Vermont coffee company named in class action suit

A law firm has filed a federal securities fraud class action complaint against a coffee and coffeemaker company and some of its officers.

The class action claim was filed in the U.S. District Court for the Northern District of California on behalf of investors who bought shares in Keurig Mountain Green, Inc. between February 4, 2015 and May 6, 2015. The company sells its K-Cup single-serving coffee products, specialty coffee, coffeemakers, tea and other beverages.

The complaint alleges that Keurig officers failed to reveal realistic sales projections due to issues with the company’s Keurig 2.0 brewing product, released in August 2014. The Vermont-based company’s original brewer uses single-serving canisters, while the new Keurig 2.0 lets users brew a carafe of coffee. Additionally, the class action claims that the company did not state that the retail distribution of its forthcoming Keurig Kold cold brewing system would be delayed.

“Keurig officers failed to reveal realistic sales projections.”

New Keurig 2.0 product doesn’t allow competitors’ coffee cups
On Feb. 4, 2015, the company stated that customer confusion over which brand coffee cups the Keurig 2.0 system would brew could negatively affect the coffee product provider’s financial performance. Customers weren’t happy with the fact that the new product is limited to Keurig-branded K-Cups, and did not take to the Keurig 2.0 as expected.

“I love the Keurig brewers but this machine is a big disappointment to me due to the fact that it completely controls and dictates what K-Cups you can and can’t use with it,” an Amazon reviewer noted on the website. “It absolutely won’t accept the inserts so you can use your favorite brand of coffee; it won’t accept many of the K-Cups currently on the market that actually may be one of your favorites.”

Around the same time, the company also indicated that production of its Keurig Kold brewing system was on track and would be released in fall 2015.

On news of disappointing sales performance, share prices tumble
On May 6, 2015, Keurig issued a press release stating that sales growth was lower than previously expected, due mostly to customers’ frustration with the Keurig 2.0 brewing product. because the point of sale results did not turn out as expected, the store ended up with high inventory levels on store shelves. Bloomberg Business reported on the state of Keurig’s slow sales that same day, explaining that sales volume for the brewers fell 22 percent in the last quarter due to consumer disappointment with the company’s latest product.

On news of the company’s falling sales, shares of Keurig dropped $9.92 per share, more than 9 percent, to close at $98.16 per share on May 7, 2015. A week later, on May 14, the company held a webcast that revealed the Keurig Kold would be sold online and in certain stores, but would not be available in all retail outlets until 2016. This news brought another tumble for Keurig stock prices, which fell $8.82 per share, or more than 8 percent, to close at $94.26 per share on the day following the web announcement.

With the Keurig 2.0, users can only brew with the company's own K-Cups.With the Keurig 2.0, users can only brew with the company’s own K-Cups.

Coffee makers as displeased with ‘lockout technology’ as consumers
This securities class action claim comes the year after an antitrust suit was brought against the company. The complaint came about in part due to the fact that the Keurig 2.0 locked out other coffee companies’ products, according to Law360. The brewer comes with technology that can determine whether the coffee cup inserted by the user is Keurig brand. This doesn’t allow consumers to use similar, more affordable products with their Keurig 2.0 brewers.

The complaint noted that the lockout technology used in the new brewing system offered no discernible benefit to consumers, and subsequently forces them to pay 15 to 25 percent more for their coffee cups.

“End-user businesses, institutions and consumers should be free to decide whether this pretextual and purported product ‘improvement’ is worth the substantially higher price of K-Cups over competitive cups, but Green Mountain is threatening to eliminate the freedom of consumer choice and the free and fair interplay of the market,” the antitrust claim indicated.

Currently coffee companies are fighting to keep the case alive following the Keurig’s February motion for dismissal.