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Trader Joe's Adventure - Part III

GO YOUR OWN WAY

Since being launched by Joe Coulombe nearly four decades ago, Trader Joe's has pretty much defied standard definitions of what a retailer should be and how it should act. By making up its own rules, the company has clearly differentiated itself from the rest of the retail pack. It is nowhere near being a supermarket based on accepted definitions of size and selection. And what's on the shelves of this highly successful niche retailer can hardly be referred to as mere commodities in any sense of the word--unless raspberry salsa, salmon patties, and natural blueberry waffles are your idea of commodities.

Differentiation within the supermarket industry is something everyone talks about, yet few have achieved it. Doing something differently than the competition is the key to prospering in any business, because it creates a unique identity that attracts consumers and keeps them coming back. It's particularly important in the food business, where all stores look alike and carry pretty much the same items. As a result, customer loyalty is virtually obsolete, and patrons instead look around primarily for the best price.

How can retailers differentiate themselves in such a crowded arena? By creating a reason for shoppers to come to the store! Target has done it with glitzy ads and the "cheap chic" of designer apparel and home fashions. Wal-Mart accomplished it with stores that carry everything--including the kitchen sink--and offer the perception of having the lowest prices around. Krispy Kreme did it with a unique product that became a cult classic but then made the mistake of offering it in every supermarket, convenience store, and railroad station. Kmart didn't do anything unique and slipped into bankruptcy. Despite a recent financial resurgence, the chain is still doing little to create its own footprint in the marketplace. By examining the Trader Joe's business model, we can identify a number of strategies that can be highly effective when it comes to standing out in the retail industry.

• Offer reasonable prices on a line of distinctive products that can't be purchased anywhere else, thereby creating a bond with customers.
• Have more products that are ready-to-make rather than ready-to-eat to attract those who want to be involved with their food.
• Take a hard look at existing products and don't be afraid to drop those that customers don't need. (They don't need 20 varieties of the same toothpaste or 10 sizes of the same laundry detergent.)
• Hire, train, and retain people who enjoy interacting with customers and are capable of suggestive selling.
• Develop relationships with suppliers based on the research and development of new products not on promotional allowances.
• Know your customers. Find out about their lifestyles and how you fit in--not the other way around. Ask them what they like and don't like and how you can make things better.
• Build stores of a manageable size with a specialty focus.
• Pursue innovation. Don't just copy what the competition is doing.

How does Trader Joe';s define itself? A former vice president of operations for the chain put it this way: "It's a mix of supermarket, grocery store, and international gourmet shop with wholesale club pricing." Industry analysts and various other retail experts generally classify Trader Joe's as a specialty retailer or niche marketer. But which niche? Basically, the chain's simple but brilliant marketing strategy is to take a little from each concept and offer great products at fantastic prices. There really are no complex marketing strategies--just good solid execution based on giving consumers something different.

Trader Joe's is simply different from the rest of the food retailing herd, and it stands out in an industry that has long survived on conformity in everything from store design to product selection. By contrast, Trader Joe's is a convenience store with an attitude that matches its outspoken, unique customer base--a group that runs from hippie to yuppie. Over the years, it has made gourmet foods available to a large but not necessarily upscale audience and single-handedly sent the California wine industry into a tailspin.

The stores may be a bit bigger than in the beginning, but they still remain small by most standards, with the average location running 6,000 to 12,000 square feet. That's one-sixth the size of the average supermarket. Overall selection is narrow, and 80 to 85 percent of the store's 2,000 items consist of Trader Joe's various private labels. (The typical supermarket, by comparison, carries about 25,000 items.) The stores are often erected in vacant spots within old strip centers where the rent's cheap and the amenities are few, making them seem better suited to dollar or closeout stores than a purveyor of gourmet foods.

By being different, Trader Joe's has built itself into a business with estimated annual sales of $2.6 billion, or $1,300 per square foot, which is about twice the supermarket industry average.

The past decade has been an active one for Trader Joe's, with a tenfold growth in profits and a fivefold increase in the number of stores. This growth was a big change from prior decades, when store growth was slower and the chain avoided the over-expansion that has plagued the rest of the supermarket industry. This is perhaps one reason Trader Joe's has been able to fly under the retail radar, more or less coexisting peacefully with larger, mainstream supermarket chains.

On another front, a virtually unseen threat to the supermar- ket industry is the slow and steady expansion of Trader Joe's parent company, Aldi, which intends to open as many as 40 stores annually in the United States over the next seven to ten years. This move could help to finance a more aggressive expansion plan by its gem of a subsidiary, Trader Joe's. And one thing's for sure: Aldi has shown it is definitely a force to be reckoned with.

