Jarret Hart, University of California, Davis
The popularity of craft beer has exploded in the United States over the past few decades, resulting in soaring production and the creation of thousands of new breweries.
Much of this growth has come at the expense of traditional brewing giants like Anheuser-Busch InBev and MillerCoors.
So naturally these macro brewers tried to get a piece of the action by buying out their craft counterparts. Examples include AB InBev’s 2011 purchase of Goose Island Brewery and Tokyo-based Sapporo’s 2017 acquisition of Anchor Brewing – America’s oldest craft brewery.
But since one of the main draws of craft beer – and a drinker’s willingness to pay more for a pint – is its proximity and non-grandeur, is being what I dub a “clever” beer owned by Big Beer is ruining the brew?
This is a question that I ask in the doctorate. dissertation I am preparing a degree in agricultural and resource economics. I wanted to know if drinkers are willing to pay more for beer knowing that it is not really independently and locally produced.
In my most recent research, I directly solicited consumers for answers by conducting a “choice experiment” at a bar specializing in craft beer.
The scene of my experiment was a bar, University of Beer, in the college town of Davis, California, where I study. In over a month, I recruited 301 bar patrons for my experiment.
Attendees began the experience by selecting the beer they would most like to order from the venue’s rotating list of 60 draft beers. Then I presented them with a list of 10 randomly selected beers from the menu.
For each, I asked participants what they would be willing to pay for the beer at random so they didn’t care whether they received it or their original selection – i.e. what whatever the price would make them happy with either choice.
I also randomly gave some attendees information about the location of the brewery and the ownership status of the beer, such as “Craft beer certified by the Brewers Association”, “import”, or “MillerCoors”. Other participants did not receive this information for some or none of the randomly presented beers.
From there, I was able to determine how much consumers were willing to pay for “local” or “craft” beer, but the results weren’t as straightforward as expected.
I first had to understand what constitutes “local”.
I asked participants to identify each of the beers at random that they considered local or non-local. Later in the experiment, I asked them to define “local”.
Respondents’ responses revealed a range of qualifiers for ‘local’ – proximity was included in most definitions, but some also cited size of production or brewery ownership.
Often, a participant’s definition of “local” was inconsistent with the beers they actually considered “local”.
To circumvent these inconsistencies, I have not adopted a universal definition of the term. Instead, a beer was considered “local” if an individual identified it as such.
Sorting for snobs
I also needed to separate the “beer geeks” from the average drinker.
Not everyone is so enthusiastic about craft beer. Some care deeply about their beer, like where it comes from and who produces it. Others just want something tasty.
I hypothesized that these different types of consumers would likely have distinct preferences for craft beer versus macro beer and local versus non-local beer. To identify and sort participants, I administered a quiz at the end of the experiment to test their knowledge of craft brewery locations and ownership.
Putting a price on local beer
My findings show unequivocally that consumers prefer local beer – however they define it.
But how much do they prefer it – that is, how much are they willing to pay extra for a local beer rather than a non-local beer?
Unfortunately, I have to give a boring economist’s answer: it depends.
On average, the “local” premium is usually worth 25 cents to 54 cents a pint. However, this bonus does not apply to all local beers. Consumers have styles of beer they prefer – like IPAs, pilsners and stouts – and I find that the “local” premium is diminishing for beers in their preferred style.
For example, an IPA enthusiast does not distinguish between a local and non-local IPA.
However, when she orders a sour beer, she is willing to pay 45 cents – on average – more for a local sour than a non-local sour.
And how about craft beer?
I’ve found that only beer geeks, not average consumers, are willing to pay extra for a certified craft beer over a beer of unknown ownership. The 5% of consumers most knowledgeable about beer were willing to pay 75 cents more per pint on average, while the wealthiest 25% offered 47 cents more.
And, like the “local” premium, this premium decreases according to the style of beer preferred by the consumer.
Are craft beers devalued?
Finally, do “craft” beers owned by Big Beer get the same premium as certified craft beer? Typically, no.
Among the major beer companies, I found that only the Founders Brewing Company, now partly owned by Mahou San Miguel, was able to extract consumer bonuses similar to those obtained by independent craft breweries.
The other “crafty” beers in my study, however, could not command the same premiums. In fact, I found that consumers wanted to pay $0.72 to $1.04 less per pint for craft beer owned by other major beer companies compared to beer owned by an independent brewery.
So unless you’re a beer geek like me, you probably don’t care if your craft beer is “Craft Certified by the Brewer’s Association.” But beer connoisseur or not, when you’re drinking your favorite type of beer or lager, you’d probably rather Big Beer not brew it.
Jarrett Hart, Ph.D. Agricultural and Resource Economics Student, University of California, Davis
This article is republished from The Conversation under a Creative Commons license. Read the original article.