Kroger Sued for $85 Million by K7 Design Group
K7 Design Group, a New York-based family-owned business, filed an $85 million lawsuit on Dec. 2, 2020 against The Kroger Company, the nation’s largest grocery retailer, over Kroger’s failure to take delivery of hand sanitizer that Kroger agreed to buy from K7 to meet the wildly heightened demand for PPE that Kroger faced because of the global pandemic. K7 is a New York-based, family-owned manufacturer and distributor of consumer products sold under the “Ultra Defense” brand label.
According to K7’s Complaint, filed on Dec. 2, 2020 in federal court in Cincinnati, Ohio, “Because Kroger reneged on a purchase order, K7 has been left with a tremendous quantity of hand sanitizer for which K7 has no other use and which it has been forced to store in its overflowing warehouses. And, after it had refused to take delivery, Kroger tried to use its immense market power to force K7 to absorb losses that, both in equity and because of K7 and Kroger’s contract, should be borne by Kroger,” stated Andrew Tomback, Partner, McLaughlin & Stern, LLP, representing K7.
As soon as the Global Pandemic hit the U.S., K7, a respected supplier of sanitizer products, was contacted by every major retailer to stock their shelves with safe sanitizing products. Kroger was just one of the retailers that placed a large order, buying millions of units during what was deemed a national shortage. Desperate for more product to satisfy its increasing demand and to draw consumers to their stores by offering a scarce product, Kroger placed an order for about $5 million of hand sanitizer, which K7 speedily supplied and which flew off Kroger’s shelves. It then quickly made a follow up order for more than $100 million of hand sanitizer. According to the Complaint, after an initial delivery, however, Kroger refused further delivery on its second order because they had over ordered and didn’t have the warehouse space. Kroger has refused to pay for or to accept delivery of the vast majority of the hand sanitizer that K7 had manufactured specifically for Kroger – to the tune of $85 million.
According to a recent Market Analysis Report, the hand sanitizer industry is being driven by a number of factors and the pandemic is contributing to the majority of double digit growth, “the global hand sanitizer market size valued at USD 2.7 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 22.6 percent from 2020 to 2027. Shifting consumer preference towards convenient hygiene products is expected to drive the market. In addition, the recent Covid-19 pandemic at the beginning of 2020 has spurred the market for hand sanitizer. The demand for hand hygiene products has been exceeding the supply in both online as well as brick and mortar sale channels worldwide owing to the global outbreak of the virus in a short time span. The outbreak has reinforced the significance of regular hand sanitizing and cleaning practices among consumers and is among the prominent factors driving the market.”
When the pandemic hit and retailers like Kroger were scrambling to keep up with consumer demand for hand sanitizer, they approached companies like K7 Design Group. An article by The New York Times highlights the shortage of essential goods. On April 22, 2020, on ABC-TV’s ‘Good Morning America’, Kroger’s CEO Rodney McMullen stressed the shortage of sanitizer products:, “I was in the store last night — we had toilet paper, plenty of meat variety products: beef, pork, chicken, all those things,” McMullen, CEO of America’s second-largest general retailer, said. “As for hand sanitizer, I think it is going to take a little bit longer.”
According to K7’s complaint, “In late March 2020, in response to the global Covid-19 pandemic, K7 offered to sell a large quantity of hand sanitizer to Kroger on an expedited basis. The two companies struck a deal for the sale of several million units of hand sanitizer, to be shipped as quickly as possible. This production run and ensuing shipment essentially concluded in June 2020 without complaint from Kroger.” In May 2020, Kroger placed a much larger order for tens of millions of units to “replenish” its initial March 2020 purchase from K7 and working with its overseas manufacturers, K7 immediately began producing to fill Kroger’s order. By the summer of 2020, however, Kroger had fallen behind in taking delivery of the goods it ordered and since then has only fallen further and further behind, leaving K7 with no choice but to file suit against Kroger for the $85 million Kroger owes to K7 on the product Kroger so desperately wanted and purchased in May 2020.
The lawsuit is captioned as “K7 Design Group, Inc. v. The Kroger Co.”, Case: 1:20-cv-00975 and is pending before Judge Michael R. Barrett in the United States District Court for the Southern District of Ohio, in Cincinnati, Ohio.
Ultra Defense Sani + Smart products are available in leading retail stores nationwide, including CVS, Wal-Mart, Sam’s, Meijer, Kohl’s and Albertsons, among other leading national chains.