Coke aims for cool with new 146-flavor dispenser

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 flavors — 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 flavors 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 peak 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. 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 that they've mixed in 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. Tuesday, Coca-Cola reported lower first-quarter profit and revenue but said soft-drink volumes for the global beverage giant gained slightly. The company reported a $1.62 billion profit, or 36 cents a share, for the January-March period. That's down from $1.75 billion or 39 cents a share for the same period last year. The results beat beat Wall Street estimates of 44 cents a share. The company's stock rose more than 2% in early trading.

But in a new report released prior to the earnings report, Morgan Stanley analyst Dara Mohsenian says sentiment on Coke is "very negative." Its stock is down about 10% from its 52-week high. Coca-Cola's carbonated soft-drink volume fell 2.2% 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.

THE POWER OF YOUTH

"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 roll-out, which began every-so-slowly, has recently gained some momentum as there are currently 19,000 machines in about 10,500 locations globally, including most domestic 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, Moe's Southwest Grill and some Wendy's locations — have seen an average 6% to 8% increase in beverage purchases, says Mann.

At Moe's Southwest Grill, which has Freestyle in about 400 of its 540 locations, Freestyle is boosting same-store sales by 4% to 6% annually, says Paul Damico, president. "We're converting water-only customers into beverage customers," he says. "I love this machine."

But Freestyle is not a match for Chick-fil-A, which prides itself on handing customers their first drink, says Woody Faulk, vice president of innovation at the chicken chain. McDonald's executives declined to talk about their ongoing Freestyle test. And Burger King is keeping mum about its experience, too.

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 counter-top.

SALES INSIGHTS

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."

Is Freestyle too little too late? That depends on whom you ask. Some teens flatly insist that they make their fast-food decisions based on whether the restaurant has a Freestyle machine.

"It makes it more exciting to go to a restaurant," says Abigail Vickers, 15, a ninth-grader, visiting the popular World of Coca-Cola exhibit over spring break along with her folks from Warner Robins, Ga.

But Abigail's mother, Elise, says that she is way too intimidated to even touch the Freestyle machine. "I'd have no idea what to do with it," she confesses, with a shrug.

COLLEGE CONNECTION

Freestyle is a hit on campus at Kennesaw State University, says Gabriana Wallace, a 21-year-old biochemistry major there. The variety cuts down on student complaints in the cafeteria, she says. "You get to be a little adventurous," she says.

Indeed, Freestyle is really a device that encourages folks to play with their beverages. That wasn't its original purpose. When it first came out — at the time with 100 flavor options — Freestyle was strictly about variety.

But since then, it's spiraled to become something more akin to a Millennial play pen. The key, says Mann, is that Freestyle not only gives young folks control of what beverages they drink — but it gives them control of dispensing it.

Not there haven't been problems. Like congestion. Sometimes it's caused by folks having too much fun with the machine, and other times it's caused by the confusion of those who simply can't figure out how to use it.

What's next for Freestyle?

Coke's keeping pretty mum on that. CEO Muhtar Kent has called Freestyle a "long-term play."

But the number of Freestyle offerings will likely continue to increase, as will the play value, says Mann.

The most common Freestyle-related question Coke gets from consumers: When will it be available in my town?

Back at the bustling World of Coca-Cola exhibit, where six Freestyle machines are attracting lots of visitors this spring break, one little boy, who looks to be about 6-years-old, confidently shows his mother how to use the machine. He creates his drink on the touch-screen, watches the beverage descend and drinks it down in about six gulps. He smiles with lips that have turned an orange-ish shade of purple.

With a hopeful look, he begs his mom, "Can I try it again?"

This, of course, is Freestyle's very purpose.

Another young convert.