April 6 (Bloomberg) -- Coca-Cola Co. is using micro-dosing technology from drugmakers, a smart phone operating system from Microsoft Corp. and style tips from Italian auto designers in its latest attempt to revive falling sales of fountain drinks.
Coca-Cola spent four years developing a self-serve beverage dispenser that can pour as many as 120 drinks. It uses 40 percent less storage space than traditional six- or eight-tap fountains, said Gene Farrell, the project’s manager.
Code-named “Jet,” the company will test the touch-screen- operated fountain in fewer than 10 Atlanta restaurants starting this month and another 70 or more in Southern California during the summer. The company declined to say where the expanded trials would take place or whether any Jets have been pre-sold.
Coca-Cola is betting a larger variety of beverages, including Orange Coke, Powerade and Minute Maid juice, will lure fast-food consumers back to buying drinks with their hamburgers. People even may pay more for greater choice and a better tasting, colder beverage, Farrell said.
“The way you grow profit for everybody is, you grow the size of the pie,” he said. “When there’s new growth, there’s opportunity for everyone.”
Fountain sales for Coca-Cola, which controls 70 percent of the U.S. market and is the exclusive supplier to McDonald’s Corp., have not “grown as robustly as we would have liked,” Farrell said.
Industry volume sales for U.S. fountain drinks probably fell more than 3 percent last year, after a 1.3 percent drop in 2007, according to John Sicher, publisher of Beverage Digest newsletter. He estimates the overall soft-drink market, including fountain, at $72.7 billion.
Fountain Sales
Coca-Cola sells concentrated beverage syrup to restaurants, convenience stores and entertainment venues to be mixed at the fountain with water, carbon dioxide and high-fructose corn syrup sweetener.
Fountain sales account for about 30 percent of revenue and profit in North America, according to Farrell. That would equate to roughly 8 percent of Coca-Cola’s $31.9 billion in global revenue last year. The drinks have helped the world’s largest soda-maker maintain its lead over No. 2 PepsiCo Inc.
Coca-Cola’s stock is little changed this year, compared with a 3.7 percent drop for Pepsi. Coca-Cola shares rose 23 cents to $45.20 at 9:36 a.m. in New York Stock Exchange composite trading.
Jet is the product of more than 20 patents and hundreds of confidentiality agreements.
‘Top of Its Game’
“It shows that Coke is really on top of its game,” said Philip Gorham, an analyst for Morningstar Inc., a Chicago-based investment-information company. “They have momentum.”
The drink mix inside the Jet is Coca-Cola’s most concentrated ever, Farrell said. The 46-ounce cartridges produce nearly as much drink as the five-gallon cardboard-encased concentrate bags now found in back rooms of restaurants.
The concentrate is dispensed with technology adapted from medical equipment used to measure precise amounts of dialysis and cancer drugs. The fountain’s software runs on Microsoft Windows CE, an off-the-shelf computer operating system used in advanced mobile phones.
The curvy fountains come in red, black or silver and carry the familiar white Coca-Cola ribbon. The company settled on the look after consulting with two high-end Italian car designers suggested by Chief Executive Muhtar Kent because of their ability to find “passion in big, boxy things,” Farrell said. The development team also included a former Apple Inc. designer who worked on the iPod.
Getting Customers
Coca-Cola won’t disclose what it has spent to reinvent its fountain unit or how much the units cost to produce. One clue: The development team has grown from seven full-time employees to 50, with another 50 employees contributing time.
Coca-Cola first will target existing customers, some of whom have helped guide and test the fountain, Farrell said.
Danya Proud, a spokeswoman for McDonalds, said it would be premature to discuss what future role, if any, the equipment would play in the fast-food chain’s restaurants.
Gorham, the Morningstar analyst, said he is skeptical the device will boost drink consumption unless Coca-Cola can convert Pepsi-exclusive restaurants.
“This is a cat-and-mouse game and there’s not much about those dispensers that Pepsi couldn’t replicate themselves,” he said.
Gorham saw the machine in February when Coca-Cola displayed it during the Consumer Analyst Group of New York conference. He predicted the Jet’s single spigot and panoply of brands may slow customer lines and hurt sales in busy restaurants.
In testing, the average time it took a customer to pour a drink on a legacy machine was 15 to 17 seconds, Farrell said. A first-time Jet user took 22 to 27 seconds. Refills took 12 to 17 seconds, he said.
‘Cents and Sense’
When asked about the Jet system, Larry Jabbonsky, a PepsiCo spokesman, said his company answers “to our consumers, not our competitors.”
“We’re constantly looking into new ways to offer variety and value but it has to make cents and sense,” he said.
Jet’s capacity will allow Coca-Cola to get new drinks into restaurants faster, Farrell said. Coke Zero, which the company says is its most successful new product since Diet Coke, still is on a fraction of its fountains almost four years after it was introduced.
The Jet follows Coca-Cola’s “Bevariety” fountain dispenser, introduced almost two years ago. Jet’s operating system is a key advancement over Bevariety because it can track sales by the drink and hour, Farrell said.
During the machine’s only public test, at a Willy’s Mexicana Grill in Atlanta, Coca-Cola discovered caffeine-free Diet Coke was popular late in the day. While sales didn’t justify its placement on an eight-tap fountain, the brand was easily included on the Jet, capturing potentially lost sales, Farrell said. Beverage revenue increased 10 percent to 20 percent, according to the restaurant.
“It definitely showed some potential,” Willy Bitter, owner of the 19-outlet Georgia chain, said through a spokeswoman. “Being that it was tested in just one of our stores, it would be hard to predict how it would perform over our entire system.”
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