Does the origin of inputs and processing matter? Evidence from consumers’ valuation for craft beer

In this study we aim at exploring consumer valuation for craft beer brewed locally and made with locally grown hops. The research is motivated by the fact that, although existing literature shows that consumers generally pay a price premium for locally produced foods or those made with local ingredients, it is still unclear how consumers value localness of production (i.e., brewing location) over localness of inputs (i.e., hops origin) and whether consumers value these attributes as either complements or substitutes. Moreover, little is still known regarding consumer preference for local ingredients in beer. Thus, we address these research questions by means of a choice experiment survey on craft beer consumers in the State of Indiana, United States. Results show that consumers have the highest willingness to pay for craft beer brewed in-state, but preferences over hops origin are heterogeneous. We find evidence of complementarity between brewing and hops origins among frequent craft drinkers and evidence of substitution between these claims for casual drinkers. Segmenting consumers based on how they define local beer, we find one consumer segment that has the highest willingness to pay for beer brewed in-state and made with hops that are grown in-state. These results can inform product differentiation, marketing, and pricing strategies. They are also relevant to state policymakers supporting local hops production and local brewing.