Marcus, who has owned Grocery Outlet shares since January 2023, seeks to recover damages on behalf of the Emeryville-based discount grocer stemming from what he characterizes as misleading statements about the company's expansion strategy and restructuring plan between August 2025 and March 2026. The complaint targets all 11 directors and officers, including Potter, who became CEO in February 2025, and CFO Christopher Miller, who joined in January 2025.
The lawsuit centers on statements the company made throughout 2025 about its growth prospects and restructuring efforts. In August 2025, Grocery Outlet announced second-quarter results showing net sales increased 4.5% to $1.18 billion, which the company attributed substantially to "new store sales" from 11 new locations opened that quarter. The company also said its restructuring plan to "optimize the footprint of new store growth and lower the cost base" was "substantially completed."
The truth emerged on March 4, 2026, when Potter announced during an earnings call that the company had "made the difficult decision to close 36 locations" and explained that "it's clear now that we expanded too quickly, and these closures are a direct correction." That same day, Potter stated in a press release that while the company "made progress on our strategic priorities in 2025," the "fourth-quarter results made clear that we have more work to do."
Following the disclosure, Grocery Outlet's stock plummeted from $8.79 per share at the close on March 4 to $6.34 the next day—a drop of roughly $2.45 or approximately 27.9%. The complaint alleges this dramatic decline demonstrates the materiality of the previously undisclosed problems with the expansion strategy.
Marcus contends the board failed to disclose that the restructuring plan would require additional store closures and asset write-downs, that the company's growth was unsustainably dependent on rapid expansion, and that the expansion pace made the company unable to achieve its financial guidance. The complaint also alleges the directors failed to maintain adequate internal controls and violated the company's Code of Business Conduct and Ethics.
The derivative action comes as Grocery Outlet faces a separate federal securities fraud class action in the same district court. Marcus argues the board cannot fairly consider a demand to sue themselves given their collective involvement in the alleged misconduct and their interconnected business relationships. The complaint seeks damages for breach of fiduciary duty, unjust enrichment, waste of corporate assets, and gross mismanagement.
The case highlights the challenges facing discount retailers in balancing aggressive expansion with operational sustainability. Grocery Outlet operates through a unique model where independent operators run individual stores and share profits with the company, making rapid scaling particularly complex as it requires finding qualified operators for each new location while maintaining the company's discount pricing strategy.