Winner: Trader Joe’s – Providing Low Cost High Quality Products

Trader Joe’s (TJ’s), a subsidiary of ALDI, is a low-priced grocery chain that offers a limited assortment of high quality products. TJ’s has experienced significant organic growth with 203 stores opened between 1988 and 2004 (CAGR 21%)[1] and over $8bn in revenue across 344 stores.[2]

Business Model

TJ’s strives to create an “outstanding customer experience around the discovery and enjoyment of amazing food and beverages.”[3] According to Joe Coulombe, Founder, the target customer is “an unemployed PhD – someone who has the ability to discriminate, but who doesn’t have any money.” Product offerings cater to this customer. Pat St. John, VP of Marketing noted “we don’t have 10 boxes of Uncle Ben’s Rice, we have rice imported from Italy and India and offer special rice blends.”

TJ’s does not aim to be a customer’s primary grocery store. It appeals to the customer who wants unique items or convenience. TJ’s offers an extensive offering of frozen meals, packaged meals, and semi-prepared foods.

TJ’s has on average ~2,500 SKUs, 10-15% of the SKUs of other grocery stores of similar size.[4] 85% of the products in Trader Joes are private label, which represents 3-4x the proportion of private label items in a traditional grocery store. Customers trust TJ’s to choose quality products. Doug Rauch, President, TJ’s East explained this strategy by noting, “rather than carrying 15 brands of olive oil, we will choose our favorite and sell that one under our brand.”

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TJ’s creates customer value by ordering directly from the manufacturer. Due to the lack of the middle-man, TJ’s avoids an additional markup on its products. With respect to its supply chain, TJ’s always pays on time in cash, does not charge shelving fees, and is transparent with is manufacturers.[5] The resulting cost savings are passed on to the consumer.

TJ’s stores are small (5,000 – 12,000 square feet) and lack storage space. It must order precisely from manufacturers. Product lines are only sold if they are profitable and if they can be sold for less than available at a local supermarket.

Operating Model

All stores are decorated to look like a tropical island and employees wear Hawaiian shirts. to create a vacation-like experience. Stores are located near educated populations.

Customer satisfaction is a high priority. All items can be returned for a full refund with no questions asked. Free samples are served in all stores. Employees, or Crew Members, are knowledgeable and consumers themselves. They routinely open products for patrons to try in store.

Crew Members value customer service. A recent study showed that members “felt empowered to make decisions, were collaborative in their relationship with others, and were motivated to high levels of performance. They were enthusiastic, hardworking, outgoing, team and customer oriented.” [6] Crew Members are encouraged to decorate the store and create unique customer displays. TJ’s pays above union-wages, has low yearly employee turnover, and provides significant benefits. TJ’s looks for enthusiastic employees and reviews part-time employees frequently at 3 month intervals.[7] Store managers are always promoted from within. TJ’s has extended significant resources, including having a TJ’s University, to train managers and maintain the corporate culture.

TJ’s is designed for efficient shopping. The registers are designed without conveyor belts and carts can be passed through on the cashier side. Items are sold as units vs. by weight to speed up the checkout process.[8]

The business and operating models are synergistic. The décor, return policy, and knowledgeable staff provide a high quality shopping experience in a relaxed and efficient environment. The low number of SKU’s and high number of private label products allow for high quality items at low costs. The target customer is savvy and relies on the help of Crew Members to make informed purchasing decisions. The investment in Crew Member education and culture creates a work force that meets the specific needs of the target customers. It dominates in it’s niche for low cost, convenient, high quality groceries and has developed a loyal following.

[1] Coriolis “Understanding Trader Joes” Coriolis Research (2006)

[2] Esquivias, Pedro, Patricio Ramos, and Robert Souza. “Business Model Adaptation in Retail: A Growing Need.” BCG: Boston Consulting Group (2010)

[3] Careers, URL: www.traderjoes.com/career, 12/9/15

[4] Esquivias, Pedro, Patricio Ramos, and Robert Souza. “Business Model Adaptation in Retail: A Growing Need.” BCG: Boston Consulting Group (2010)

[5] MIT OpenCourseWare. “Trader Joe’s vs. Whole Foods Market: A Comparison of Operational Management.” 15.768 Management of Services: Concepts, Design, and Delivery (2010)

[6] Mallinger, Mark, and Gerry Rossy. “The Trader Joes Experience.” Graziadio Business Review 10.2 (2007)

[7] Coriolis “Understanding Trader Joes” Coriolis Research (2006)

[8] MIT OpenCourseWare. “Trader Joe’s vs. Whole Foods Market: A Comparison of Operational Management.” 15.768 Management of Services: Concepts, Design, and Delivery (2010)