
Trader Joe's Is Not Your Average Business (2002) - daveambrose
<i>One day a few years ago, a guy at a Boston financial firm called up Trader Joe's headquarters and said he'd like to tour a store with a group of visiting Japanese investors. The brass at Trader Joe's was blunt: "You can't come." Not "We'd rather you didn't," or "Please don't." The visit was officially forbidden.<p>This led to a predictable go-round about it being a free country and all, and Trader Joe's finally said okay, okay, you can come, but you don't get a tour. And as the investment company guy tells it, the tension in the air during the visit was thick enough to cut with a machete.<p>Well, you probably can't blame the folk at Trader Joe's. They've got a phenomenal thing going, and don't want to give it all away. Some observers think that sales per square foot at Trader Joe's are hovering at about $1,000 -- twice the level of typical supermarkets. And with between about 70% to 85% of its products being private label (depending on who you ask), Trader Joe's has reached a benchmark others don't even dream about on good nights.<p>Fast Turns<p>Last year the Pasadena, Calif .-based chain's stores -- believed to be approaching 200 units primarily on the East and West coasts -- turned in about $1 billion in sales, with profits said to be just shy of spectacular. Stores have no service departments and small footprints -- usually about 9,500 square feet "to keep the shopping experience intimate," some say. The total SKU count, designed for fast-turn of high-margin items, is generally estimated at 2,500 to 3,000. (Trader Joe's has in the past admitted to having "more than 800" private label products, but how many "more" is an open question.)<p>By now, you may have noticed some vagueness on the numbers. Sorry, can't help you. It's because trading partners, consultants, competitors, analysts and about 13,000 Web sites all offer different numbers and viewpoints about this extremely private -- and much loved -- company.<p>Actually, in some ways, Trader Joe's is an open book. Go to their Web site, (www.traderjoes.com) and if you drill down far enough, you're likely to find most anything. But some details are still kept pretty lowkey. A Trader Joe's flier says simply that the firm was sold in 1979 by its founder, Joe Coulombe, to a private, family-run company. True, but it still surprises people who didn't already know that the buyers were German billionaires Karl and Theo Albrecht, owners of the ALDI food chain. (We hear ALDI has the good sense to leave Trader Joe's alone.)<p>Anybody will tell you the folk at Trader Joe's are real regular. The brass, despite their dust-up with our financier pals from Boston, are the sort you'd be proud to count as friends. And in the stores? Cashiers will leave their registers to help you find Trader Joe's Organic Moral Fiber Cereal or Trader Jose's salsa. Clerks in Hawaiian shirts may actually be singing as they stock the shelves (honest!), and will readily offer their personal thoughts on Trader Giotto's Artichoke Antipasto or even the chain's official stance on the sale of duck meat. (And if that isn't good enough, they'll direct you to the flier, signed by Chairman/CEO Dan Bane, that explains how the chain is requiring duck farmers to certify that they are cruelty-free growers.)<p>A Misguided Quest<p>Clearly, Trader Joe's is not your average Joe. (Stole that line from www.thestandard.com, thank you!). Now, for those of you who may think we've finally lost our marbles, please understand that we're on a perhaps misguided quest to copy the writing style of Trader Joe's Fearless Flyer. Sort of. Nobody can exactly copy anything Trader Joe's does, which explains its success but not its anxiety about privacy.<p>The Fearless Flyer (Manufacturers don't pay to have products in it! But the product had better sell! Or else!) is Trader Joe's primary communication vehicle with its customers. No TV, no high-low, BOGO and off you go. Just sheer communication and fun, in-store and mailed locally to "Resident."<p>Bill Bishop, president of Willard Bishop Consulting, Barrington, Ill., says if you want to understand Trader Joe's, you have to sit down with the Fearless Flyer for an hour or so, and as usual he's right. "Let it sort of flow over you," he says (he must have been in California recently) "and you'll get it. It's pretty cool, like the President's Choice newsletter without the chutzpah pushiness. Anybody who is serious about understanding Trader Joe's should go to school on it. It will also help them understand that it won't be easy to respond competitively."<p>Curious? Here's a sampling from the 24-page-long May issue of Fearless Flyer: "The Good Ship Trader Joe's... Our mission is to offer the best food and beverage values you can find and the information you need to make informed buying decisions... Someone's in the Galley with Trader Joe... Our tasting panel samples every product before we buy it. We evaluate each product on the basis of cost, flavor and relevancy to our customers. If we don't like it, we don't buy it. Does it represent value? If we can't sell it for a great everyday low price, we're simply not interested! Does it meet our customer's desire for great taste or interesting food trends? Reel it in!"<p>"Seaworthy Buying Wisdom... We always try to buy direct from manufacturers (not middlemen!) We buy in large volume, bargain hard and manage our costs carefully (no trips to Tahiti for Fearless Flyer writers, for instance.) We always pay our suppliers in full and on time so they like doing business with us. These strong relationships enable us to secure terrific deals on high quality goods."<p>There's more, of course, about the product guarantee (refund or exchange) and all, along with lots of information about products in an equally chatty style. You'll learn about ginger almond scented oatmeal exfoliant soap, farm-raised American buffalo ($4.79 per pound) and other stuff. Ubiquitous fliers in the stores explain everything from the chain's policy to prohibit artificial flavors, colors or preservatives in its private label products, to how to buy and use olive oil.