Part I Chapter Cases
Case 1 Trader Joe's: Keeping a Cool Edge
The average Trader Joe's stocks only a small percentage of the products of local supermarkets in a space little larger than a corner store. How did this neighborhood market grow to earnings of $7.2 billion, garner superior ratings, and become a model of management? Take a walk down the aisles of Trader Joes and learn how sharp attention to the fundamentals of retail management made this chain more than the average Joe.
From Corner Store to Foodie Mecca
In more than 300 stores across the United States, hundreds of thousands of customers are treasure hunting. Driven by gourmet tastes but hungering for deals, they are led ...view middle of the document...
"3 But how does Trader Joe's compare with other stores with an edge, such as Whole Foods? Both obtain products locally and from all over the world. Each values employees and strives to offer the highest quality. However, there's no mistaking that Trader Joe's is cozy and intimate, whereas Whole Foods' spacious stores offer an abundance of choices. By limiting its stock and selling quality products at low prices, Trader Joe's sells twice as much per square foot than other supermarkets.4 Most retail mega-markets, such as Whole Foods, carry between 25,000 and 45,000 products; Trader Joe's stores carry only 1,500 to 2,000.5 But this scarcity benefits both Trader Joe's and its customers. According to Swarthmore professor Barry Schwartz, author of The Paradox of Choice: Why Less Is More, "Giving people too much choice can result in paralysis. . . . [R]esearch shows that the more options you offer, the less likely people are to choose any."6
David Rogers of DSR Marketing Systems expects other supermarkets to follow the Trader Joe's model toward a smaller store size. He cites several reasons, including excessive competitive floor space, development costs, and the aging population.7
Trader Joe's didn't always stand for brie and baguettes at peanut butter and jelly prices. In 1958, the company began life in Los Angeles as a chain of 7-Eleven-style corner stores called Pronto Markets. Striving to differentiate his stores from those of his competitors in order to survive in a crowded marketplace, founder "Trader" Joe Coulombe, vacationing in the Caribbean, reasoned that consumers are more likely to try new things while on vacation. In 1967 the first Trader Joe's store opened in Pasadena. Mr. Coulombe had transformed his stores into oases of value by replacing humdrum sundries with exotic, one-of-a-kind foods priced persuasively below those of any reasonable competitor.8 In 1979, he sold his chain to the Albrecht family, German billionaires and owners of an estimated 7,500 Aldi markets in the United States and Europe.9
The Albrechts shared Coulombe's relentless pursuit of value, a trait inseparable from Trader Joe's success. Recent annual sales are estimated at $7.2 billion, landing Trader Joe's in the top third of Supermarket News's Top 75 Retailers.10 Because it's not easy competing with such giants as Whole Foods and Dean & DeLuca, the company applies its pursuit of value to every facet of management. By keeping stores comparatively small-they average about 10,000 square feet-and shying away from prime locations, Trader Joe's keeps real estate costs down.11 The chain prides itself on its thriftiness and cost-saving measures, proclaiming, "Every penny we save is a penny you save" and "Our CEO doesn't even have a secretary."12,13
Trader Giotto, Trader José, Trader Ming, and Trader Darwin
Trader Joe's strongest weapon in the fight to keep costs low may also be its greatest appeal to customers: its stock. The company follows a deliciously simple...