Karin Farrington likes Coca-Cola and Coca-Cola likes Karin Farrington. The 40-year-old Asda cashier lives opposite Coca-Cola's giant bottling plant on Cray Road in Sidcup, Kent. She drinks Diet Coke 'with everything' and sometimes Coke delivers free cans to her door. 'It's Coke's way of saying they care about the people who live around the factory,' she says. Yet Farrington waves a reproachful finger at the Coca-Cola logo emblazoned in red flowing script on the grey gates of the bottling plant. 'How could they be so stupid?' she says. 'How could they do it?'

The 'it' she is talking about is a plastic bottle with a blue label which is lying empty on her kitchen table. 'This bottle of Dasani water was produced at the factory over the road and I'm keeping it as a souvenir,' she says. 'You can't get Dasani any more, unless you buy it on eBay. I'm going to fill up this bottle from the tap. It will be the same product that Coke was making - only 3,000 times cheaper and 100 per cent safe.'

Coca-Cola wanted Dasani on everybody's lips last month and it was - for all the wrong reasons. Coke dumped its new bottled water following a cancer scare and an unprecedented consumer revolt. In spite of Coke's claims that its 'NASA-approved reverse osmosis multi-barrier filtration system' created water so pure it was better than the real thing, consumers thought they were getting little more than Brita filtered water at 95p a bottle. When illegal levels of cancer-causing bromate chemicals were discovered, Coke had no choice but to recall 500,000 bottles and abandon the drink's launch.

The Dasani scandal has left Coke nursing a £25 million loss from cancelled production contracts and advertising deals. The damage to the firm's reputation is 20 times that figure, analysts say. The launch was an extraordinary gaffe for a company which has marketed its way to become the world's most valuable brand, worth $70 billion, and which has often joked that one day every kitchen will have three taps: cold water, hot water and Coke. 'Coke is a marketing company. Customers drink the image of youth and vigour it creates,' says Allyson Stewart-Allen, a London-based marketing analyst who was born in north America and has studied the rise of Coke. 'Anything that threatens that image strikes at the company's future - and you don't get much more threatening than selling tap water which turns out to be an expensive disaster.'

The crisis has left Coke drinkers and the company's many detractors pondering the same questions. How could a feel-good firm that boasts 2,000 customers a second - 200,000 in the time it's taken to read this far - create so much bad feeling? After introducing Diet Coke, Vanilla Coke, Sprite, and Fanta, not to mention buying the Malvern water brand, without the slightest PR wobble, how could Coke's UK executives get it so wrong?

To find the answers, you have to travel beyond Sidcup - to south Georgia, USA, where, almost 120 years ago, a chemist called John Pemberton invented Coca-Cola as a cocaine-fuelled brain tonic which cured headaches, hysteria and melancholia. Coke's corporate headquarters are at the corner of Luckie Street North West and North Avenue North West in downtown Atlanta. With a Holiday Inn Express on one side of the road and the Montgomery Knight Building of Engineering on the other, this corner does not look like the kind of place to stop but, if you stand there long enough and stare at the skyscrapers and secret laboratories of Coke Central, you get a rare feeling. It's the same sensation you get when you stand on the corner of Pennsylvania Avenue in Washington DC and look past the World Bank and the IMF towards the White House. It's power. You may not be able to see Coke's 12,000 customers a second but, standing there, you somehow know they're out there.

Coca-Cola guards the secrets of its world-beating power so closely that it rarely allows outsiders into its Atlanta fortress. However, executives recently invited Observer Food Monthly inside. They wanted to talk about how changing consumer tastes had forced Coke to abandon its 100-year-old trademark slogan: 'Coke is it!'; how the firm was diversifying, splitting Coke into new flavours and introducing new health drinks, notably Dasani; and how the company was using marketing to stay 'it'.

It sounded a simple enough idea, but with the world's most powerful brand, nothing is straightforward. Take getting in. It may take 12 hours to get from London to Luckie Street but to walk the 200 yards into Coke's headquarters takes a lot longer, in my case, three months. The journey started with a phone call. Jonathan Chandler, Coke's Communications Director for Europe, said he wanted to help. Four weeks later Polly Howes, PR chief in Atlanta, called. The trail went cold again until one evening when a London-based Coke representative called. 'Can you go tomorrow? There's a flight at eleven. Gets in at four.' He outlines the deal. I fly in a Coke-approved airline - Delta. I stay in a Coke-approved hotel - the Ritz Carlton. From the moment I arrive at Heathrow airport to the moment I return, one, two, sometimes three, minders will accompany me - everywhere, it turns out, except my hotel room and the lavatory. Twenty four hours later I'm in a taxi driving into Coke Central.

