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

How a low cost grocer with eclectic products gained a cult following.

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.”Private Label Food

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.

TJ StoreCrew 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:, 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)



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

  1. Very enlightening, Hilary! I grew up with a Trader Joe’s just a few blocks away and I’m one of these “cult followers” now. I even introduced Tariro to Trader Joe’s for the very first time and showed him all the best things to buy on his first trip.

    I was wondering, does selling items under the Trader Joe’s brand [rather than ‘original label’ do more than just infer quality? I.e. do they save costs somehow by selling their ‘favorite olive oil’ under the Trader Joe’s label rather than the label of the supplier?

    Thinking about it, it strikes me that Trader Joe’s is one of the originators of “curation” and “radical transparency” that millennials love so much today 🙂

  2. I loved this thorough post Hilary! I had known most of the lower SKU model, prepackaged model, etc. before, and I absolutely enjoy the staff. That said, are there any parts where Trader Joe’s does not do so well? Are there any demographics that Trader Joe’s COULD attract but isn’t? What does it do to differentiate itself from Whole Foods (other than price)? And is there anything it COULD learn from Whole Foods?

    For example, I find the produce and fresh meat/fish at Whole Foods to be far superior quality so I ended up having to shop at both Trader Joe’s and Whole Foods or end up shopping at Whole Foods because I value the fresh produce so much more. I also find checkout at Trader Joe’s to be the worst part of the process. It’s often very manual, with very long lines, and someone walking around with a large sign directing people, instead of Whole Foods locations having parallel lines (segmented by basket size) and screens to look at to know where to go next really quickly. I realize that this system is definitely against Trader Joe’s culture, though. So how does Trader Joe’s navigate and make these choices? How can it help increase the quality of its fresh produce?

  3. I see Trader Joe’s and Whole Foods as direct competitors in organic food market business. But other than relatively lower price compared to Whole Foods, I am not very satisfied with shopping experience at Trader Joe’s. It’s like buying grocery at market. I guess customers who are willing to pay more for organic food might prefer more pleasant shopping experience, such as one at Whole Foods. How do you think Trader Joe’s should differentiate itself from Whole Foods?

  4. Loved the write up, Hilary! As a huge fan of TJ’s, it was interesting to see just how they manage to bring me those delicious and affordable little frozen pork buns.

    Like Seunghyun mentioned above, I definitely see Whole Foods and TJ’s as competing in the same space, though TJ has an advantage when it comes to the broke college student market. However, as I was looking into Whole Foods (that’s what I wrote about) I saw that WF is in the process of opening up lower cost versions of their stores. It’ll be interesting to see if TJ’s will be able to maintain an advantage in the low-cost/high quality market or if the new, cheaper Whole Foods will take a chunk of their market share.

  5. Great insight and great post on TJ’s.

    I used to be a Whole Foods fan and liked the products they carried, but it was always at the checkout that I questioned my loyalty when the aggregate amount I was paying for my groceries seemed outrageous. Until one day someone heard my complains and introduced me to TJ’s. I was completely surprised to find great organic products at amazing prices and most importantly product quality and freshness constant over time. With this in mind, I always asked myself why scaling up this amazing grocery concept seemed to be very slow in comparison to Whole Foods who had been able to do it much faster. In part the answer to my question is contained in this post as TJ’s operating model seems difficult to scale because there are significant supply chain constraints and food quality concerns that they have not been able overcome in the pursuit of rapid expansion. In all, it seems that TJ’s being a privately held company is more concerned about keeping its customers happy than delivering strong growth and returns for its shareholders.

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