Publications

Countries, Tastes, and the Value of Beer Franchises in the United States

by Patrick L. Anderson and Ilhan K. Geckil 

Abstract:

The brewing, distribution and sale of beer and ale is one of the world's most ancient, profitable, and durable enterprises. In the United States, this industry is largely separated by post-Prohibition state laws into a "three tier" system that separates the brewer or importer from the distributor and the retailer. The distributors are largely given exclusive market areas and are franchised by the brewer to distribute in those areas to all retailers.

A rigorous approach to business valuation in this industry requires careful market research. Such research provides a fascinating insight into the revealed preferences of U.S. consumers for beer brands. These preferences include their willingness to pay for products of different countries, the drinking preferences of consumers of different ages and backgrounds, and other factors.

Our analysis indicates that consumers in the United States place a very large emphasis on brand and country of origin. An interesting business policy experiment provides us with an opportunity to see how consumers react to a change in the country of origin for one brand of beer, and therefore to gauge whether consumers will pay more for a similarly-branded beer if it is brewed in a different country. In particular, we provide evidence that US consumers today place a tangible value on compliance with an obscure 1516 German law governing the purity of beer.

We demonstrate how those consumer preferences, especially in a franchised industry, translate directly into differing market values for distributors with the rights to different products. They also provide the basis for proper estimation of lost profits and understanding of reasonable business terms in the industry.

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