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

Not every investment has proven to be it for the Real Thing.

Daniel B. Kline
Daniel B. Kline
Jul 1, 2017 at 8:09AM
Consumer Goods

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

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.

Coke cans

Coca-Cola lost its opportunity to create a market for cold single-serve beverages. Image Source: Coca-Cola.

What went wrong?

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.

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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.