Academic journal article Journal of Agricultural and Resource Economics

Beer Snobs Do Exist: Estimation of Beer Demand by Type

Academic journal article Journal of Agricultural and Resource Economics

Beer Snobs Do Exist: Estimation of Beer Demand by Type

Article excerpt

(ProQuest: ... denotes formulae omitted.)

Introduction

The craft brew revolution has transformed the beer industry. Thirty years ago, there were only a handful of specialty craft breweries. In 2011, there were 1,970 microbreweries in the United States offering a wide variety of differentiated products (Bradford, 2012) in almost every form and flavor imaginable.1 With this increasing focus on variety, taste, and quality, a new term entered our vocabulary: the beer snob, a term given to those consumers who enjoy craft beers. Beer snobs are often accused of looking down on those who drink mass-produced beers (see Urbandictionary.com). A typical beer snob would rather drink nothing than drink a mass-produced beer.

Beer as a product can be placed in one of three broad categories in the U.S. market: mass- produced beer, craft beer (microbrews), and imports.2 Mass-produced beers are traditional American lagers, which are produced on a mass production scale. In particular, mass-produced beers have similar characteristics of lightness, use bottom-fermenting yeast, and sometime use adjuncts, such as corn or rice. Imported beers are those produced abroad. The Brewers Association defines the craft beer segment as beer made by independently owned brewers with annual production of six million barrels or less and who use traditional ingredients without adjuncts to lighten the taste. The product differentiation across beer categories is horizontal rather than vertical, meaning that different consumers prefer each category.

Although mass-produced brews still account for the vast majority of beer sales, sales of craft beers have also grown steadily for many years. According to the Brewer's Association, craft brewers' share of sales grew by 20% to an estimated $14.3 billion in retail sales. This constitutes an estimated 14.3% of sales in the U.S. beer market. This growth occurred while overall U.S. beer sales were down an estimated -1.9%. Imported beer sales have been flat: down an estimated -0.6% in 2013 while up 1.3% in 2012 (Brewers Association, 2014). Consumers may choose imported beers based on Veblen effects and identification with their ancestral heritage (e.g., consumers with an Irish ancestry may choose Guinness). According to Tremblay, Iwasaki, and Tremblay (2005), factors such as the homogenization of mass-produced brewed beer, changes in local demand conditions, and a more favorable regulatory environment have created profitable niches in many local markets for microbrewery beer. Younger consumers are driving the increase in consumption of craft beer (Voight, 2013). Hence, as more millennials reach legal drinking age, one might expect for the craft segment to grow as a percent of the market.

Advertising has played a key role in the development of the industry, especially in the mass-produced and imported sectors. Beer advertising has generally been persuasive rather than informative about product characteristics. As a result, leading brewers acquired "brand personalities" that target the market with which they want to be associated (Choi and Stack, 2005). One could argue that advertising in the mass-produced beer category has been predatory at the brand level with mega-brewers gaining market share,3 but the effect at the category level is flat. In contrast, the craft brewers market primarily through festivals, social media, other websites, at brewpubs, with t-shirts, and through word of mouth. With exceptional growth in craft beers, one could argue that these grassroots marketing strategies are not predatory within the craft category. In fact, strategies such as festivals encourage consumers to taste many different brands and leverage marketing efforts across brands.

Although all three categories of beer are considered to be the same product, one could argue that they are not close substitutes for each other. In general, beer is a product that one develops a taste for, suggesting an "exposure" effect. …

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