Trader Joe's Adventure - Part II

CHAPTER 1- Dare to Be Different

If you tuned into Los Angeles classical music station KFAC during the mid-1970s, you likely would have heard an unusual commercial that began something like this: "This is Joe Coulombe with today's words on food and wine." Coulombe wasn't your everyday news commentator. He was promoting the latest food finds for the fledgling grocery chain he'd founded several years earlier, which had come to be known as Trader Joe's.

Granted, it's not exactly your typical screaming radio advertisement. After all, other stores were busily hawking the week's lowest prices for toilet paper, laundry detergent, and ground chuck--not just on the radio but also on television and in weekly circulars. But Coulombe took a far different strategy from the rest of the pack. His ads were more like lectures, taking on such heady questions as "What is Bordeaux?" and "How does this year's vintage compare with last year's?" Unusual for sure. Then again, we're not talking about your average Joe. Coulombe, and the grocery chain he founded, have never done anything even remotely typical.

THINK OUTSIDE THE BOX

The stage was set for what would ultimately become known as Trader Joe's. Back in the late 1950s, Southern California was enjoying a postwar boom and an unprecedented growth in population as people came to the Golden State in search of the California dream. They were also attracted to the allure of a laidback lifestyle in the warm California sunshine. It was about this time that Joe Coulombe, a 1954 graduate of Stanford University's business school, presented an unusual business plan to some of his former professors. He proposed to build gourmet food stores full of items purchased in bulk and then repackaged and sold at moderate prices to well-educated, but not necessarily wealthy, customers. His professors reportedly didn't buy into the idea, which isn't that surprising, considering that true gourmet stores were few and far between in those days. Those stores that did well focused exclusively on high-income shoppers. In addition, at this time national brands were kings. Consumers, whose tastes in food had yet to break out of the ordinary, were more interested in Philadelphia brand cream cheese than trying a French Neufchatel at any price.

However, like any good entrepreneur, Coulombe was undeterred. He went forward with his plans and purchased the Pronto convenience stores in 1958. Pronto consisted of an unremarkable group of three small outlets in and around the burgeoning Pasadena area. As the influx of immigrants from eastern states continued unabated, food retailing in Southern California was a solid, highly profitable business, without the razor-thin profit margins and labor strife that exist today. The large chains competed with both each other and smaller independent grocers. Pronto focused on specialty items and closeouts. It had little competition and did extremely well servicing a niche that no one else had gone after. But during the socially turbulent 1960s, Pronto faced a threat that could have put Coulombe's fledgling business on the skids. A new outfit called 7-Eleven, which had begun in Texas 30 years earlier, was aggressively moving westward, along with the population. In 1963, 7-Eleven purchased the Speedee Mart chain in California, entered the franchise business, and really began to take off.

Legend has it that Coulombe was vacationing on a beach somewhere in the Caribbean, trying to figure out what to do about this new competition, when he decided to adopt a tropical theme and focus on building no-frills stores with deeply discounted gourmet products. He also took inspiration from the novel Trader Horn, which chronicled the travels of a trader and adventurer in Equatorial Africa during the 19th century. It was just the kind of thing that intrigued Coulombe, who had a love of travel and discovery. He finally changed the store’s name from Pronto Markets to Trader Joe's in 1967.

While the beach thing may be more urban folklore than fact, Coulombe was unquestionably an astute businessman and a student of human nature. He knew people were most comfortable trying out new experiences and cuisines while on vacation. His idea was to create a fun environment where people with champagne tastes and beer budgets could feel like they were on holiday. He began to double the floor space of his stores and decked them out with cedar plank walls and nautical decor. Meanwhile, employees added to the ambiance by wearing colorful, Hawaiian-style shirts.

Coulombe took the idea of exotic retailing one step further, when he began buying closeouts and overstocks from gourmet food manufacturers. He also purchased bargain wines from overstocked distributors or importers--even from winemakers who were up against the financial wall. This was a risky move in the 1960s and 1970s, as many of the items he stocked were unfamiliar to most consumers. But shoppers responded well to this retail upstart. Trader Joe's offered hard-to-find goods they couldn't get at the local supermarket. Although few closeouts are on the shelves at Trader Joe's these days, this early strategy boosted the chain's reputation for uniqueness and for turning a mundane shopping trip into a treasure hunt. Furthermore, Coulombe's shrewd vision enabled him to eliminate national brands. This meant he wouldn't have to rely on lowball pricing to compete with other stores.

Trader Joe's Adventure - Part I

The Trader Joe's Adventure: Turning A Unique Approach To Business Into A Retail And Cultural Phenomenon
by Len Lewis
Dearborn Trade – September 2005
356 Pages – 1419500139

Trader Joe's is the niche grocery store phenomenon spread throughout the U.S. In this book, Len Lewis tells the adventure stories of Trader Joe's. Check out these excerpts for an inside look into the adventures that made Trader Joe's the store it is today.