Dive Brief:

• A New York-based manufacturer has filed an $85 million lawsuit against Kroger for allegedly refusing to accept a large order of hand sanitizer and antibacterial soap it made when consumer demand was surging for personal protective equipment due to the novel coronavirus pandemic. 
• K7 Design Group, which manufactures and sells the “Ultra Defense” brand, alleges in the complaint filed Dec. 2 in the U.S. District Court for the Southern District of Ohio that the grocer ordered “way too much” hand sanitizer worth more than $100 million and has since refused to pay for or accept delivery. “Because Kroger reneged, K7 has been left with a huge quantity of hand sanitizer for which K7 has no other use,” the complaint stated. “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’s and Kroger’s contract, should be borne by Kroger.”
• "We are disappointed by this vendor’s claims and intend to vigorously defend against their accusations," a Kroger spokesperson said in response to the lawsuit.  

Dive Insight:

In a press release announcing the lawsuit, K7 said it supplied Kroger early this year with an initial order of hand sanitizer worth approximately $5 million. The products "flew off Kroger shelves," according to the release, leading the grocer to quickly place a follow-up order for more than $100 million of hand sanitizer.

K7 claims in court documents that Kroger refused to accept delivery and complete payment of the order this summer because of constrained storage capacity.

The manufacturer says that it cannot sell the hand sanitizer and soap “anywhere close to the price Kroger agreed to pay at the height of the sanitizer shortage” because suppliers have ramped up their production efforts since the start of the pandemic, leading to market saturation. 

The lawsuit reflects a turbulent year for manufacturer and retail supply chains. K7, which makes both private label and branded products, and which began selling cosmetics to Kroger in 2017, started selling hand sanitizer in March of this year, joining numerous other suppliers in turning out an item that was in extremely high demand. 

Retailers, meanwhile, had to quickly adjust to demand surges in categories throughout their stores early this year, leading many to implement product purchase limits.

Grocers like Kroger have reaped millions in added sales during the pandemic as shoppers shift their spending to food retailers and consolidate trips. But lawsuits stemming from the pandemic are starting to emerge. Publix is currently facing a lawsuit brought by the family of a 70-year-old employee in Miami Beach who died due to COVID-19 complications. Companies like Albertsons are also facing legal action over alleged price gouging this year. 

This latest lawsuit from K7 comes at a time when COVID-19 cases are surging across the country, prompting retailers to brace for another round of panic-buying. This time around, though, manufacturers are saying that the supply chain is better prepared to handle heightened consumer demand.

In addition to the $85 million it seeks, reflecting the amount of product K7 says it was left with after Kroger allegedly refused the order, K7 is asking the grocer to cover its storage costs and other damages.