On the Death of Fox & Obel (and the Current Spend Matters Group LLC Operating Agreement)
By Richard Lee (with Jason Busch). Richard is CFO of Azul Partners, the parent company of Spend Matters. He is also Managing Director of Spend Matters Group, LLC and RJSL Group.
I’ve written many “Death of” articles – death of BlackBerry, death of the penny, death of the Encyclopedia Britannica. But this one really hurts…
Before Mariano’s Fresh Market, Whole Foods, Wild Oats, and Trader Joe’s (I’m still mad at them for not giving me an opportunity to interview after I submitted an application at an earlier point in my life out West, but that’s a story for another time), there was Fox & Obel, the Chicago-based, River East mainstay for over a decade. With rumored celebrity investors like Scottie Pippen, $5/ounce olive oil, truffle tasting stations, in-house wet and dry aged meats (initially the only grocer that carried Tall Grass Beef from Red Buffalo Ranch, owned by Bill Curtis), top-notch wine and apéritif lists, hard-to-find regional and international accoutrements, and a Zagat-rated cafe attached, Fox & Obel was arguably the first high-end grocery store in Chicagoland—and people flocked there. And this was despite its sky-high prices (trust me, much worse than Whole Paycheck, I meant Whole Foods).
Manning the bakery was Phyllis, a lovely woman and native of South Africa. She never hesitated to scold rude customers, who generally took it. There was Martha, the ever-smiling assistant manager greeting patrons as they walked in and out. And Juanita, café manager and a single mother (her son is a star athlete at a local Catholic school). Juanita knew exactly how you liked your coffee. Fox & Obel managed the unlikely balance of Chicago Gold Coast uppity-up-ness with a neighborhood feel. My business partner Jason Busch loved the bakery so much that its muffins, pastries, and bread made it into our formal LLC operating agreement for our Spend Matters advisory business. I kid you not. Written into the agreement was that one partner had to “stop at the Fox & Obel” bakery before business meetings—and yes, we did honor it! Unfortunately, it’s now time to amend that part.
For a while we’d heard rumors of additional investors, new stores in the downtown area, North American expansion. Then bam: the bottom fell out.
My wife Jenna and I walked around the closing sales event with heavy hearts. To Jenna and me, this was not just a grocery store – Tsige cooked for us, Sue babysat our kids, and on Friday afternoons I used to bring my RJSL and Spend Matters colleagues treats from the Fox & Obel bakery. So what happened? I can certainly make a few hypotheses.
- Decreasing passion and sense of mission – After initial success, the original founders cashed out to private equity investors. And I could sense a gradual decline in quality over the past few years. Does that mean every buyout spells doom for those acquired? No, but it does mean that if cash flow buyers (as opposed to strategic acquirers) focus too much on the short-term bottom line, it will erode the X-factor that made the establishment special.
- Hiccups in execution – It could be as minor as less crust on what used to be their signature almond croissant (Jenna noticed it after a new pastry chef came on board; the long-time head quit when his paycheck bounced), as major as multiple health code violations (fruit flies in food preparation stations is what I’ve heard), and everything in between, such as failure to pay electricity bills on time.
- Poor inventory – Along with declining quality, I noticed that shelves were becoming emptier. No longer was Fox & Obel the go-to place for hard-to-find items, and even its staple trappings were sometimes missing, a cardinal sin for a grocery store. I am not a grocery industry expert by any stretch of the imagination, but even I could see tension between Fox & Obel and its suppliers.
- Erosion of the foundation – No disrespect to technology and process (many economists claim these are the only two factors that could push the famed EFPC – efficient frontier production curve – outward), but people make up every business’s foundation, regardless of the segment. Again, towards the end, I heard grumblings from Fox & Obel’s employees. Perhaps they trusted me since I was a regular, but nonetheless, I never heard any complaints over the first few years.
I could go on and on, but it won’t bring Fox & Obel back. Furthermore, I think these causes of their failure are a good lesson for just about any business. And in case you were wondering what Jenna and I bought at the final closing sale, we stocked up on Fox & Obel water glasses and Mexican Coca Cola, made with real sugar. Coincidentally, the sourcing of Mexican coke is a great personal procurement lesson – which involves having to pay significantly more for a far superior product (which also requires seeking out), albeit with the same corporate brand.
I’ll let you know which new Chicago bakery Jason and I pick to include in our operating agreement so that the entire Spend Matters and MetalMiner office remains well-fed and sugared-up (La Fournette is highest on our current list). And I promise to tackle more cheerful topics for the rest of 2014. Happy New Year, everyone.