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Humble Beginnings

Trader Joe’s is a US-based retail chain that was started in 1967 by Joseph Hardin Coulombe. Trader Joe’s was founded in an era when the retail industry in the California area was regulated, which prevented bigger retail chains from pricing out the smaller players in the market. This allowed Trader Joe’s to grow steadily and organically until 1976 when a law was passed deregulating the retail sector. 

Realizing that by being a small chain, it would be impossible for Trader Joe’s to compete with the bigger competitors, owners sold Trader Joe’s to Theo Albrecht (the owner of the German supermarket chain Aldi Nord). He bought the chain as a personal investment. The Aldi family continues to own the chain to this date. 

The chain has grown immensely from its modest beginning as a single store based out of California into 530 stores all across the United States by January 2021. So how does a retail firm that has no online presence, no discounted sales, no loyalty rewards, no membership program, and minimal advertising not only survive but thrives in an industry dominated by giants? 

The answer lies in the unique business model of Trader Joe’s that is defined by its three critical pillars, as shown below:

trader joe's business model

Trader Joe’s Unique Marketing Strategy in its Business Model

Using the store as a marketing tool

Trader Joe’s business model follows a highly decentralized approach to decorating the store. The primary aim in designing the store is to help the customers feel that they have walked into a neighborhood grocery store hence creating an affinity and intimacy towards the store and its products. 

Trader Joe’s empowers its store managers to use local influences, including but not limited to local art while decorating the store and designing its layout. The store signs written on wooden displays are witty and are often accompanied by cartoon character mascots and creative graphics. It creates a fun and friendly shopping environment that makes customers feel warm and welcoming.

Carefully curated product portfolio to address the changing needs of the customer.

Customers are evolving in what they need and what they expect from brands. The current generation of customers is well informed and is concerned about the ingredients in products and how the ingredients were grown, sourced, and the environmental impact of it all. 

The globalization aspect also makes this generation of customers much more welcoming and open to different cuisines and products around the globe. This changing customer preference is a trend utilized very effectively by Trader Joe’s through its carefully curated product portfolio.

Employees are sent on field trips to different parts of the world tasked with finding unique products based on the local cuisine, which are then sold under its private label. Trader Joe’s also ensures that its private-labeled products do not contain unhealthy ingredients such as MSG, trans fats, or artificial colors and flavors. 

The “Frozen Naan Bread” imported from India, “Frozen pizza” from Italy, “Mandarin Orange Chicken” from China are some of the few examples of the unique product offerings. This product mix acts as a powerful marketing tool as customers usually do not find these products in any other stores, creating an inherent loyalty towards the chain.

Packaging as a marketing tool

Packaging and naming are critical aspects of the product mix. Trader Joe’s generally uses a long explicit naming convention for its products in a deviation from industry norms. The packaging usually has a picture of the product, the product label, a description of the product, and even instructions on how to use it.

The image below shows a few of the unique products and their packaging.

Creation of a cult brand

Trader Joe’s is home to a unique product mix, and, probably, a majority of the products available at Trader Joe’s are not available at any other store. On top of this, Trader Joe’s provides one of the best and most fun shopping experiences resulting in customers being delighted with both their in-store and product consumption experience. 

As a result, Trader Joe’s develops a cult following amongst its customer base, who then act as brand ambassadors, which removes the need for any significant spending on marketing activities. Trader Joe’s occupied the top place in the retailer preference index study conducted by dunnhumby in 2018, further confirming its cult status.

There are several fan pages and accounts on all the major social media platforms. The Trader Joe’s fan page on Facebook started in 2008, is currently liked and followed by around 520,000 users. Another such fan page is traderjoesobsessed page on Instagram that has approximately 540,000 followers.

Using Social Media As The Primary Channel Of Communication

Trader Joe’s shuns the traditional advertising mediums and hence saves a lot on marketing investment/expenditure. Instead, Trader Joe’s focuses on social media and uses that to drive customer engagement.

The official Trader Joe’s Instagram page has around 2.6 million followers. The brand regularly engages with its followers through a series of activities that include podcasts and other posts.

Operational Efficiency in Trader Joe’s business model

Industry-leading Sales Per Square Foot (SPSF) 

With a revenue of $13.2 Billion in 2021, Trader Joe’s is not even at a 1/10 of the size of industry giants such as Walmart and Costco. However, an often overlooked aspect is that the Sales Per Square Foot (SPSF) is a crucial KPI for the retail industry since it is directly linked to its efficiency and inventory turnover. 

SPSF is a metric in which Trader Joe’s shines in comparison to its competitors. In 2008, BusinessWeek reported that Trader Joe’s had the highest SPSF amongst grocers in the United States. Fortune Magazine further validated this in 2016 by pegging the SPSF of Trader Joe’s to be at $1750. By contrast, sales per square foot for Walmart (WMT) stores is approximately $400 per square foot, while Target (TGT) is around $300 per square foot.

