Inside The Closure Of Outfox Hospitality And The Future Of Retail

0:05Welcome to the CPG Week podcast by BevNet and Nosh, your source for the latest food and beverage industry News. I'm Monica Watrous, Managing Editor of NOSH, here with my co-hosts Brad Avery, Lucas Southard, and Adrian DeLuca. If you're enjoying the show, please subscribe on your listening platform of choice. On the podcast today, we're discussing Foxpocalypse, inside the Doms and Foxtrot closure and the future of retail. But first, Brad, would you wear Pringles-inspired Crocs? now i haven't seen these but i am envisioning pringles tubes with holes in them that you're just trying to slide onto your feet and that's all i can really envision and would you wear those i'm not saying i haven't worn them in a pinch in a pinch what do you mean i spent time on that sour cream and onion probably I had to get a drill.

1:03So Pringles has partnered with the footwear brand on a new collection that includes boots featuring a custom Pringles holster so you can pack your crisps on your feet. As part of this collaboration, the snack brand is introducing a limited edition Crocs-inspired flavor called Croctail Party, which has a watermelon chili lime flavor. So I don't know about that, but sounds pretty stylish. How did it take them this long to get to Croctail Party? It feels like it was just hanging there in front of them the whole time. It's true. It's a good point. Well, today the main event is the news that just broke this past week, actually in the last 24 hours of our recording this.

1:45Lucas and Adrian, you've been covering the unfolding story of Foxtrot and Dom's closing. Can you tell us about what happened here? The news broke Monday night by Snackshot that Foxtrot would be ceasing operations on Tuesday and possibly declaring bankruptcy. So it started as a kind of a rumor mill through tips from insiders. And obviously here at BevNet and Nosh, we jumped on this as soon as we could in the morning and started making calls and seeing if we could find out and corroborate what was happening. And by mid-morning, Outfox Hospitality, which is the umbrella organization for both Foxtrot and Dom's Kitchen Market, released the news officially that it would be closing all 33 Foxtrot stores as well as the two Dom's locations in Chicago.

2:39A little background on this is that Dom's Kitchen and Market, a two-store small footprint grocery chain that operates in Chicago, merged with Foxtrot in November to make Outfoxed Hospitality. About three months later, the CEO of Outfox Hospitality, who was the previous CEO of Foxtrot, Liz Williams, left the company to take on a role as CEO of El Pollo Loco and was replaced by Rob Twyman, who was a Whole Foods grocery executive for many years. Obviously, we're waiting for the dust to settle on this, but the closing of Foxtrot and Dom's is a pretty big surprise for the industry. Obviously, this comes just two weeks after Boisson announced its own closure of its brick-and-mortar retail.

3:33And basically what this tells me is that operating as a specialty retailer is incredibly difficult right now. And all of the previously mentioned chains had huge followings and were in many instances touted as the future of grocery and convenience. And just about a month ago, we were seeing people point to Foxtrot as a likely inspiration for the new Whole Foods Market daily shops. These mini size quick service grocery stores that are popping up throughout cities. And so if Foxtrot goes down, what's that say about the model? Is it an issue with the format or is it just a broader issue specific to the company?

4:13Because we're seeing Amazon following in this path. There are definitely a lot of questions that remain. I agree, Brad, especially just how abrupt this closure went down. I know Lucas and I both spoke with store employees yesterday and between them and corporate employees, they were just shocked. And the ones I spoke with said they were locked inside the store with just lights off. And by noon, at least in D.C., we're handing out a lot of inventory on the street. So as for, you know, their suppliers and partner brands, it'll be interesting to see what plays out in the weeks to come, whether they ever do get inventory back or paid for those orders.

4:52A lot of emerging food and beverage brands really count on that account, Foxtrot, as their first big entry into brick and mortar retail. What does this mean for them now? Lucas, what have you heard? In the course of reporting this yesterday, I reached out to Lex Evan, who runs the premium brownie brand Lexington Bakes. And Lex kind of made his business in the Erewhon market in Southern California, where the brand is located, but has been able to use Foxtrot as a way to kind of move into the Midwest and to other markets on the East Coast. So when I reached out to Lexus, this was before the news became official.

5:34He said that although he had received POs from last week, this week on Monday, when he normally receives a PO, he did not receive it. And, you know, it's just kind of telling that there's a lot of these startup emerging brands that really use Foxtrot, like you said, Monica, as a way to branch out of their first markets or their home regions and into broader distribution in a very kind of hip, trendy way, which Foxtrot has done a good job of. Yes, and Lex said on an Instagram reel that Foxtrot really put Lexington Banks on the map. On LinkedIn, we've seen a lot of people calling for solidarity.