'Photo ID please,' drawls Larry, the man on the gate. 'No cars allowed up to the building. You'll have to walk.' Passports checked, Marc Landsberg, minder number one, and I walk through the courtyard to the white marble gatehouse that leads to 'The World'. We're handed electronic passes and go through the airline-style security check. 'Where's your chaperone? You can't go anywhere without your chaperone,' says the security guard. Minder number two, Polly Howes, arrives. She's smiling and carrying a clipboard and a stopwatch. Flanked by Howes and Landsberg, I take my first steps inside the Coca-Cola Company of North America.

You only have to spend a few minutes there to realise that, for the world's biggest brand, Coke is everything and everything is Coke. Giant Coke bottles, decorated by well-known artists, line the walls. Coke scientists work behind the smoked glass of Coke labs, guarded by security men. There is a Coke dispenser on every corridor. Everyone is so Coke-focused they talk in 'Coke Code', the firm's own private marketing language. They say 'share of stomach' or 'share of throat' when they mean market share. 'Beverage occasion' means it is time for a Coke. 'Enhancing the footprint' means selling more Coke drinks.

It is tempting to dismiss Coke's PR machine and the marketing babble as little more than typical North American corporate zeal but it is much more than that. It reveals the key to the Dasani fiasco. Coke has become the world's strongest brand by doing one thing - and one thing only - under the strict control of the company's all-powerful global marketing machine.

For more than 100 years, it has focused on a single flavour of fizzy brown liquid. Twelve fluid ounces of carbonated water, sweetener, flavour additives, colour additives and a dash of caffeine has defined the firm as a constant amid change and made its shareholders rich. For the Coca-Cola Company, Coke is 'it' and 'it' is Coke.

Or, rather, it was. The launch of Dasani has highlighted how far Coke has been forced to diversify in recent years. In a world drenched in colas and crying out for health drinks, notably water, the number one drinks company cannot stay number one by selling Coke alone. Changing tastes have forced the firm to branch out into new market sectors, notably fruit juices, power drinks, iced tea, coffee and, of course, bottled water - the fastest-growing new market of all. In the UK alone the water market is now worth £1.2 billion and it is growing at 20 per cent a year. In little more than a decade Coke has launched more than 300 non-cola drinks in 200 different countries, including dozens of waters. There are now more non-cola drinks than there are Cokes. In Britain the main brands are Fanta, Sprite, Lilt, Five Alive, Dr Pepper, Oasis fruit drinks, Kia-Ora, Minute Maid, Powerade sports energy drink, Malvern water and, for 10 days in March, Dasani.

Launching so many new products so fast might not sound like much for a $70bn corporation but for Coke, whose unique, historic appeal is that it makes a 'one-flavour-suits-all' product, it is the riskiest thing it can do. It was Andy Warhol who said: 'We all drink Coke. The President drinks Coke, Liz Taylor drinks Coke and you drink Coke. All the Cokes are the same and all the Cokes are good.' The opposite is now true. Coke now comes in 11 flavours to suit changing tastes and the firm launches dozens of new non-cola products every year. The risk is that Coke will start to make uncharacteristic mistakes and lose control of the global drinks market.

In Britain it already has. Observers say the firm's UK executives, normally so focused on the single task of selling the fizzy stuff, tripped up when it came to doing something different. Coke prides itself on the accuracy and thoroughness of its market research. Research shows that the UK bottled-water market is all about the natural purity of the source. Yet Coke not only decided to sell purified tap water - but to make a virtue of it. It stressed its NASA-style purification process could transform tap water into something more wholesome than natural spring water. Then it confirmed that Dasani sold in France and Belgium would be natural spring water.

Coke also prides itself on its knowledge of local markets and culture. But no one at the London headquarters appears to watch television because, if they did, someone would have pointed out that Sidcup was the last place anyone - let alone the world's number one drinks firm - should bottle tap water and sell it for 95p a pop. We all remembered the Only Fools and Horses episode in which Del Boy Trotter did just that, passing off the results as 'Peckham Spring'. And at almost a pound a bottle, Dasani tap water was more expensive than many natural mineral waters. Most serious of all, Coke ignored the most basic lesson of all - making sure that it had put in place stringent safety checks to ensure its 'pure, natural water' was pure and natural.

Critics say the the blunders prove that Coke has diversified too far, too fast and is now pushing for growth on so many fronts it is forgetting what made it number one in the first place. According to Constance Hays, author of Pop: Truth and Power at the Coca-Cola Company , published last month: 'The Dasani crisis is a case of a giant that is so desperate for growth that it appears things are being overlooked. Coke are master marketeers, they can sell pretty much anything - even tap water in the right market - but sometimes they get so caught up in the marketing that they lose touch with reality.'

