Wed, May 29, 2024

What can we learn from Trader Joe’s?

In the strategic management course that I teach in the MBA program at Augusta University’s Hull College of Business, I periodically assign my students take-home exams that are analyses of cases prepared by the Harvard Business School. In early November, I assigned my students two cases that examine the grocery store chain, Trader Joe’s.

Although there are no Trader Joe’s in the local area (the nearest is in Columbia, SC, while there are multiple locations in metro Atlanta), some of the students had been to a Trader Joe’s. While a majority of the students and I had never shopped at the store before our discussion, most of us were familiar with the brand through friends and/or family. In my case, my two daughters are big fans! When both of my daughters lived in metro Atlanta, they typically went to Trader Joe’s together about every other week, and now that my younger daughter has moved to Seattle, they both still shop at Trader Joe’s regularly, albeit separately.

Trader Joe’s is unlike any other grocery store. While most grocery stores are filled with branded items from major manufacturers like Coca-Cola, Frito Lay and Procter & Gamble, Trader Joe’s has very few, if any, branded items. They have no sales, coupons, or loyalty cards and eschew self-checkout. However, it is most different from the typical grocery store given its relatively small stores with limited selection. Given all of these differences from major grocers, how does Trader Joe’s succeed, and more importantly, what can we learn from Trader Joe’s to apply to other businesses?

From the case studies and additional research, we learned that there are at least four major reasons for Trader Joe’s success and while all businesses cannot fully co-opt all of these, most businesses should be able to adopt aspects of them. Take a look at each of these and determine if and how you might use them to achieve business success:

  1. Targeting Customers: Traditional grocers typically see almost everyone as their target market. Due to their small margins, most grocers attempt to attract as many customers as possible so that they can be more profitable through a higher volume of shoppers. Unlike these traditional grocers, Trader Joe’s has had a narrower target market from its very beginning. As the number of college graduates grew in the United States starting in the late 1960’s, Trader Joe’s targeted young urban professionals who were college-educated, but also cost-conscious. Those customers were looking for more healthy foods, were more sensitive to environmental issues, but also were looking for a different, more “exotic” food experience. This is what Trader Joe’s gave them – healthy, different foods that were “higher-end”, but offered at a reasonable price because of the next reason, which is…
  2. Cost Control: Usually, a differentiation strategy such as Trader Joe’s typically drives higher costs and therefore, higher prices. However, Trader Joe’s has defied this usual tradeoff by driving down costs in the following ways:
    • Smaller stores: By having smaller stores, Trader Joe’s has driven down its facility costs. Smaller facilities are more inexpensive to own/rent and maintain. In addition, such facilities force them to have a…
    • Reduced number of products: Rather than having too many types of the same kind of product, Trader Joe’s has one or two rather than the five to ten of most grocery stores. This allows the store to get better pricing by buying in bulk and direct from suppliers, reducing middlemen and logistics costs. In addition, these suppliers are producing…

  • Private label products: These products are branded with solely Trader Joe’s name. Some manufacturers/producers are producing only for Trader Joe’s, but even those making products for other brands have close relationships with Trader Joe’s, leading to more favorable terms and distinctive products. Another secret weapon of the grocery store chain is the occasional intentional scarcity of some of these items.
  • No traditional marketing: Trader Joe’s has avoided traditional media advertising such as print, television, and radio which is very expensive. Initially, it depended on word of mouth of its “customer fan base” and its “Fearless Flyer,” an “old-timey” paper newsletter. The advent of social media has allowed Trader Joe’s to create official sites on most major social media apps, but it is still its customers who do most of the heavy word of mouth via these apps.
  1. Local feeling: Despite Trader Joe’s being a national chain with its origins in Southern California, it allows each of its stores to provide the atmosphere of a local grocery store. While most Trader Joe’s location still has its South Pacific nautical motif, stores also use local signage and nomenclature to give the store its local vibe.
  2. Fun and friendly environment: As I have stressed in previous columns, how a company treats its employees usually translates into the experience of its customers. Trader Joe’s is a prime example of this. Employees are well paid relative to similar jobs in other grocery stores, are treated extremely well, and are encouraged to have fun on their jobs. This translates into a great experience for its customers and a low turnover rate (another cost savings) for its employees. If you shop at Trader Joe’s, you will immediately observe more interaction between employees and customers than you would see at a typical grocery store. While my wife was not thrilled to have shelves being stocked all over the store while she shopped, this is intentional to promote interaction between staff and customers.

 

When we returned to Atlanta following Thanksgiving in Seattle, my older daughter took my wife and I to one of the Trader Joe’s in the area. While this trip did not turn us into raving fans like our daughters, we were impressed by the distinctive products at very competitive prices. While there are some downsides to Trader Joe’s (e.g., you might be hard-pressed to get everything there that you typically get in a single trip to a traditional grocery store), I do wish we had one in the area.  More importantly, I learned much studying Trader Joe’s and how it conducts its business, and hopefully, those lessons will help you improve your business as well.

Subscribe to our eNewsletter for the BEST local business news delivered to your Inbox each week day.

* indicates required

Leave a comment

Your email address will not be published. Required fields are marked *

More Posts

Driving growth in 2024

Gathering insights into what customers are looking for in a product can help brands stay ahead of the competition and drive growth. Isn’t this what

Flying high from Master$ week

Staff at Augusta Regional Airport are tallying up the numbers following the 2024 Masters Tournament. Across the board, most are higher than for the 2023