so few of them were old enough to purchase alcohol legally. But by 2018, they bought 20 percent of the craft beer sold.
From 2004 to 2018, as the millennial share of the craft-beer market soared, every other generation’s share fell. By 2018, sales data showed that millennials were buying 34 percent of craft beer, compared with 20 percent for baby boomers (born 1946–64) and 13 percent for the Greatest Generation (born before 1928). Half of millennials said they drank craft beer, compared with 36 percent of the country overall.
How millennials became the craft-beer industry’s best customers
Research finds that the rise in availability of craft beer as millennials reached drinking age influenced their spending habits.
Availability of craft beer when people in each generation turned 21
Median measure (higher = more availability)
Generations’ household spending on craft beer
Average annual share of all craft beer spending over 2004–18
Bronnenberg et al., 2021
Do these sales patterns reflect what beer customers demanded, or the kinds of beers that were available historically? Older generations had fewer choices when they began consuming beer and developing their tastes and habits—maybe only a handful of pale lagers, mostly from dominant brewers such as Anheuser-Busch and Miller.
To test for the effect of historic availability, the researchers looked at differences in the diffusion of craft-beer availability across US cities, two drivers of which were population growth on the one hand and local alcohol manufacturing and distribution restrictions on the other. By knowing population growth in various cities and the timeline for when different states deregulated home brewing and brew pubs, the researchers were able to test the two explanations. The availability of craft beer, they conclude, is what most affected each generation’s tendency to buck the brand-name beers. After accounting for the effect of which beers were available historically for consumers to buy in their local areas, the researchers saw no intrinsic difference between generations beyond the effect of differences in availability.
The takeoff in craft brewing is not a coincidence. Deregulation and low-cost digital advertising made it easier for new craft-beer players to enter the market, especially since the late 1990s. As a result, millennials have had access to craft alternatives since they turned 21, whereas older generations first encountered those long after they had established a preference for national brands.
“People form habits slowly, and it takes time to form a strong habit. But once you have it, it’s ingrained and you’re unlikely to switch,” Dubé says.
“We are seeing a similar trend in other product categories,” he adds. In many segments of consumer packaged goods, the market shares of big, established brands are falling as smaller companies grow, fragmenting categories that were dominated by a small number of established brands for most of the 20th century.
“What craft beer shows us is that shopping habits are formed not because one generation is intrinsically different from another,” says Dubé. “Their habits are caused by firms’ strategic decisions to supply variety.”
Bart J. Bronnenberg, Jean-Pierre Dubé, and Joonhwi Joo, “Millennials and the Take-off of Craft Brands: Preference Formation in the US Beer Industry,” Working paper, February 2021.
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