When I was a kid, one of my many career aspirations was to work at Trader Joe’s. Little did I know then that the things I loved about my neighborhood TJs– the happy employees in Hawaiian shirts, the oddly-named food products, the quirky store decorations—were all coordinated elements of a strategy that has grown Trader Joe’s into a retailer that now generates more than $10B annually from 450+ stores across the country and is also extremely well-regarded by consumers. The secret behind Trader Joe’s success is a unique operating model that is perfectly designed to enhance the TJs business model and customer value proposition.
Trader Joe’s fundamental strategy is to “offer value and a dedication to quality service through warm, friendly, committed employees along with a pledge to offer quality products”. This strategy contains a few core elements:
- Offer value- Trader Joe’s has cultivated a reputation with consumers for being high-quality but inexpensive. As an example, Whole Foods (which considers Trader Joe’s to be its number one competitor) sells a bag of quinoa for $9.99 while a bag of quinoa at Trader Joe’s costs $4.99. Trader Joe’s is committed to consistently low prices that customers can rely on, and as a result rarely runs sales.
- Dedication to quality service through warm, friendly, committed employees- Trader Joe’s is extremely focused on delivering quality service to customers. Employees are selected based on their energy and excitement for the job, and once hired they are trained on a number of different skills including communication, teamwork, leadership, and product knowledge.
- Pledge to offer quality products- Trader Joe’s offers a product selection that is totally unique and unlike the offerings found at other major grocery chains. The store stocks a combination of gourmet, natural, and multicultural foods, and even its grocery staples are rebranded with distinctive names and packaging.
By strongly adhering to this business model, Trader Joe’s has experienced tremendous growth and now has an average sales per square foot of $1,723, which is more than three times the industry average of $521 and nearly double the Whole Foods average of $973. This success is really impressive, but in order to understand HOW Trader Joe’s has been able to execute on its business model and achieve these results, we need to take a closer look at how the company actually operates.
In my opinion, the real reason that Trader Joe’s has been so successful is because of a unique, well-aligned operating model that perfectly supports the strategic objectives of the company. The most notable aspects of the TJs operating model are below:
- Private-label products- A vast majority (nearly 80%) of the products that Trader Joe’s stocks, from dairy goods to household cleaning supplies, are sold with an in-house label. Because Trader Joe’s sources these products directly from suppliers and does not need to use middlemen, it is able to sell at a significant discount to consumers. Suppliers are willing to sell their products at a discount to Trader Joe’s so that they can gain access to TJs vast network of customers. This emphasis on private label products directly ties to the TJs goal of providing value to customers.
- High investment in employees- Because of the high emphasis Trader Joe’s places on customer service, it invests a lot in securing top talent (full disclosure- I once applied for a job at Trader Joe’s and was not hired). Employees have higher salaries than they would at comparable retailers, and crew members are cross-trained so that they can assist employees at any point in the shopping process. As a result of this investment in staff, employee turnaround is only around 4%. All of this directly ties to the TJs goal of dedication to quality service through warm, friendly, committed employees.
- Quick product turnaround- A Trader Joe’s store typically only carries about 4,000 SKUs, compared to other grocery chains that typically carry around 50,000 SKUs. Because of the direct relationships with suppliers that TJs has established, they are able to rapidly cycle in new products to keep things exciting for customers. Popular products become store staples, while less popular items are quickly shifted out. New additions (and seasonal favorites) are promoted through the TJs monthly newsletter, The Fearless Flyer. Such an intense focus on product offerings directly ties to the TJs goal of pledging to offer quality products
Overall, the results speak for themselves—with such clear alignment between business and operating models, Trader Joe’s is a TOM Challenge winner!