Greek yogurt may be a big deal in the business, but it would have been a bad decision for Coca-Cola to diverge into snack foods. Photo: Mike Mozart.

Coca-Cola (NYSE:KO) is dodging a bullet. The soda giant was reportedly competing with rival PepsiCo (NASDAQ:PEP) to invest in Greek yogurt maker Chobani, which is looking to expand. Reuters said Chobani's hedge fund owner, TPG Capital, was looking to unload a minority stake in the yogurt maker equal to about a 10% to 20% equity stake, but Coke says to count it out, as it's not in the running.

It's all Greek to me
Having rebounded from a ruinous recall because of mold and being kicked to the curb by Whole Foods Market as the organic grocer went GMO-free, Chobani borrowed $750 million from TPG last year to help finance its recovery. Now with popular new brand extensions such as Flip, which separates its yogurt from dry toppings and additives, Chobani sees an opportunity to expand its supply chain, distribution, and manufacturing network, as well as its geographic footprint.

The chance to invest in yogurt would also give the beverage giants a chance to further diversify away from their stumbling soda business. But Coke's choice to bow out is a good one.

Losing its fizz
Even though Coke saw its global sparkling beverage volumes grow 1% year over year in the second quarter, Diet Coke volumes continued their decade-long descent, falling 7% from last year and worse than the 6% decline witnessed in the first quarter.  

No one is seemingly enjoying Diet Coke these days, as sales of low-calorie sodas continue their decade-long decline. 

According to the industry analysts at Beverage Digest, Coke's North American unit-case volumes fell 1% in 2014 while Pepsi's dropped 2%. It recently reported its third-quarter results, and the North American soda business suffered a 1.9% decline. Like Coke, while Pepsi's regular sodas were weak (they declined 1% in the quarter), diet sodas continued to be in free fall, dropping 6.5% year over year. No one expects Coke to do any better when it publishes results next week.

Yogurt, though, would seemingly give both soda companies a new path to follow. Pepsi, of course, has its Frito-Lay and Quaker better-for-you snack businesses -- and it previously owned restaurants too -- so it has some experience in dealing with food. And though Coca-Cola is currently a pure-play investment on beverages, Chobani would be an addition to the dairy business it entered with its Fairlife premium milk drink. 

Nothing succeeds like success
It would allow both of them to tap into Greek yogurt's popularity, which accounts for more than half of the $9 billion in sales all yogurt hit in 2014.

Chobani, as the first to market of a thicker, richer, and creamier form of yogurt, has ridden the wave higher. According to Packaged Facts, as recently as 2013 it held a 53% share of the Greek yogurt market, though other global brands including Group Danone's Dannon and YoCrunch, General Mills Yoplait, and Muller Quaker Dairy have narrowed the spread since then.

It's why Coca-Cola was wise to avoid getting involved. Where Pepsi can make a strong case that Chobani would be a good fit for its snack food division, it would be a completely new direction for Coke, and not a good one.

Some analysts contended the Fairlife drink was a similar enough product to be beneficial, but that was still a beverage, and despite America's love affair with protein, there's no guarantee it will be willing to pay up for milk, a drink whose consumption has been in decline longer than diet soda.

Coca-Cola would do better focusing on still beverages like juice, tea, and water, which are enjoying sustained growth.

Too much of a good thing
Moreover, the Greek yogurt phenomenon may have peaked, with analysts at IRI believing overall yogurt dollar sales may decline this year. As retailers belatedly raced to catch up with consumer demand, they overstocked on Greek yogurt, with SKUs doubling the industry average. That may lead to an eventual reduction because it exceeded the whole category's expansion rate.

Analysts do expect the Greek yogurt market to find a more normalized growth rate next year, but one that reflects the segment's quick maturity. It won't hurt, either, that the USDA has approved Greek yogurt for inclusion in school lunch programs as a meat alternative.

But the market has matured, competition has gotten smarter and stronger, and Chobani's market share has shrunk to just a third of the total. It's still the industry leader, but it's no longer the growth driver Coke needs to offset dwindling soda sales.

Instead, Coca-Cola would do better to focus on its still-beverage division, where the majority of its billion-dollar brands reside. That market represents its greatest opportunity and keeps the beverage giant an industry pure play, a position investors no doubt would think is the smoother bet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.