The Retail Genius of Trader Joe’s

by Michele Reeves on November 2, 2010

Trader Joes Edamame

During my brokerage days, most of the neighborhoods in which I worked gave me this very clear message (with wide stakeholder agreement):


Okay, check. Then, I would ask them what they did want, and with a completely straight face, they would vehemently answer:


That wasn’t confusing! But, Trader Joe’s is a great example of a retailer with incredible caché, even amongst chain-haters.

These savvy retailers keep operating costs low by moving into existing buildings, when possible. They don’t spend a fortune on fancy buildouts and expensive merchandising. They hew to their brand relentlessly. They don’t expand willy nilly. I have always marveled at their ability to turn what is essentially a high-end convenience store into something palatable to educated foodies!

Given that, I wasn’t surprised to learn that the founder of Trader Joe’s came from a convenience store background, which I discovered in this engaging article about the grocer in Fortune magazine.

There are many interesting tidbits in this must-read about the privately held German company, like the fact that it is a privately held German company! I was particularly impressed with examples of how Trader Joe’s focuses on the customer:

A ringing bell instead of an intercom signals that more help is needed at the registers. Registers don’t have conveyor belts or scales, and perishables are sold by unit instead of weight, speeding up checkout. Crew members aren’t told the margins on products, so placement decisions are made based not on profits but on what’s best for the shopper. Every employee works all aspects of the store, and if you ask where the roasted chestnuts are he’ll walk you over instead of just saying “aisle five.” Want to know what they taste like? He can probably tell you, and he might even open the bag on the spot for you to try.

Fortune also dishes some dirt on who Trader Joe’s suppliers are, including busting the myth that products are all sourced from small, local, organic enterprises.

Some of that may be because Trader Joe’s business tactics are often very much at odds with its image as the funky shop around the corner that sources its wares from local farms and food artisans. Sometimes it does, but big, well-known companies also make many of Trader Joe’s products. Those Trader Joe’s pita chips? Made by Stacy’s, a division of PepsiCo’s (PEP, Fortune 500) Frito-Lay. On the East Coast much of its yogurt is supplied by Danone’s Stonyfield Farm. And finicky foodies probably don’t like to think about how Trader Joe’s scale enables the chain to sell a pound of organic lemons for $2.

In the vein of exploring supply chains, I would have liked to know more about their sourcing procedures, and the subsequent impact of those procedures on smaller vendors, because the store’s image is strongly tied to products that are purported to be artisanal. Do they sign contracts with firm commitments to orders, or do they ask small businesses to expand with only “intents to purchase?” Grocers such as Trader Joe’s carry a big stick, and I am curious to know if they wield that stick with local businesses, and if so, how often?

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