<p>"Trader Joe's has fun with its private label and doesn't take itself too seriously," says Michael Langenborg, chief strategist, Whole Health Marketing Group, Santa Rosa, Calif. "All their vitamins are Trader Darwin, with the tagline 'for the Survival of the Fittest.' The Hispanic line is Trader Jose's, and the Italian line is Trader Giotto. God forbid that Safeway or Albertson's would do that. But Trader Joe's does, and they know how to make a fun experience.<p>Trader Joe's glib, tongue-in-cheek style isn't gimmickry -- it reflects a genuine, fun personality to which customers can relate, according to Gretchen Gogesch, principal, Integrale Consulting, Chicago. She says Trader Joe's has integrated various facets of its corporate culture into one cohesive voice, and virtually lives its brand.<p>"This explains why other companies can't copy them," she says. "A lot of companies have well-crafted vision statements on their walls, but few can execute against that vision, much less have the kind of relationship with customers that makes Trader Joe's successful."<p>As Gogesch sees it, most retailers pay lip service to having a real relationship with their customers, but Trader Joe's lives and dies by it. This personal style extends to the chain's buyers, she says. Last summer, Gogesch wrote an article for PL Buyer's sister publication, Confectioner magazine, based on an interview she did (how'd that happen?) with Marie Forsyth, product manager for snacks and candy at Trader Joe's.<p>Tinkering Together<p>"She (Forsyth) emphasized the importance of being able to work with the supplier hand-in-hand in sort of on an artisan basis, working with small batches and tinkering together to find right product," Gogesch says. This illustrates a point, she notes: Trader Joe's buyers uses their personal relationships with customers to find out what they want, and then roll up their sleeves with suppliers to get the product right. To help this process along, Trader Joe's managers are required to read customer correspondence and get out in the stores and talk with people.<p>"A lot of organizations don't do that," she says. "They look at their own needs first, and then try to sell whatever they can make to the customer. It takes guts to truly take the approach of Trader Joe's. You have to resist market forces to dumb down your products or make them appeal to the masses. But a desk is a very dangerous place from which to view the world," says Gogesch.<p>Observers agree that Trader Joe's gives new meaning to the term "destination retailer," with many shoppers driving an hour or more to get to their nearest store. And there are many different opinions about what is behind the universally recognized "mystique" of Trader Joe's.<p>"Part of the big mystique is that they deliberately come off like a small, unsophisticated grocery operation or specialty shop," says Stephan Kouzomis, founder and CEO, Entrepreneurial Consulting Inc./MMSG, Louisville, Ky. "There's eye-to-eye contact and service, and shoppers always know there is going to be something new there -- whether private label or branded."<p>Bishop says Trader Joe's truly focuses on the quality of its private label products, and makes a special effort to have items that are unique. "I know it comes as no surprise, but Trader Joe's really does offer something different. And they also are able to authentically get people to feel the store cares about them. Perhaps it's because they are totally -- no kidding -- totally focused on the customer. And they're streamlined, so it all works."<p>You'd get agreement there from Frank Dell, president, Dellmart &#38; Company, Stamford, Conn. Dell believes Trader Joe's has gone to school on European private label, perhaps by studying Sainsbury's old model of finding which product the consumer wants, and then finding a manufacturer to make it. By doing this, plus making sure the products are unique, the chain finds real differentiation, he believes. "Having genuinely unique products means they're not so much in a directly competitive price baffle," he says. "It's never apples to apples, it's always apples to apples with a twist. It's a truly brilliant way to run a private label program. And like so few retailers today, they make their money on the sell, not the buy."<p>'An Adventure'<p>Ben Ball, VP, Dechert-Hampe &#38; Co., Northbrook, Ill., says the chain "is the food equivalent of a Williams Sonoma or Bath &#38; Body Works. They make shopping an adventure. Central to this is that they understand branding in every sense of the word. Not just the standard corporate badging and consumer communication stuff. I'm talking about a fully-integrated brand persona, right down to having the name of the store include the personal description of the owner (Trader Joe) himself. Add to that the cedar store accents, the nets, the multicolor chalkboards, the label styles and, perhaps most important, the products themselves. Everything fits the theme!" Ball says.<p>But Trader Joe's does not fit into any of the usual definitions of retailer types, according to Steve French, senior VP/Managing Partner, The Natural Marketing Institute, Harleysville, Pa. Above all else, he says, Trader Joe's offers an entertaining shopping experience rather than shopping drudgery. The merchandise mix includes enough unique private label items interspersed with truckloads of branded in-and-outs to keep the shopper content to treasure hunt and make impulse buys, he says. This is quite different from stores where shoppers are more likely to arrive with a shopping list.