Trader Joe’s Rewrites The Rules For Retail Innovation

by Mark

I am such a fan and student of brilliant operators such as Trader Joe’s. I admire their business practices, merchandising sets, product selection and employee retention philosophy. I keep praying that the retail gods will smile upon us here in south Texas and bring us a neighborhood TJ’s!

I have had the pleasure of working with Trader Joe’s on several products lines and have had a chance to “look under the hood” of their business strategies and practices. Without giving away any confidential or proprietary info, here are some key factors that I see that make up the Trader Joe’s competitive advantage.

Most every grocery retailer has Trader Joe’s on their radar screen. Even if they don’t compete with them in the same cities, the sales numbers and more importantly the profit numbers keep some grocery retail executives awake at night.

From Walmart to Central Market, most retail executives are confounded with the counterintuitive¬† approach that this company has. They don’t follow most of the traditional retail “best practices” that the herd mentality grocery retail industry finds itself stuck in these days.

Most of the locations are under 20,000 square feet and throw off impressive foot traffic and basket averages. I already mentioned the profitability aspect. The strategy surrounding these smaller footprint stores are exactly what we conceptualized when we created Eatzi’s back in the day.

Other key points in Trader Joe’s strategies:

1. Fewer Choices – They understand that their customer doesn’t always equate more with better! TJ’s goes out and finds the best two or three items in a category (not including major categories such as beer, wine, cheese, etc) and procures them at the best possible price for their customers. Their stores stock @ 1/10th the number of SKU’s that a traditional gourmet retailer would stock.¬† It’s worth noting though, that they generate TWICE the revenue per square foot of most traditional retailers.

2. Private Label – Over 80% of the products inside a Trader Joe’s bear the company name and logo. They have earned the trust of their customers that thier private label is often superior to any national brand. They don’t just say it…they actually DO IT! How many supermarkets can say the same thing about their private label programs???

3. Aggressive Pricing – The buying group at Trader Joe’s searches out the best quality ingredients and manufacturers and then passing on those great prices to their customers…not just once in a while but all the time.

4. Great Employees – I won’t even mention the image that most people have of the staff working at most grocery stores here in the states. Heck, there have even been a few movies out of Hollywood the portray the supermarket “career path” as one of last resorts. The store managers at Trader Joe’s can make a strong six-figure income (running a cleaner, smaller, and funner store by the way) while most full time employees earn about half that on average. Any of you that have shopped in one of their stores know that it is a great experience. The staff is friendly, knowledgeable, well trained and aware of the food culture.¬† The company provides great benefits and has a significant matching program for employee retirement plans. I guess that they had their rocket scientists at the home office figure out that when you take care of and respect your front-line employees, they in turn tend to take care of your customers! Brilliant…I hope the idea catches on!

5. Trend Setters – There are so many industry insiders that go to visit Trader Joe’s stores to see what is going to be hip or trendy in the next couple of years it’s not even funny. These guys were promoting California wines back in the day when nobody else thought they were worth anything. Organic, natural, healthy were all programs that TJ’s was promoting before most of us even knew that food like this was available in the states.

6. Know thy customer – Instead of trying to be all things to all people, TJ”s understands their customer today and has programs in place to listen to where they are going tomorrow. Imagine this, they are a food company that mines data from demographics, education AND food habits of their customers. They then market the products that this audience is looking for in locations where they want to shop.

7. K.I.S.S. – Keep It Simple Stupid! They don’t try and re-invent the wheel every year with the latest “Strategic Initiative” from the top brass. Their bosses are the customer and they tend to know what they want, when they want it, how much they will pay for it and in what form do they want it in.

Many retailers, restaurateurs and manufacturers could learn some simple lessons here.

Until next time,

 

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