Sometime back, I talked about grocery retail history, and as Trader Joe’s is in news recently, it is a good time to visit the grocery landscape on this blog.
Joe Coulombe, the founder of Trader Joe’s (paywalled) passed away recently. Trader Joe’s has been a remarkable brand with their whimsical store-brands, employees in Hawaii shirts, breezy nautical themes, and fiercely loyal customers. The unique positioning of the brand has survived even though Joe Coulombe himself had retired from the company in 1988, long after he had sold his stake to Aldi Nord.
The German firm, Aldi Nord has kept the Trader Joe’s at an arm’s length letting its unique brand thrive. This peculiarity is itself somewhat due to Aldi’s history. (The readers of this blog are likely well aware of Aldi stores in the US, which are also based on similar TJ’s-like concepts: no-frills, low-price positioning, and small stores. There are more Aldi stores in the US than there are Trader Joe’s stores).
The Albrecht family founded a corner store in Essen, Germany in 1913 which expanded into Aldi all over Germany. Aldi is a diminutive of Albrecht Diskont. (Albrecht Discount). The Albrecht brothers, Theo and Karl, took over the firm but had a deep falling out in the 1960s (apparently over whether to sell cigarettes in stores). In any case, the company was divided geographically into Aldi Nord in northern Germany and Aldi Sud in southern Germany. There is a well-known ALDI equator separating the two almost similar brands.
Aldi Sud is the firm expanding in the United States as Aldi USA, with more than 1900 stores in 36 states. Aldi Nord owns the 500+ Trader Joe’s stores but has retained TJ’s brand name. (Aldi Nord and Aldi Sud probably have a region-specific non-compete clause under the same brand name).
I have been a regular customer of Trader’s Joe’s store in Philadelphia. In 2004, TJ’s store on Market street reflected forward-looking sunny hopefulness in a gritty neighborhood — the store overlooked a series of neon lights and dancing girl silhouettes — a far cry from now gentrified and fancier neighborhood.
A few factors, both from theory and practical experimentation, that I believe have made Trader Joe’s survive and thrive over the decades.
Supply Chain Integration.
In true supply chain integration fashion, TJ’s directly buys from suppliers at cheap wholesale prices, and keeps the prices low, passing on the savings to customers. How traditional! We know this works in theory, but many firms would rather pocket the differences and pay their shareholders or executives. In contrast, this relentless focus on price is exactly why TJ-brand products like Two Buck Chuck have thrived in popular consciousness. These Charles Shaw wines are an extraordinarily cheap set of wines, which are of course not available in Pennsylvania grocery stores, due to a combination of puritan history and regulatory rent.
Product Curation
Similar to Costco but at a smaller scale, and distinct from other grocery chains, Trader Joe’s focuses on limited brands within each category. Once they finalize a successful set, Trader Joe’s keeps the products sustained. To illustrate the point, as a person who grew up in India, I always think of TJ’s frozen Palak Paneer which I love (and I am not alone). Under $3, it beats any lunch that I could have on price and quality: nicely mild, with paneer soaking in and picking up the flavors of the spinach-mix.
Of course, as with any experimentation, sometimes this curation doesn’t work as well. For instance, the coffee purist in me finds their curated coffee selection fairly unimpressive. At Trader Joe’s I find such failures are far and few in between.
In larger stores with a wider variety of selection, customers often suffer from choice exhaustion. This exhaustion in search has recently become the bane of electronic commerce. Barry Schwartz wrote a famous book on what he called the paradox of choice. But, as recent research has argued, such fatigue is a bit more nuanced, depending on where customers are in their decision-making process. TJ’s takes great care in choosing the set of products that customers have come to love and trust.
Worker Morale
In Harvard Business Review, my colleagues Fisher and others wrote an excellent article about how retailers are squandering their most potent weapons: their employees.
Trader Joe’s is an exception in how they approach staffing. It is often extraordinarily impressive how happy the workers at TJ’s seem to be compared to several other grocery stores that I have visited. I have not had a genuinely unhelpful experience in 15+ years of shopping there. A job comparison site like indeed.com shows that 77% of people feel that they are paid fairly at Trader Joe’s which is remarkable compared to competitors.
Finally, the workers are given license and agency to solve problems and talk to customers. All members are called crew. No task is menial, and everyone can engage. The crew members are promoted to Merchants, then to Mates, and finally a Captain (who is always promoted from within). Captain doesn’t sit in an office, but in true seafaring fashion along with his Mates, leads the crew on the floor.
Branding
Finally, there is a sense of distinct branding about the sea-faring theme. The counters are named after city streets. There are minor witticisms in the promotions and bright blue-white skies in the paintings. All of this seems like vague visual exhortations that have originated from board rooms and marketing Powerpoints. It seems like these displays shouldn’t transform the bottom line in theory. But in practice, it seems to work.
The design aesthetics are fairly uplifting, even under the somber grey skies in Northeast winters, and even for the rational skeptic in me. Count me among the pleased customers.