<p>John J. Ruf, a principal at The New England Consulting Group, Westport, Conn., notes that "Trader Joe's program is unique because it started out as a private label retailer rather than as a supermarket for other brands. This is not a subtle difference in that consumers fully understand that the Trader Joe's label means great products at a good value. Supermarkets, on the other hand, use private label programs simply to provide the consumer a somewhat discounted price versus a name brand of the same product.<p>"Second, although Trader Joe's does have some similar products to branded items in supermarkets, many of their products are unique in terms of recipes as well as packaging and sizing.<p>"Third, it appears that many of Trader Joe's items are perceived as somewhat gourmet, yet at a reasonable price, thus further differentiating themselves from everyday supermarket branded and private label items," Ruf says.<p>"The ALDI ownership always struck me as strange," says Al McClain, publisher/founder of RetailWire.com, Stamford, Conn. "ALDI is about as low-end as you can get and a truly bare bones shopping experience, and Trader Joe's is on the other end of the scale. Yet Trader Joe's prices are excellent -- and they have great customer service. There's always something new there -- frequently they're sampling two or three items."<p>"Trader Joe's is a specialty retailer who happens to be in the food business," says Bruce Poole, principal, Strategic Business Solutions, Richland, Mich. He says the chain's private label performs double duty. "It reinforces the exclusiveness of the shopping experience for the consumer and also forms the bedrock of competitive defensibility. A competitor can open a similar store across the street, selling the same categories of merchandise, but he can't offer the Trader Joe's brand."<p>Trader Joe's item selection is very well thought out, with heavy input from shoppers, notes Langenborg. Store managers, he notes, have autonomy to choose -- and de-list -- products for their own marketing areas, and there are no forced planograms.<p>He adds that the chain also tests branded products to see how well they sell in the stores, and then approaches the manufacturer to make a private label version. The manufacturer's awkward choice is to do it, or let his competitor have the business. (Not to give them a free plug, but several observers say Trader Joe's has a penchant for knocking off or tweaking items from Nature's Path Foods, Delta, British Columbia.)<p>Trader Joe's price points are very competitive, especially when compared to similar items in natural food stores, Langenborg says, noting that "An almond nut butter they sell for $3.49 might be $6.29 at a large natural foods retailer. Trader Joe's is all about volume. They keep item selections very narrow, and they pick the best sellers from people's lines. They don't charge slotting fees or have a bunch of programs that erode margins, and they pay extremely quickly. Financial folk in manufacturer circles love them."<p>No Slotting<p>The chain doesn't put up a lot of barriers to entry, adds Langenborg. "No slots or TV ads -- you just have to pass the taste committee and then get in and perform. If they like your product, they'll put it in the Fearless Flyer, and give you a good shelf position."<p>So far, Trader Joe's essentially leaves wine brands alone, with little if any private label. But it has very heavy private label penetration in refrigerated and especially frozen foods. Local bakers are generally sought out to put the Trader Joe's label on breads in different markets, observers say. In choosing where to heavy-up on a national brand, categories are weighed on a cost accounting basis in an effort to reduce the burden against private label items when possible. This may (or may not!) explain why you won't find much in the way of private label cereals or energy bar-type items at the chain.<p>One of the keys to Trader Joe's success is the staff in the stores, who are known invariably for their courtesy, product knowledge and a sense of fun. Gogesch praises the chain for how it recruits and develops its workers, or "crew members" as Trader Joe's calls them.<p>"Employees are drawn to the chain by its set of values," she says. "And don't underestimate how savvy Trader Joe's has been in how they structure what they offer to employees. They have an excellent menu of offerings and benefits, and they promote from within -- you truly have an opportunity to build a career with them."<p>"They incentivize the heck out of their store managers," says Langenborg, noting that six-figure incomes are not unusual. He adds that in-store shrinkage is low because employees feel like part of a team and are less likely to steal.<p>"The people in the stores really know the products, and they've usually tried them," says Kevin Coupe, content guy, www.MorningNewsBeat.com, Darien, Conn. "Occasionally, they'll see something new in my basket and they'll say, 'Hey, I haven't tried that. How is it?' That's remarkable in the food business, which is a shame."<p>Coupe suspects the store clerks are paid better than at other food chains, but also points out that without service departments the stores' manpower needs are not as great as traditional supermarkets. He adds that Trader Joe's training is thorough, and that when new stores open in the East, they often bring in managers from the West coast to do the start-up. The manager of the Darien, Conn., store, near Coupe's house, recently moved back to his home base in California.<p>French notes that the shopping experience is greatly enhanced by the employees, who make shoppers feel comfortable and more willing to try new items.<p>And just who is the target shopper for Trader Joe's? New England Consulting Group's Ruf says "Their portolio of items and their themes suggest they are appealing to an interesting group of niches rather than one consumer segment. These include the health food segment, tree hugger (environmentally concerned) segment, the discount shopper and the weekend gourmet chef segment. Taken together, these represent a fairly sizeable group of consumers, some of which may fit into more than one of the segments."