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A grocer so good, even competitors love it

In a sea of supermarket mediocrity, Trader Joe’s sticks out. Here's why

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Across North America these days, people talk about Trader Joe’s. A lot. They can’t help it. Trader Joe’s may be the most successful grocer in the U.S., and it’s fast becoming one of the most admired retailers in the world.

Trader Joe’s numbers speak for themselves: Across its 400 stores, Trader Joe’s averages weekly sales of about US$460,000 in only about 10,000 square feet of selling space per store.

Its sales per square foot average (about $38 a week) dwarfs that of the U.S. industry as a whole ($12), and even makes Whole Foods ($21) look like an also-ran.

Along with its cousin, the hard discounter Aldi, Trader Joe’s has been the driving force of the small-store trend in the U.S. But the chain was no overnight success.

A man named Joe Coulombe, in Southern California, in 1967, established it. He based the look and feel of the stores on his travels in the Caribbean and South Pacific.

Interestingly, Trader Joe’s was born out of adversity. In the mid-1960s, Coulombe ran a small chain of traditional convenience stores that were suffering from competition by then-expanding 7-Eleven.

In response, Coulombe developed the idea of providing wines and unique food products to the growing number of yuppies living around his stores in Los Angeles. This repositioning process–from traditional convenience stores to a very different specialty food store–took five years.

Initially, Trader Joe’s grew slowly. It only had 36 stores in 1990, a full decade after it was bought by Aldi Nord of Germany (Aldi Sud is the operator of the Aldi stores).

But then it took off. Between 2005 and 2011, it opened more than 110 stores. In addition to new-store growth, Trader Joe’s sales per store increased 50% between 2005 and 2011, despite a brutal recession.

Why does Trader Joe’s do so well? Simple: It stands out in a sea of mediocrity. It offers consumers an upscale store at down-to-earth prices.

The “upscale” element is conveyed through merchandising of unique, “ethical,” exotic, gourmet, healthy and natural, organic products. Many of these products are “surprise” items from small suppliers and are in-and-out in terms of stock-holding.

Private-label products represent about 85% of Trader Joe’s mix and, since 2007, have been free from trans fats, artificial colouring or flavouring, preservatives and genetic modifications. Trader Joe’s has been progressive on consumer health concerns.

Trader Joe’s low prices are enabled through a variety of cost-saving strategies. It buys direct from suppliers and, unlike traditional supermarkets, does not solicit slotting fees.

Fewer SKUs mean better buying terms, and the pre-dominance of private-label products enables good gross margins. Trader Joe’s also shuns ground-up development, preferring cheaper, re-use real estate.

Most of Trader Joe’s employees work part time, but they work 30 to 35 hours per week and are well-paid by industry standards. Health-care insurance and a pension are offered to those working more than 20 hours per week, together with 10 per cent off all store purchases.

As a result, employees are committed to Trader Joe’s and have above-average productivity. In return, they’re expected to deliver exceptional customer service and to be flexible in the jobs they carry out.

“Good” jobs and high pay in return for demanding work is an Aldi trademark. As a result of its cost-saving strategies, Trader Joe’s gross margins are in the low- to mid-20% range, well below the 28% to 30% norm for U.S. supermarkets.

But low costs and prices aren’t the only reasons Trader Joe’s does well. There’s also its one-of-a-kind culture, best summarized as a cheerful, quirky mix of California, the Caribbean, the South Seas (Hawaiian shirts for its “crew”) and a nautical theme. A ship’s bell is a prime vehicle of in-store communication.

The goal of this culture is to make grocery shopping fun. It addresses the central weakness of grocery shopping, which consumers have come to perceive as boring drudgery.

When Trader Joe’s enters a market, it redefines consumer expectations as to what constitutes good service. Trader Joe’s unique and fun proposition will–more than likely– encourage its expansion to Canada.

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