I Still Can't Believe Coca-Cola Spent $2 Billion on Keurig

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Coca-Cola (NYSE: KO) has a strong record of acquisitions.

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The company has been able to buy all of, or sometimes just a piece of, emerging beverage brands. Once it has a stake or has made the complete acquisition, the company can leverage its distribution to make its investment more valuable.

For example, the company has invested over $2 billion in Monster Beverage (NASDAQ: MNST), a company making energy drinks that are popular with millennials. That deal puts Coke in a new category, giving it a piece of an established leader that still has room to grow.

That's a model the company has followed many times since its modest start as a medicinal beverage. Coca-Cola, however, has not gotten every deal right. In fact, its 2014 decision to buy a stake in Keurig, the company famous for its single-serve coffee pods, backfired.

It's not so much that Coca-Cola lost its $2 billion investment because it got much of that back when Keurig was taken private by JAB Holdings for $13.9 billion. Instead, the failure of the deal was the opportunity the company lost when Keurig botched their joint venture, the single-serve cold beverage brewing system Keurig Kold.

What went wrong?

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Coca-Cola should have seen some red flags when it looked at Keurig's record beyond its K-cup machines. That platform was wildly successful, but efforts to create a machine for espresso-based beverages, and one that made full carafes, failed miserably. That didn't stop the company from charging into the unproven single-serve cold beverage market, and at first, Coke was very excited.

Deryck van Rensburg, the Coke executive overseeing the Keurig partnership, said in a press release:

By pairing our brand leadership and global footprint with Keurig's cutting-edge technology and beverage system expertise, together we will capitalize on the growth opportunities we see in the single-serve, pod-based segment of the cold beverage business ... Keurig KOLD is a breakthrough innovation that will enable people to enjoy our brands in a convenient new way and capture incremental consumption occasions for our business.

That all sounded nice, but Keurig made a major mistake that Coca-Cola should have seen coming: It charged $369.99 for the Kold. That's around twice what the initial K-cup brewers cost, which doomed the machine to failure.

Why was this bad for Coca-Cola?

The Kold was Coca-Cola's first foray into allowing its products to be made at home. That could have become a viable niche for the company, serving apartment dwellers and others who would prefer to not lug cans and bottles of soda around.

In theory, had the company not worked with Keurig, it could have created a Coke-branded cold beverage platform. That might not have been a runaway hit, but it could have succeeded like the Starbucks Verismo coffee brewer. That machine has not replaced K-cup brewers or even dented that audience, but it does serve a market seeking a higher-end experience.

It's logical to think that with $2 billion and over a year, Coca-Cola could have launched a machine more consumer-friendly than the Kold. That's not an opportunity lost forever, but the Keurig failure makes it unlikely the company will try again soon.

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Daniel Kline has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Monster Beverage and Starbucks. The Motley Fool has a disclosure policy.