Denver and its craft breweries embrace nonalcoholic beer, spirits

This story is part of CNBC's new quarterly Cities of Success series, which explores cities that have been transformed into business hubs with an entrepreneurial spirit that has attracted capital, companies and workers.

Alcohol-free beverage options have skyrocketed over the past few years, and that trend has especially picked up in the form of nonalcoholic beer in Denver, an epicenter for craft breweries.

The city, nestled in the Rocky Mountains, has embraced the alcohol-free trend as breweries increasingly shift to incorporating more inclusive beverages into their offerings.

Nonalcoholic options on menus increased more than 55% from the fourth quarter of 2022 to the same period in 2023, according to data from Technomic, a food service research and consulting firm.

Though nonalcoholic beers have been around since Anheuser-Busch launched O'Doul's in 1990, recent surges in interest driven primarily by younger and more health-conscious consumers have caused an explosion in the sector, Technomic found.

And analysts forecast that interest will keep growing. Between 2022 and 2026, nonalcoholic beer volumes are expected to grow by about 25%, according to data from the IWSR, an alcoholic beverage insights company.

And according to data from NielsenIQ, a consumer buying behavior database, Colorado was the second-highest state accounting for nonalcoholic beverage investment in 2023.

"People are becoming more and more curious, and since Denver is a city with a lot of people that are outside exercising and staying fit, there are a lot of people who are interested in lowering their alcohol intake and staying healthy," Keith Villa, co-founder and brewmaster of Ceria Brewing Company in Colorado, told CNBC. "In our case, we're starting to see more and more people be educated about nonalcoholic and alcohol-free beer and start to reach for our products."

Ceria, launched by Villa and his wife, Jodi, in 2018, fully focuses on the alcohol-free beer market, which Villa said is "growing every day." The beer has been especially appealing to younger consumers, he added.

Nonalcoholic and alcohol-free beer can be made one of four ways, Villa said: removing the alcohol with vacuum distillation, running the alcohol through a series of filters, using specialty yeast or making a low-alcohol beer and diluting it with water. Because those processes are expensive and time-consuming, Villa said it's difficult for breweries to create nonalcoholic spirits.

But as beer consumption across the board continues to decline, Villa said more breweries in Denver are hopping on the trend.

"The market is getting more difficult for craft brewers, so in order to bring some money into their business, they're starting to sell nonalcoholic beers," he said. "There's a demand out there, but the beers do have to be made the right way. As long as we oversee each other and help each other, we can make sure people have a good choice of products that are safe to consume."

Food trend expert Kara Nielsen said that because Denver is such a beer-centric city, the rise of nonalcoholic beer and spirits fits with the city's narrative.

"People [in Denver] like to play hard and then celebrate," said Nielsen, who formerly lived in Denver. "In the last three to four years, there have been more and more very well-made nonalcoholic beers, including breweries in Colorado. It's become more of a choice."

Denver-based brewery Grüvi capitalized on that choice, providing a wide range of nonalcoholic offerings since its founding five years ago. Co-founder Niki Sawni said the company chose Colorado as its base because of its residents' preferences for a healthier lifestyle and the subsequent potential for growth in the alcohol-free market.

Sawni said his customers were mostly health-conscious consumers at first. But then, he said, nonalcoholic and alcohol-free beer became trendy, attracting more mainstream customers. Almost every bar or restaurant in the area soon added zero-proof options in response, he said.

"It was just this realization that there was a gap in the market for when you didn't want to drink — you were left choosing between sparkling water or pop or something that wasn't a middle ground to enjoy that didn't have alcohol but still allows you to have that sociability," Sawni said. "That's why we chose 'Grüvi' — it means fun and playful, and five years ago, nonalcoholic products were the opposite of that. So we were like, 'OK, how can we try to make something that was so uncool popular?'"

And as his company has found success, Sawni said he's also seeing an encouraging trend with larger, legacy alcoholic breweries that are now offering support and collaboration in a "symbiotic relationship" that hasn't led to any competition.

One of those larger breweries is Denver Beer Co., founded 13 years ago with a single taproom. Now, the company has multiple taprooms across the area and has begun incorporating sparkling hop water, a nonalcoholic alternative, into its menus.

"At the end of the day, we're a beer company, but we also understand there's this desire from consumers to have a product that's nonalcoholic," CEO Robert MacEachern said. 'With our ethos of being inclusive, we want as many people to enjoy our spaces, so this was a natural extension for us for people to enjoy our space."

For Denver Beer Co., the nonalcoholic trend has allowed the brewery to remain true to its core identity while also adapting to its customers' tastes. MacEachern said he's especially seen interest in the nonalcoholic beverages from run clubs or bike clubs that meet in the summer and are looking for something refreshing while still getting the taproom experience.

And though alcoholic beer will always remain the company's foundational identity, MacEachern said hop water has become "part of who we are."

"Denver is the epicenter of craft beer. We're rooted in that industry. People in Denver embrace change and innovation, and that's allowed us to be successful while dealing with this nonalcoholic wave of behavior," he said. "We'll continue to build brand and brand equity — not just us, but all the craft beer companies. Nonalcoholic beer becomes an addition to who we are and not a subtraction."