On April 23, Foxtrot convenience stores and Dom’s Kitchen & Market grocery stores abruptly closed. The news left many wondering why and has already resulted in one lawsuit from a laid-off employee.
Gerry Lewis, a semi-retired convenience-store consultant with more than 30 years of experience with companies like CDI, and Joe Bona, president and founder of Bona Design Lab Inc., share their thoughts on what happened.
Gerry Lewis: At first, I was surprised to read that Foxtrot and Dom’s had closed their doors. All the publicity about their growth, the interesting new things they were doing, their upscale appeal, their unique product mix and so forth had led me to assume they were successful and profitable; however, when they first opened in 2015, I had privately been quite doubtful about whether that type of store could make it. Everything I had seen working with convenience-store and supermarket clients over many years made me skeptical as to whether stores of that type, that did not start out by meeting the basic needs of the consumers who shopped them, could be successful. But I had come to think that I must have been wrong.
Joe Bona: Having visited a few of the original Foxtrot stores several years ago, I’m also not totally surprised. My view is that, beyond having great looking stores, when you pulled back the curtain, it was difficult to identify the concept in a way that was easy to understand or that satisfied what customers want or expect from a neighborhood store.
Today’s convenience landscape is highly competitive—and, without a clear focus and understanding on what matters most to customers, there is no shortage of options for where customers can go to fulfill their everyday needs.
Lewis: The most fundamental need of supermarkets and convenience stores is shopper frequency. If your customers shop somewhere else for their everyday needs and only come to you when they want something special—that’s ok for Saks Fifth Avenue or Fortnum and Mason—but it’s suicide in regular food retailing. A concept that works online, where you can contact vast numbers of prospective customers very frequently with offers, may be totally unsuitable for brick-and-mortar stores where you are relying on the limited number of people who live or work close by to shop you regularly. Perhaps Foxtrot’s problems started before they opened the first store. Maybe they should have done what Mark Zuckerberg did when he invented Facebook—just expanded the program online.
Bona: I believe some of what consumers expect from a convenience store are the more advanced fresh-made/on-premises food choices that many others figured out long before Foxtrot opened their first store. If you can earn the trust of customers with a good cup of coffee and a value-driven breakfast offer in the morning, the chance of getting them back for lunch and grazing in between meals increases. And, with the likes of DoorDash and so many other home delivery options, perhaps the competition from app-based delivery services eroded some of their early success.
Lewis: It may well be that the basic idea never had much of a chance to succeed in a brick-and-mortar retail format … that it was never profitable and had no possibility of ever becoming so. The fact that they raised a total of $186 million and closed nine years later, presumably having run out of money, certainly indicates that this was so since they seem to have lost an average of if well over $15 million in each year of their existence (depending of the value of their remaining assets on liquidation). However, I can see how anything involving an app and college students would have appealed to investors at that time. Tesco, for example, lost well over $2 billion in their investment in the flawed Fresh & Easy retail concept. And the last time I looked, EG, which is still operating, was $10 billion in debt with virtually zero net worth, having, as far as I can see, brought nothing new to the table when they entered the U.S. market except a ton of debt.
Bona: To your point, Gerry I never fully understood how a large section of sales area devoted to nicely curated high-priced merchandise ever fit into satisfying what customers need on an everyday basis. The rent per square foot associated with low turn merchandise (how many Yeti refillable mugs do you need in a week), must have been a killer to the bottom line.
Lewis: Also significant is what Foxtrot didn’t have—some of the most basic elements of convenience stores: a walk-in cooler; gas pumps; fountain drinks; Coke or Pepsi; bread and milk—things that you “run in for when you run out.” The leading convenience retailers, such as Wawa and Sheetz, have great foodservice but they also serve their customers’ basic everyday needs.
Bona: And, I might add, as city centers continue to deal with declining work-in-office activity, increasing rents and crime, perhaps their in-city locations became a drag on profitability. Also, I’m not sure they were able to successfully transition the business from a home delivery service that looked at retail stores primarily as micro-fulfillment centers to turning their locations into destinations that served a much broader audience and a more mobile customer base.
Lewis: Lewis: In retrospect, the merger with Dom’s, which was announced as a combination of two successful companies serving the same upscale market, seems to have been Foxtrot “running for cover.” I don’t know anything about Dom’s, except that it was founded by a respected and successful supermarket operator; however, it was reported by ModernRetail that a Foxtrot executive team member told a group of employees that Foxtrot’s options had been either to merge with Dom’s or file for bankruptcy. So, it sounds as though they were looking for a lifeline and ended up taking Dom’s down with them.
Bona: While the overall effect of technology on customer behavior is undeniable, I believe the fundamentals of convenience retailing have remained the same for decades. Servicing the needs of what customers want while they drive, walk or bike it from Point A to Point B, along with great customer service, efficient operations and a relentless focus on daily missions is what drives frequency, builds loyalty and increases revenues. I’m not sure those fundamentals were in place.
Lewis: And it has been reported that when key elements of the original (flawed) concept—such as local brands and self-delivered foodservice—were not working, new management tried to cut costs and conform to more standard c-store retailing operations, but with the stores not having the required fundamentals for that, they ended up with an even less viable situation.
Bona: At the end of the day, I personally loved the design of the stores and the ambience they created but, as with all forms of retail, good design is often never good enough.
Lewis: All retailing starts with having the right offer—one that meets customers’ needs and is sufficiently unique to attract enough customers to generate the sales volume required for it to be profitable. The Foxtrot offer failed to meet that basic requirement. The answer to why these beautiful stores foxtrotted to failure may be just as simple as that.
Joseph Bona is president and founder of Bona Design Lab Inc. Reach him at joseph@bonadesignlab.com. Gerald Lewis is a semi-retired consultant who has served more than 300 convenience-store and oil companies at board level on five continents for over 40 years. He can be reached at glewis@c-man.net.
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