Sometimes a bad investment isn't judged solely on whether a company makes money or loses money on the deal. In certain cases the lost opportunity from betting on the wrong horse hurts more than any immediate gain or loss.
Coca-Cola (NYSE: KO) did not lose much money spending over $2 billion to buy a nearly 20% in Keurig Green Mountain. It actually made a slight profit when the company was taken private being bought out by JAB Holdings .
What Coke lost is an opportunity to create a market for single-serve cold drinks brewed at home. That opportunity was squandered when the beverage giant decided to partner with Keurig on its ill-fated KOLD platform.
Coca-Cola has a retail store in Orlando, Florida. Image source: Coca-Cola.
What did Coca-Cola do?
Keurig essentially created the single-serve coffee market which has become the second-most popular way to prepare coffee at home or work behind only traditional drip brewers. In fact, data from an online survey conducted by the National Coffee Association (NCA) in January showed that single-serve brewers had 29% share of the market.
Before Keurig single-serve barely existed. The company's K-cups took a niche idea and made it something very mainstream.
Coca-Cola saw that potential in the at-home cold beverage "brewing" space. That's a market the company had never entered, including not licensing its products to SodaStream , the established leader in at-home creation of cold beverages.
Coca-Cola partnered with Keurig and not only licensed its well-known brands to what would become the KOLD, it became a partner in the machine. That proved to be a mistake because the KOLD was a colossal and easily predictable failure.
Why did KOLD fail?
K-cups and single-serve coffee filled a market need. In many cases making a pot of coffee led to some being thrown out. In addition, in some cases, people in the same house or office wanted different flavors and single-serve pods met that demand.
Coke ignored that every Keurig brewing system after its K-cup machines failed. Consumers rejected its single-serve espresso/cappuccino line and the public mostly ignored it full-carafe brewers. In addition the company burned up some good will prior to the KOLD launch with its Keurig 2.0 machines that locked out unlicensed K-cups.
KOLD was a product from a one-hit wonder company that had taken multiple public relations hits. Consumers were not only concerned over the 2.0 issues, there has also been significant push back over the environmental waste created by single-serve, single-use coffee pods. That should have scared Coca-Cola off, but the company was blinded by the success of K-cups, and the potential size of the at-home, single-serve cold beverage market.
That market may or may not exist, but Keurig did itself no favors by launching KOLD at a $299 price tag. That was more than three times the cost of the low-end K-Cup brewers and about $100 more than the top-tier ones. It was a price tag that doomed the machine to failure, which Keurig admitted in the press release announcing the end of the device. "The initial execution of KOLD did not fully deliver on their expectations, particularly around size, speed and value," the company wrote.
If there's one positive to be taken from KOLD, it's that it was so poorly executed that it's reasonable to say it was not a real test of the viability of single-serve cold beverages made at home. The challenge for Coca-Cola, should it ever enter this space, is that it supported a bad idea.
That poisons the well and makes things more difficult, but a well-done $99 single-serve cold beverage system with low-cost pods could work. Coke has given no sign that it intends to create one, but perhaps eventually, as the taint of KOLD fades, the company may test the waters in what could be a lucrative space.
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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of SodaStream. The Motley Fool has a disclosure policy .