Streamlined Supply Chain 

In an industry that on average stocks around 30,000 SKU’s, Trader Joe’s bucks the trend by stocking less than a quarter of that at around 4000. The smaller SKU allocation also ensures that only the fastest moving products are stocked in its stores. In addition, this also streamlines the supply chain hence providing benefits even before the products reach the stores.

Trader Joe’s procures products directly from the suppliers and distributes them through its network. Trader Joe’s also places its orders in bulk and much ahead of the required delivery time. This streamlined system allows Trader Joe’s to offer its same quality products at a considerably lower price. 

Let me share an example, Annie’s pasta shells sell at $1.49 in Trader Joe’s while the same product sells at $3.29 in the grocery chain Whole Foods.

Strategically Designed Shopping Experience

Quality over Quantity

Trader Joe’s follows a policy of less is better when it comes to its product offerings. This results in the selection being curated very carefully, allowing only for high-quality products to be available in the store. All products at Trader Joe’s go through a rigorous taste test which must be approved anonymously by the tasting committee, ensuring that the product is of the desired taste and quality. 

The “Less is Better” approach is a scientifically backed approach proven by Columbia University’s business professor Sheena Iyengar in a consumer research conducted in 2000. Hence the presence of high-quality products that are well tested and proven ensures that it does not affect the shopping experience or the consumption experience.

There is a concept of Paradox of Choice, explained in The Paradox of Choice – Why More Is Less, written by American psychologist Barry Schwartz. According to Barry argues that eliminating consumer choices can significantly reduce anxiety for shoppers and enhance customer experience.

Friendly & Empowered Store Staff

Staff behavior is one of the most critical aspects of the customer experience at any retail store. A single bad experience at a store might be enough to turn away a customer for life completely. Recognizing this, Trader Joe’s ensures that both the appearance and the behavior of its store staff are warm, welcoming, and helpful. 

While recruiting for staff, Trader Joe’s looks for jovial and extrovert personalities ensuring that they align with its culture. All employees are further given extensive training to ensure that they can satisfy and delight the customers. Additionally, Trader Joe’s also empowers its store staff to assist and help the customers in any way necessary. Typical examples of this are staff being allowed to hand out free samples to customers or gift a bouquet of flowers to a customer, and so on.

For the appearance of the store staff, Trader Joe’s follows a nautical theme for its staff uniforms and their designations. Store managers are given the title of “Captain,” and the staff is called “Crew Mates. All store employees wear Hawaiian-themed shirts, and on special occasions, customers are given floral garlands as a welcome gift.

Staff is dedicated because Trader Joe’s treats them to the same high standards. Even though most grocery store workers do not have high pay packets, salaries at Trader Joe’s are good, with captains (store managers) taking home over $100,000 a year. As well as that, staff receives health insurance and a retirement plan while store discounts are also on offer.

Infographic: America's Best Large Employers In 2019 | Statista You will find more infographics at Statista

Engineering a staff-customer interaction

Trader Joe’s also follows a policy of stocking up the store during working hours. This policy aims to increase the probability of customer and store staff coming into contact with each other. 

The approach allows the staff to help customers get what they need and introduce different products. This also allows Trader Joe’s to delight their customer by meeting and even exceeding their expectations and needs through the service provided by the staff.

In-Store Tasting and Sampling

Trader Joe’s allows its customers to taste and sample any of its non-cooked products hence allowing customers to try out new products. This also increases the odds of a customer buying more than they intended owing to another product appealing to their palate. 

Additionally, the tasting points also aid in creating a very positive brand perception in the minds of consumers. Every time the customer tastes something similar, they will be reminded of Trader Joe’s and the store experience.

Open Cold Storage Bins to help ease the purchasing process

Trader Joe’s has a distinct way of displaying their perishable merchandise, which is essentially opposite of the Industry norm. The cold storage bins are kept open to encourage customers to touch, feel and closely inspect the products hence removing a significant friction point during the purchase of perishables. It also creates a shopping environment more conducive to impulse purchasing. 

Conclusion

Trader Joe’s employs a unique business model to succeed and thrive in a callous industry. At the core of Trader Joe’s business model is the investment that has gone into building the brand through its unique product mix and the excellent service and shopping environment. 

The highly efficient operation allows Trader Joe’s to compete with much bigger competitors on price. The strategy has resulted in a cult following that has no parallels in the retail industry, allowing Trader Joe’s to retain and increase its customer base.   


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Rohith K R
Author

A sales and marketing enthusiast who is a 2021 graduate from IMT Ghaziabad. I am an incoming Management Trainee at Whirlpool India as part of the Young Leader program. I am a national semi-finalist in the Infosys Ingenious case study competition. I have worked with Zydus Wellness as a brand management intern in addition to completing a short-term academic project with Emami Ltd.

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