I have a friend who is obsessed with Chipotle because of its commitment to organic food and sustainable agriculture practices. I know that this has raised some challenges in the past with food sourcing, due to some suppliers not being aligned with Chipotle’s devotion to “food with integrity.” It seems that you think this is a sustainable operating model due to Chipotle’s increased brand equity despite the difficulties inherent in only sourcing from sustainable, organic suppliers. Do you think MOD Pizza and other fast casual restaurants with a social impact mission statement are likely to continue benefiting from increased brand equity due to loyal and socially conscious consumers? I’m curious to see whether this trend will continue to grow. I definitely hope it does!
Thanks for the insightful post on one of my favorite grocery chains!
It makes sense that fewer SKUs allow for lower inventory levels and higher inventory turns, but this raises another question of what to stock to maximize store traffic despite the fact that families can’t do all of their groceries at Trader Joe’s. It’d be interesting to understand Trader Joe’s product policy for what range/type of products to carry, given its smaller store sizes, which can only fit so much inventory. Perhaps they collect data from their customers on what SKUs they’d like to see or track sales by product line to continually update what they carry based on demand or competitive research?
Regardless, Trader Joe’s must be doing something right, as there seems to be a lot of brand loyalty for its customers who find the private label products of consistently high quality and attractiveness.
Thanks for the post about this interesting business model, Cara!
I’m curious to know how Everlane incentivizes factories to partner with the company, given that Everlane’s transparency policy makes the costing information of its partners publicly accessible, which may affect factories’ abilities to mark up their prices to other distributors or retailers or detract from other retailers’ willingness to source from those factories.
Also, is there a particular reason Everlane focuses only on basics and essentials? How does this relate to their competitive advantage since they are intentionally limiting their product offerings?
Thanks for the great questions!
Regarding your first question: When opening the first store, the Birchbox co-founders explicitly stated that they “are not focused on profitability, [they] are focused on hypergrowth.” At this point, I don’t believe the stores are profitable due to high fixed and startup costs. However, the company has two goals with the new stores: 1) to use new store openings as PR and education around their brand and to drive more people to purchase subscriptions and 2) increase stickiness to their brand. The company found that Birchbox subscribers are more likely to not just buy from Birchbox.com but also from offline beauty stores such as Sephora and Ulta. Therefore, they’re trying to enter the offline retail channel to minimize this leakage. They don’t believe that offline retail is going to disappear from the beauty industry due to the whole social and recreational aspect to it.
As for your second question: I think the privacy issues around Birchbox are less sensitive, since people seem more willing to share information about their skin/cosmetics preferences as long as it means the samples or product recommendations they receive are more customized and tailored to their tastes. Though I don’t have formal data to support this, I doubt Birchbox shares personal identifiers unless it has explicit permission to do. Statistical data on product preferences and A/B test results are still extremely helpful for beauty companies.