<p>Ruf continues that Trader Joe's shoppers may shop supermarkets for basics and weekly purchases, but also prefer to shop every day or two for their evening meal. These shoppers may be buying for a small family -- or just themselves -- which means that Trader Joe's could also be appealing to the singles segment, whether they are 18-25 or 65-85, he says.<p>On a recent visit to a Trader Joe's near him, Art Williams, a former Dean Foods executive who is now a consultant in Napervile, Ill., saw evidence that might confirm these thoughts. On a visit to a store in his area, he noticed that most shoppers seem to prefer hand baskets over shopping carts, and were purchasing only a few items.<p>"The store reminded us most of Whole Foods, which caters to health-minded consumers," he says. He saw emphasis on healthy, organic, high-fiber, low-fat, soy, Kosher and environmentally friendly items.<p>"Oddly, the most notable categories that did not have Trade Joe's private label representation were milk and ice cream, the two categories that are among the highest in private label penetration in most stores."<p>This factor varies from market to market. A California observer says there is plenty of private label milk in his Trader Joe's stores, but also no private label ice cream. Williams, like the rest of us, can only guess why some markets lack private label in certain usually key categories. He thinks it might be because the stores don't have sufficient volume in some instances. His favorite finds in his store: frozen salmon and tuna steaks that were round to fit perfectly on a hamburger bun.<p>Another part of the Trader Joe's mystique is its lack of scanning (although some packaging has UPCs) and use of high-tech. Ruf says checkout counters are set up to take up a minimum amount of space -- which also allows clerks to be closer to the consumer. Other observers say Trader Joe's doesn't see scanning as worth the investment, considering its low SKU count and its practice of managing product based on purchasing history. And they agree that if a product does not move, it is off the shelf very quickly.<p>Few Stockhouse<p>"Trader Joe's has almost no out-of-stocks," says Langenborg. "They manage better than almost anybody I've seen, and that helps make them so profitable. They know how much to buy, and when, and they aren't always out looking for the deals. They get a price they want for everyday, and buy in large quantities."<p>"They're very good at getting a price image across," says one observer. "they might go to Switzerland and find some exotic and unique chocolate and buy a lot of it, and then go on the radio romancing the story. You know, 'We just went to Switzerland and got this great deal on stuff that is usually $5, and we're going to sell it for a buck eighty-nine.' It's done intelligently and credibly, and it gets people excited and into the store. There's intelligence and wit, sort of like the J. Peters catalogs. These people are really intelligent merchants. The closest anybody comes to it in a regular supermarket is Ukrops, down in Virginia."<p>Does anybody have a discouraging word to say about Trader Joe's? A few observers say the chain's produce department is weak, but noted that it's getting better. They've noticed more bagged salads, for instance.<p>And some people believe the chain may be suffering some growing pains. Mona Doyle, president of The Consumer Network, Philadelphia, notes that recent complaints have come from consumers about checkout lines and confusion resulting from store resets. "Until the last few months, we have heard nothing but praise for this innovative retailer who has created a private label that many consumers perceive to be superior in flavor and quality to most national brands," she says. "In the last few months, we have begun to hear a trickle of complaints and let downs that suggest growing pains. Trader Joe's has built a reputation that leads consumers to expect a lot from them. As they grow, whether or not they can continue to meet those expectations remains to be seen," she says.<p>Pace Picks Up<p>Trader Joe's is its usual taciturn self when it comes to announcing any growth plans. Its pace has picked up of late, spurring the usual questions about whether it can expand much further or will remain merely a spectacular niche player.<p>Observers believe Trader Joe's has all it needs to continue growing, so long as the company keeps its "crew" culture and doesn't overextend itself financially -- although its financial strength seems rock-solid. They see it keeping the same size stores (for a sense of intimacy with the shopper) and moving into specific geographies that meet its highly-educated but not necessarily high-income profile.<p>But there are no guarantees the road ahead will be smooth. Kouzomis thinks one of Trader Joe's problems going forward will be finding good locations without having to pay so much that it affects how they go to market. He believes it would be a good move for a supermarket to go after Trader Joe's as a strategic acquisition, if ALDI would ever sell. "It'd also be an interesting twist if someone tried to copy it on the C-store side," he says.<p>Says Poole, "While off to an incredible start, the next challenge that awaits Trader Joe's is its ability to sustain what it's started. Many specialty retailers get off to a fast start but then stumble when their uniqueness becomes cliched. Look at the Gap. The challenge of constantly reinventing yourself while staying relevant to your core market is the ultimate test of Trader Joe's. Still, it's great to see a food retail experience that's more than category management and the lowest price."</i>
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ryanwaggoner
Interesting article, but is there some reason this is posted in its entirety
here instead of linked to?

