Lessons from Foxtrot’s Demise
Foxtrot’s sudden, disorderly shutdown shocked many in the world of premium consumer brands. Dozens of brands had much of their P&L pegged to this small chain and its growth plans. Really. Bad. Idea.
There is a vast difference between growing your brand with a stable growth retailer like ALDI and growing with an uncertain venture capital-backed retail chain like Foxtrot. Investors pushed too hard for topline growth to hasten the timeline to a return. They installed a fast-food exec who doesn’t understand the margin reality of specialty retail (tight). Or retail at all. And it didn’t work.
It is unclear whether Foxtrot ever found its stable 2-4% net margin operating model. Most likely not, hence the large raise in 2022. Instead of fine-tuning the margins, investors pushed for growth, which they almost always do.
What surprised me was how dependent some early-stage consumer brands were on this one retailer. It was a tremendous awareness-building premium retail space, for sure, where you could sell directly. But even a local business must have its account mix balanced proportionally. Never enter an experimental concept and find that 30-50% of your sales come from it.
Moreover, growing nationally in a tiny chain like this makes little sense for an emerging brand because awareness building can’t feasibly generate store traffic to 5-6 stores per city. That’s not how marketing works for consumer brands at retail.
It’s one thing to make use of a trendy upscale store in your local area. It’s another to depend on it too much.