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Big bet for big soda

Coca-Cola rolls dice on Freestyle units

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ATLANTA -- One machine can't fix all that's wrong with the soft-drink industry. But Coca-Cola's Freestyle machine -- which can dispense 146 different flavours -- is giving Coke the one thing it needs most of all: buzz.

Freestyle is not a beverage formula, but a formula for survival in the $76-billion soft-drink industry awash in competition and growing consumer rejection.

This teen-targeting, touch-screen dispenser flavours self-created beverages in micro-doses. It may be Coke's best hope to keep millennials fully engaged, socially involved and buying fizzy drinks at a time industry sales are falling faster than water down the drain.

USA Today received special permission to tour Freestyle's super-secret offices -- which limit entry to about 100, badge-wearing Freestyle employees -- for a sneak peek at Freestyle's future. The brand's laser focus: attracting millennials. Freestyle is part of Coke's never-ending quest to pander to the young-and-techie set. Freestyle's even got an app in the works for next fall that will let folks pre-mix and match their drinks on their cellphones. Then, when they hold their devices up to a Freestyle machine, they'll receive the exact drink they've mixed on their app.

After five years in the marketplace, Freestyle is at a critical crossroads as it evolves from the new kid on the block to an incredibly costly hit or miss. Coke won't say what it's invested in Freestyle -- whose original code name was Project Jet. But Freestyle ranks as one of the largest equipment investments the company has ever made. Coke's Freestyle may be one of the industry's most high-profile, most expensive and most widely watched attempts to stay relevant.

Coke, itself, is at a crossroads. Last week, Coca-Cola shares rose after the U.S. beverage giant reported lower first-quarter earnings and revenue but said overall product volumes gained.

Coke said global unit-case volume rose two per cent during the January-March period, a result that beat Wall Street forecasts.

However, the increase was pushed by an eight per cent jump in noncarbonated beverage volume that compensated for a one per cent decline in sparkling soft-drink volume. Overall, North American volume was unchanged. In a new report, Morgan Stanley analyst Dara Mohsenian says sentiment on Coke is "very negative." Its stock is down about 10 per cent from its 52-week high. Coca-Cola's carbonated soft-drink volume fell 2.2 per cent in 2013, and the drop is only getting steeper, Beverage Digest, the trade magazine reported last week. Similar industry numbers have left the cola giants throwing everything they can at the wall, from wacky new drinks to uncanny new ways to dispense them -- such as Freestyle.

"Freestyle is an admission by Big Soda that they have to endorse a young drinker's consciousness," says Tom Pirko, CEO of Bevmark Consulting.

Put another way: Freestyle oozes the "technology cool factor," says John Sicher, publisher of Beverage Digest.

The dispenser -- which dresses the new technology in sleek, curvy styling -- is really a sensory overload, dressed up like a snazzy Coke machine. Its facade looks mobile-esque -- and eminently touchable. If its curves seem a bit sports car-like, that's because its Italian designer, Pininfarina Studios, may be best known for styling Ferraris and Maseratis. Even the sound of the drink pouring out is amplified by the echo-chamber-like, hollow serving area. The sound seems to urge: drink up.

Freestyle needs to be a hit. Its off-and-on rollout, which began ever-so-slowly, has recently gained some momentum as there are currently 19,000 machines in about 10,500 locations globally, including most domestic U.S. Burger Kings. But Coke Freestyle is still missing industry kingpin McDonald's as a major partner -- which has recently begun to test it in some New York City locations. Freestyle is increasingly catching the eye of millennials, who are its consuming future.

"Freestyle is a game-changer," says Jennifer Mann, vice-president and general manager of Coca-Cola Freestyle, while taking a reporter on a tour of the Freestyle's offices, semi-hidden across the railroad tracks from Coke's main building. "This is one of the largest investments in innovation in the history of the company."

More important she notes, "This is a way to grow the brand." Some fast-food chains that have installed Freestyle -- including Burger King, Five Guys and some Wendy's locations -- have seen an average of six per cent to eight per cent increase in beverage purchases, says Mann.

Pepsi is certainly paying attention. Last year, it began pilot tests of its own Pepsi Touch Tower dispenser with an interactive, digital touch screen small enough to sit on a countertop.

Coke's growth from Freestyle could come as much from the data collection as anything else, says Mann. The company's recent decision to roll out Fanta Cherry at retail in June, for example, was made only after it became a hot selection on Freestyle.

The top sellers: Diet Coke with Raspberry; Coke with Orange and Diet Seagram's Ginger Ale with Vanilla. Sound good enough to drink?

"This is not the same old fuddy-duddy Coke," says Pirko. Even then, he notes, it's taken Coke way too long to establish the Freestyle machines in the marketplace. "The slower they go, the more people will think it's a confusing gimmick."

 

-- USA Today

Republished from the Winnipeg Free Press print edition April 26, 2014 B10

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