6:15Errol Schweizer used that word. There's a lot of the community coming together to try and support the brands that are now on the line trying to figure out what happens next with this key retailer down. Another good point we saw made on LinkedIn came from Caroline Grace, who's the founder and CEO of Product and Prosper, a retail go-to-market firm for CPG. and she pointed out a few possible issues in the marketplace that this shows us. One is that consumers are unbelievably price sensitive, to borrow her words. There's this very large premium segment at the moment of ultra premium priced CPG products and you have to consider what is the addressable consumer market for that, for those types of products.

7:00And it could be that consumers just are getting more wary of high-priced products. Another point she made is that expansion too fast can be a death sentence in CPG. Now, I don't know the issues that directly led to Foxtrot's closure, but we see this all the time on the brand side. Growing too fast, you spend too much money, you run out. What happened with Foxtrot? I'm not sure, but it could possibly be that the same is true for retailers. It's interesting you bring that up, Brad, because one source I spoke with who is operating this channel but asked to remain anonymous said that the problem lies in all the costs associated with operating as a retailer.

7:43They said that a lot of this cost is coming from not only the high price of real estate in expensive urban markets and inflationary pressures that we've all been talking about for two years at least. But it's also customer acquisition costs, which kind of fall on the retailer in a lot of ways and make it really difficult to operate as the retailer when you're dealing with all these different inputs that are raising the cost that you have to charge to your consumers. I think it is a great point, Lucas, especially as you mentioned, customer acquisition and then say with a store like Foxtrot, you have a lot of brands that are still trying to gain traction in the market.

8:27So they don't necessarily have those loyal avid customers yet. That's kind of the place where they're going to build it. So making the model work at retail is definitely a bit more challenging, especially in that brick and mortar setting. Moving on to another new development in the grocery retail marketplace. Adrienne, you've reported on the latest updates on the Kroger Albertsons proposed mega merger. What do we know now? Well, Kroger and Albertsons updated their divestiture plan on Monday. They added another 166 stores and a bunch of supporting assets to help those stores, you know, once they're potentially divested, stay open and operational under their new parent company, CNS Wholesalers.

9:12This all comes only about two months after the FTC sued to block the deal. Their main criticism was that Kroger and Albertsons with the original plan weren't setting up those stores for success. They believed that once sold off, they would probably quickly fail under their new parent company. I believe the words they used were it was a hodgepodge of unconnected stores. A lot of people still don't think that this deal has a chance of going through, especially with Lena Kahn as chairwoman of the FTC right now. Adrian, is there any sense about how this will change the timeline? It seems like this will just elongate the tale of when we might see this merger happen.

9:52Well, Lucas, originally back in January, Kroger and Albertsons had said they hoped the deal would close by August. But after the FTC sued to block the deal, and especially with these recent updates, it seems like that timeline is going to be pushed out a lot further. In the release announcing the new plan, Kroger and Albertsons even ended by saying, you know, they're willing to fight this in court. They're going to stand up for this merger. So it seems like they expect this to play out over the long term. And all of this, of course, is happening in the context of a CPG slowdown, which you wrote about on Nosh.com, Adrienne.

10:29Can you tell us more about the findings of the Jefferies webinar that analyzed the state of the retail market? Absolutely. A lot of what we've talked about today, especially what's going on in retail, was echoed in that webinar. They talked a lot about how inflation these past few years has just significantly changed consumer shopping habits. Notably, I'd say a lot of upscale, typically premium type consumers are now shopping for private label and in club stores. And that just spells a bit of trouble for these middle of the road retailers like Kroger and Albertsons. So the featured guest speaker, Jeff Wolkovic, he thinks private label will help a lot of these retailers in the near term, but they're going to continue to lose share to mass and discount retailers and believes that will cause them to somewhat lose their identities.

11:20So these discount retailers like Trader Joe's and Aldi that do have a stronger private label business, He believes that they're going to come ahead and even cited how Amazon's trying to copy that model as well. They've tested smaller format stores. They're going really deep on their wickedly Amazon private label line. And he said overall, it just points to the fact that everyone seems to be a little bit frustrated with grocery at this point. and even cited that as a grocery expert himself, he was a former exec at Kroger, he's just been disappointed with what they've done in growing the Whole Foods Market business.

11:58He said other than adding lockers, he doesn't think that they've made any notable gains in the grocery space. Well, thank you very much, Adrienne, for joining us today and sharing those insights with us. And here are some other notable bits of news from the week. Wild protein chips pumps up with muscular investment. why Refresh Gum tapped Nostalgia to rethink Better For You candy, and Nielsen IQ reports non-alk beverages decelerate amid soft volumes and slow pricing. For these stories and more, become an insider on BevNet and Nosh. And before we close today, I'd like to share some personal news.

12:34My dad, who never missed an episode of this podcast, despite not knowing very much at all about the CPG industry, passed away last week. I'd like to dedicate this one to him. Thank you for listening. That wraps up this edition of CPG Week by BevNet and Nosh. Thank you to our audio engineer for this episode, Ryan Galang. Our director is Mike Schneider and our designer is Aaron Ouellette. If you enjoyed the show, please subscribe on your listening platform of choice and we will see you next time.