Millennials and their spending habits often are blamed for trends in sales of various goods, from breakfast cereal to paper napkins to alcohol.
The product choices of those born between 1981 and 1996 — a group known as millennials or Generation Y — are typically attributed to their preference to buy brands that better align with their values or suit their intrinsic tastes.
In a new study, a researcher from The University of Texas at Dallas and his colleagues analyzed the recent surge in the sales of craft beer and suggest this theory is a common misconception.
The study, published in the July-August issue of Marketing Science, documents a generational share gap in which millennials buy more craft beer than earlier generations. A generation gap describes the differences in thoughts, actions and tastes exhibited by members of younger generations versus older ones.
“This project initiated partly from our personal observation that the variety of craft beers in a typical supermarket has increased quite substantially over the last 10 years or so and partly to determine if how popular media talks about consumer preference is accurate,” said Dr. Joonhwi Joo, assistant professor of marketing in the Naveen Jindal School of Management and one of the study’s authors. “Unlike the superficial explanation that attributes everything to generational preferences, we wanted to look into a deeper mechanism that drives the differential preference formation across different segments of consumers.”
Availability vs. Preference
In the last 50 years, the U.S. consumer packaged goods (CPG) industry has seen a shift away from the dominance of large, established national brands.
In 2016 the top 20 CPG companies saw flat sales, while smaller firms averaged 2.9% growth, according to 13D Research. This followed four years in which large CPG companies lost an estimated $18 billion in market share to craft manufacturers.
Instead of falling back on the demand-side explanation that millennials seek smaller brands with more authentic products, the researchers theorized that the generational share gap is mainly caused by differences in experiences with a product, at least in the case of craft beer.
They theorized that older consumers likely formed their preferences when craft beer was not widely available, whereas millennials have had access to a wide array of craft beers since reaching adulthood.
To test their theories, the researchers assembled a database from various sources that tracked the history of all craft-beer brands packaged for home consumption in the U.S. They examined the geographic differences in timing, speed and diffusion of new craft-beer brewers and local availability of craft beer.
The researchers logged the beer style, alcohol content, launch date, and location of the brewer and matched this beer census with a database from NielsenIQ and the James M. Kilts Center for Marketing at the University of Chicago Booth School of Business. The Homescan dataset tracks the purchase activity for a nationally representative shopping panel of more than 100,000 U.S. households from 2004 to 2018.
“Unlike the superficial explanation that attributes everything to generational preferences, we wanted to look into a deeper mechanism that drives the differential preference formation across different segments of consumers.”
Dr. Joonhwi Joo, assistant professor of marketing in the Naveen Jindal School of Management
The data showed that as millennials purchased more craft beer, every other generation purchased less. In 2018 millennials accounted for 20% of total craft-beer sales. They allocated 34% of their beer budgets to craft brands, compared to 20% for the much larger group of baby boomers (those born between 1946 and 1964).
Based on the data on differential availability of craft beers across different generations when they were growing up, the researchers determined that about 86% of the generational share gap could be attributed to differences in historic experiences with craft-beer availability.
This aligns with other research that has shown how consumers form brand preferences over time, Joo said.
“It is quite striking that most of the generational share gap in beer consumption can be attributed to the differential availability of craft beer, especially when consumers are relatively young,” he said. “When they are young, preferences are more malleable, and once the preference is formed and as people age, they become stickier.
“Going beyond conjecture and understanding why millennials — who are influencing every aspect of business — make particular purchases will help businesses maximize their bottom line.”
Market Future
The researchers also investigated longer-term implications for craft-beer sales by conducting simulations.
They predict the beer market structure will continue to fragment over the next decade, overturning a nearly century-old structure dominated by a small number of national brands.
“We expect the craft-beer segment to continue to grow, until at least 2030,” Joo said. “Notably, over the last couple of years, hard seltzers have been trying to penetrate the beer market — and according to our study, it would be most effective if the hard-seltzer producers focus on younger consumers, say, 21 to 30 years old.”
Co-authors of the study include Dr. Bart Bronnenberg, professor of marketing at Tilburg University in the Netherlands, and Dr. Jean-Pierre Dubé, director of the Kilts Center.
Original source can be found here.
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