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fallentimes
Fixed!

<http://tinypaste.com/pre.php?id=fef80>

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daveambrose
Didn't know a service like this existed. Perfect solution!

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aditya
Interesting to see along with all the other organizations with a strong
customer oriented culture, a few that come to mind include: Whole Foods,
Starbucks and The Container Store

Although, it is hard to aim for a sustainable culture in a startup that you're
going to flip in a few years, perhaps it applies better to the so-called
lifestyle businesses more. Nice read nonetheless!

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browser411
Anyone else bothered by their private labeling practices?

"...the chain also tests branded products to see how well they sell in the
stores, and then approaches the manufacturer to make a private label version.
The manufacturer's awkward choice is to do it, or let his competitor have the
business. (Not to give them a free plug, but several observers say Trader
Joe's has a penchant for knocking off or tweaking items...

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arockwell
I'm pretty sure most grocery stores do this in one form or another. Any stored
branded product is not made by the store.

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jadence
I know that Whole Foods does this though in a more evil way. If some small
local gourmet place's stuff sells well within Whole Foods then Whole Foods
will clone the product (don't know if the make it themselves or outsource it
elsewhere) and then cut the small local place out.

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cbetz
Joe's is the Wal-mart of grocery stores. Mark my words: There will be one
every decent-sized town in two decades.

I just wish I could buy stock.

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iigs
Interesting article. Where did you find it?

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daveambrose
[http://www.allbusiness.com/marketing-advertising/channel-
mar...](http://www.allbusiness.com/marketing-advertising/channel-
marketing/219840-1.html)

Hurt my eyes last night as I clicked through subsequent pages, so I figured it
would be easier to paste here on one page.

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hugh
A nice thought, but it also hurts my eyes to read stuff in tiny mid-grey-on-
slightly-lighter-grey italics.

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speek
How's that for vertical integration?