Today, things look as bad for Coke in Britain as the ad slogan for Dr Pepper, one of the firm's products, suggests: 'What's the worst that can happen?' Rita Clifton, chairman of the giant branding agency Interbrand, says: 'Dasani has been humiliating. The Coca-Cola brand itself may be tarnished.' But, fortunately for Coke, Britain represents less than five per cent of Coke's global market. Coke continues to sell steadily in the biggest market, the US - a solid achievement in a market that is saturated with colas.

At the same time, figures from Canadean, the independent food and drink analysts, show Coke's non-cola drinks, such as Powerade, Fanta, Oasis, Minute Maid, and Five Alive, are gaining market share, accounting for 76 per cent of the company's volume growth between 1998 and 2002. Sales of non-cola products are growing at more than 11 per cent a year. Dasani, in particular, is booming in the US. The purified tap water is the number two bottled water brand, behind Pepsi's purified tap water brand, Aquafina. The firm's water sales have grown by more than 50 per cent in each of the last three years to reach 1.3 billion litres. Last year Coke's total revenue rose by eight per cent to £14bn.

How has Coke pulled it off in the States? And can it do the same in Britain when memories of the Dasani fiasco have faded away? The man with the answers sits in a blond wood and black leather office on the twentieth floor of a tower at Coke headquarters called 'North America'. Chris Lowe, Coke's US marketing chief, is 6ft 5in tall and has a two-foot-long machete on his desk - a souvenir from the days when he ran Coke's Caribbean operations from an office in Puerto Rico. Ask the wrong question and Lowe replies: 'I'll have to use the knife on you.'

Yet he is conciliatory when talking about the future of the brand. He says Atlanta executives have quietly abandoned Coke's cherished ad slogan 'Coke is it!', concluding that the drink cannot be 'it' when there are 11 different flavours of Coke itself and the firm makes more than 300 non-cola drinks. But behind closed doors, they have hatched a $1bn plan to ensure that even if Coke is no longer 'it', the company's 'family' of fizzy and still drinks will be. In Coke code the strategy is called 'Occasion Marketing'.

To see how it works, it is best to switch on the telly. The trademark Diet Coke ads, in which women office workers ogle a bare-chested window cleaner, might look like light-hearted fun but they contain a targeted message that Diet Coke is a daytime treat for health-conscious women and men. Contrast that with the advertisements that the firm used last year to launch Vanilla Coke which were only screened in the evenings and had a dark tone to stress that Vanilla Coke is an evening drink for sophisticated adults. The 'Can't Live Without It' billboard advertisements for Dasani, showing healthy young couples drinking together, suggest that it is for people who want to take care of themselves and enjoy simple, pure pleasures.

By creating different different Cokes, for different folks, the firm has ensured that, in the US, its hundreds of different drinks do not compete with each other. Over the past year, the firm's share of the US fizzy drinks market has grown by four per cent. Non-cola drinks have grown so sharply that they now account for more than 36 percent of total sales. Coke is now trying to repeat its US success in Europe by introducing new drinks and dreaming up fresh occasion marketing gimmicks. In spite of the Dasani saga, several of these new drinks will be bottled water. There are already plans to increase the production and marketing of Malvern mineral water, which Coke owns, and new products are in the pipeline. An ad campaign showing water flowing through the streets of Britain has already been shot and is ready for release.

Jonathan Chandler, Coke's European Communications chief, says: 'Coke-produced water is a proven success in other parts of the world. Purified water will be the fastest growing product in the bottled water market. We see no reason why it should not be popular in Europe. It is right to bring it to the market and that is what we will do. We are not ruling out bringing back Dasani itself in Britain. In what shape or form and how and when is still to be determined, but we continue to believe purified water is the right product for the UK market.'

A new Coke water, launched so soon after last month's PR disaster, would be the boldest move the US giant has made since it tried to change the formula of classic Coke 20 years ago. Does the firm stand any chance of success or, as with 'new Coke', will it be forced to perform another embarrassing U-turn? Back in Sidcup Tracey Howes thinks Coke can get away with it. The 36-year-old runs Kerry's sandwich bar just around the corner from Coke's Cray Road bottling plant. 'Everyone around here is "bleedin' Coke this" laughing about Delboy and Sidcup Spring but that won't last forever. My customers like all the drinks Coke makes and if, one day, there is a cheap Coke water, they'll probably love that, too. Most of them won't even know it's made by Coke and, if they ever found out, most of them wouldn't care.'

Today, in Britain, you can only buy souvenir bottles of Dasani on eBay but soon it - or something that looks and tastes very like it - will be back in the shops. Coke may have got a soaking in Sidcup, but it is not giving up on the real thing. Stand by for Water Wars II.