• by Thom Forbes  @tforbes, April 16, 2014

As sales of its fizzy sodas dropped globally in the first quarter for the first time since 1999, Coca-Cola is betting heavily on its Freestyle dispenser that allows consumers to mix up their own concoctions — Sprite Zero with Raspberry, anybody? — to woo back younger consumers who want to be in control of their gustatory experiences.

In an exclusive walk-through of “Freestyle's super-secret offices” in Atlanta, USA Today’s Bruce Horovitz reports on the company’s laser-like focus on attracting Millennials and staying relevant in a rapidly shifting marketplace. 

“Freestyle is part of Coke's never-ending quest to pander to the young-and-techie,” Horowitz writes. “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.”

Horovitz reports that “there are currently 19,000 machines in about 10,500 locations globally, including most domestic Burger Kings.” McDonald’s is testing it in some locations in New York City. Firehouse Subs, which bills itself as “the fast casual restaurant chain founded by firemen,” also claims to be “the only brand to offer a Coca-Cola Freestylefountain in every location.”

In announcing its new “Hearty & Flavorful, Under 500 Calories” menu yesterday, Firehouse Subs went out of its way to point out that the Freestyle fountains in its 750-plus outlets in 41 states offer more than 70 low-calorie options and 90 caffeine-free options.

“Firehouse Subs offers brands such as Sprite Zero with Raspberry, Minute Maid Light Strawberry Lemonade, Powerade Zero Grape, Dasani Sensations Lime, and of course, its signature Cherry Lime-Aid Light, an exclusive original recipe served with fresh squeezed lime,” according to a press release.

Notice any iconic brand missing from that release?

Coca-Cola’s drop in carbonated beverage sales (1% in the U.S. and 5% in Europe) was partially attributed by the company yesterday to Easter falling in the second quarter this year, reports the AP’s Candice Choi. But that “was offset by stronger sales of some of its non-carbonated drinks that include Minute Maid, Powerade and Dasani bottled water, and overall volume of drinks sold rose 2%.” 

The results beat analysts’ expectations, and CEO Muhtar Kent hailed them as a “change in momentum” in a conference call. The positive spin for carbonated drinks was that “unit volume fell just 1% and pricing rose by 2%, indicating a slight increase in revenue,” reports CNBC’s John Jannarone. “That suggests an improvement from 2013, when sparkling revenue was roughly flat in North America.”

But indications are that, in addition to the effect of Easter on sales, an increased marketing spend was responsible for stanching the bleed. As necessary as that might be, it could prove costly in the long run, particularly if PepsiCo decides bump its advertising spend as well, Jannarone points out. 

“Marketing may also be be less effective than in the past if consumers are truly leaving the soda category for health reasons, according to Morgan Stanley analyst Dara Mohsenian,” he writes.

“Coca-Cola increasingly is relying on non-carbonated beverages to boost sales as sodas continue to face pressure, both at home and abroad,” Choi writes. “In developed nations like the U.S., soda has been under fire for years over concerns that it fuels weight gain. More recently, executives have blamed declines in diet sodas to concerns about artificial sweeteners.”

In another attempt at taking the technological path to consumers, Coca-Cola announced an equity investment in Green Mountain Coffee in February along with a 10-year deal to develop Coke's branded soft drinks for the Keurig Cold that will challenge SodaStream in the home-dispensing market starting next year. Key to the success of any dispenser, of course, is protecting the taste equity that the individual brands have built up over the years, as anyone who has had a flat soda-fountain Fanta can tell you.

“In developing its Coca-Cola Freestyle fountain … Coke engineers used micro-dosing technology originally developed for the pharmaceutical industry,” Asit Sharma writes on Motley Fool. “Between Coke's bottlers and its own engineering teams, it's no stretch to imagine that the flavor profiles of its drinks will meet the exacting expectations of Coke aficionados.” 

But Coca-Cola’s big challenge, clearly, is creating a new generation of aficionados, whether it’s for Coke or a healthier alternative. As Tom Pirko, CEO of Bevmark Consulting, tells Horovitz: “Freestyle is an admission by Big Soda that they have to endorse a young drinker's consciousness.”