A lot went wrong at Keurig Green Mountain (NASDAQ:GMCR) before stumbling into a $13.9 billion buyout earlier this week. Getting taken out at a hefty premium to where it was trading last week is nice, but the stock was trading substantially higher earlier this year before fumbling on a few fronts.
Despite Keurig Green Mountain's many recent shortcomings that include last year's Keurig 2.0 flop and its past couple of quarters showing declining sales and shrinking margins, you don't have to look hard to find the biggest dud in Keurig's portfolio of new products in 2015.
Keurig Kold was supposed to be special. When the undisputed leader in premium single-serve home-brewed java announced that it would be entering the carbonated beverage market early last year it did so with a major splash: Coca-Cola (NYSE:KO) would not only be providing its iconic flavors for the machine, but Coca-Cola itself would be taking a minority stake in Keurig Green Mountain. That paved the way for other major retail soda brands to hop on the Keurig Kold bandwagon.
There were some development delays along the way, and Keurig Green Mountain certainly seemed to have a disruptive product on its hands heading into this fall's release of its sparkling beverage maker. Unlike existing products that need carbonators to fizz up flat water, the carbonation process would be contained within the actual pods. This is something that would protect the machine from third-party providers of flavored syrup. Keurig Kold would also have a refrigerated water reservoir, besting the competition by providing a product that could be served already in a chilled state.
Unfortunately for Keurig Green Mountain, all of the neat features that set Keurig Kold apart are also making it a harder sell. To get ice-cold beverages you need to turn the machine on at least two hours before putting it to work, something that's irritating to both energy conservation activists and impatient soda sippers.
The new machine also isn't cheap. It hit the market at a stiff $369.99, far more than any other carbonated beverage maker on the market. A big initial investment would pay off if the product was cheaper than the alternatives, but that sadly isn't the case either.
The market cheered at the prospects of making Coke, Sprite, and Dr. Pepper at home, but it failed to consider that these companies wouldn't actually sabotage their retail distribution and bottling networks by making home-based varieties cheap. It will cost you $1.25 to make a small 8-ounce serving of Coke on a Keurig Kold, and that's before factoring in the minor yet incremental costs of the water and electricity.
It's easy to brand Keurig Kold a flop. The only silver lining here is that it likely inspired Keurig Green Mountain to accept an offer to be taken private by a global conglomerate. Things would have been ugly in 2016 on its own if Keurig Green Mountain had to deal with fading coffee brewer and pod sales as well as the likely failure of Keurig Kold. So, yes, Keurig Kold was this year's biggest flop, but it could also be seen as the reason why investors are getting cashed out at a fat markup to where the stock was a few days ago.
Rick Munarriz owns shares of Keurig Green Mountain. The Motley Fool has the following options: long January 2016 $37 calls on Coca-Cola, short January 2016 $43 calls on Coca-Cola, and short January 2016 $37 puts on Coca-Cola. The Motley Fool recommends Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.