The sudden closure this week of trendy grocery chain Foxtrot Market is a blow to many up-and-coming direct-to-consumer brands that used distribution in the upscale stores as a key marketing engine.

Outfox Hospitality, the Chicago-based parent of Foxtrot Market and Dom’s Kitchen & Market, shut both chains down on Tuesday, six months after the two brands merged. “We explored many avenues to continue the business but found no viable option despite good faith and exhaustive efforts,” Dom’s Chicago stated on its Facebook page.

The chains were small—Foxtrot operated 33 stores in cities such as Chicago, Washington, D.C. and Austin, Texas, while Dom’s only had two stores in Chicago. Foxtrot, in particular, provided a demonstration ground for many DTCs that had goals of entering bigger chains such as Target and Whole Foods, helping them gain momentum.

“There are very few retailers willing to roll the dice on a new brand with unproven sales, track record, margins etc. Foxtrot was an incredible hub for innovation and an amazing partner to bright-eyed entrepreneurs,” Paul Voge, CEO and co-founder of DTC sparkling water brand Aura Bora, wrote in an email this week. Aura Bora drinks were sold in Foxtrot stores. 

Retail distribution became an especially important marketing tool for DTCs in the wake of Apple’s 2021 data privacy crackdown that made it more difficult to track users and measure campaigns across apps including Facebook and Instagram.

A key step for DTC brands

Foxtrot not only offered DTC brands including Fishwife, Lexington Bakes and Graza their first wholesale partnerships—it also made their businesses seem more legitimate when pitching larger retailers such as Whole Foods and increased their brand awareness.

The entry of tinned fish brand Fishwife into Foxtrot in July 2021 added legitimacy and brand credibility to customers and other retailers alike, Fishwife Co-Founder and CEO Becca Millstein said this week. 

“We were obviously aware of the buzz around this hip, cool new chain and super excited to have them as our first multi-store partner,” she wrote in an email. “The brand was similarly whimsical to Fishwife’s, so it felt like a good fit.”

Millstein recalls Foxtrot being an integral step on the way to more significant retail distribution. By January 2023, Fishwife had secured its Whole Foods partnership.

“Foxtrot was the perfect intermediary step between, say, selling to an independent shop in L.A., and expanding into our first Whole Foods region,” she wrote. 

Also read: Behind Fishwife’s rapid rise and entry into Whole Foods

“There are certainly other small chains out there, but I think Foxtrot was unique in that it was a similar age to a lot of our businesses, it shared our mindset of real nimbleness and creativity and fast growth which is somewhat unique to startup culture,” she said.

While stores such as Pop Up Grocer and Big Night also cater to up-and-coming DTC brands, they’re no Foxtrot—Pop Up Grocer only has one storefront, and Big Night has two. However, they have growth potential: Pop Up Grocer briefly debuted pop-ups in a few Nordstrom locations across the U.S. last summer.

‘The main reason our brand exists’

DTC baked goods brand Lexington Bakes’ Founder and CEO Lex Evan said his brand would not be what it is without Foxtrot.

Lexington Bakes products first entered Foxtrot stores in June 2022, only a few short months after the brand’s launch. By August of that year, there was an email from Erewhon, the ritzy California grocery store, in Evan’s inbox—he thinks the brand awareness Foxtrot drove by promoting Lexington Bakes on its website had a little something to do with that.

“I make sure to credit Foxtrot as the main reason our brand exists. Without Foxtrot, Lexington Bakes would not be what it is today,” Evan said in an interview. He added that because of the brand’s early Foxtrot distribution, Lexington Bakes hasn’t had to raise any venture capital—which would have been difficult in today’s VC environment for DTCs.

Read more: DTC marketing glossary—key terms to know

Lexington Bakes was part of Foxtrot’s coveted “up and comers” program that was designed specifically to help new brands garner awareness via end caps and more at Foxtrot stores.

DTC olive oil brand Graza also made its chain retail debut at Foxtrot, where it gained distribution in April 2022. By that summer it had launched in Whole Foods, and by October 2023, it was in Target stores.

“Once you have really strong retail data, doors open,” Graza Co-Founder and CEO Andrew Benin told Ad Age earlier this year. 

Graza used Foxtrot’s “merchandising photos, the examples, [and] the velocities to communicate with other retailers that we had a physical retail success story that was Foxtrot,” Benin said in an interview this week. That Foxtrot success was in Graza’s early retail sales pitch decks, too, he added. 

Plus, Foxtrot helped boost Graza’s brand awareness with posts on the Foxtrot social media account—something it did for many other brands in-store as well, Benin said. For Graza’s new products, including its recent olive oil chips launch, Foxtrot would not only debut the product in its stores but would also “celebrate it on digital platforms.” That added digital touchpoint was “really beneficial” for driving brand awareness around those new products, Benin said.

‘It’s pretty sad’

It is likely that Dom’s and Foxtrot were struggling to become profitable and raise capital, said Steven Kaplan, a professor of entrepreneurship and finance at the University of Chicago’s Booth School of Business. Chicago startups raised venture funding at a record pace in 2021, as did startups around the country. Money became more difficult to raise when the stock market took a turn in 2022. At the same time, inflation was hitting food hard, going after profit margins that are already slim in the grocery and retail world. Interest rates went up too, and companies that needed to become cash-flow positive struggled.

Rewind: Wilco got its own cereal and beer via a Foxtrot collab

Foxtrot’s closure likely will not significantly impact the brands that had their discovery phase at the chain but have since gained distribution in larger retailers, such as Graza and Fishwife, as Foxtrot had already become a smaller percentage of their overall revenue pies. But without Foxtrot, founders of these more established brands wonder how future DTC brands will get a foothold in retail, which feels increasingly necessary for DTC brand survival today.

If Graza was still at its “infancy point,” maybe even a year after getting into Foxtrot, Benin said, the Foxtrot closures would have majorly impacted Graza’s business—in a bad way. “There are probably brands that Foxtrot is their only retailer … they will feel an impact, and it’s pretty sad,” Benin added.

Also read: Behind the Graza founder’s unorthodox approach

Evan said he knows just how much damage the Foxtrot closure would have done to his brand just a year ago, before it entered other more robust retailers and sales grew accordingly. “I am terrified for other brands,” he said. “I don’t want to see them shutter because Foxtrot is such a big account of theirs.” 

Voge added that many DTC brands needed retailers like Foxtrot to provide them with their first batch of retailer sell-through data. “This closure will definitely impact buzzy DTC brands’ ability to scale into stores,” he said.

“I think emerging brands have definitely lost a friendly home that was willing to handhold them as they took their first bigger steps into retail,” Millstein added. 

Representatives from Dom’s and Foxtrot’s parent company, Outfox Hospitality, did not respond to requests for further comment. The founders of Dom’s and Foxtrot also did not respond.

Crain’s Chicago Business reporters contributed.