Trader Joe’s Written Case Analysis

Key Facts
Company Background
Trader Joe’s is an American chain of grocery headquarters founded by Joe Coulombe in 1967. On his second
business venture after completing his MBA at Stanford, Coulombe decided to go a different route and defined his target
market as “overeducated and underpaid people.” These customers, he said, were intelligent, educated, inquisitive
individuals who are well-read, well-trained, and appreciate good value.The name Trader Joe’s reflects its South Seas
theme, which stems from the 747 radically reducing travel costs. This theme is seen throughout the grocery’s decor,
employees’ uniforms, and even employee positions (the store manager being called “Captain” and his or her assistant
being called “First Mate.”)

Philosophy and Core Values

Trader Joe’s has seven core values: “integrity; we are a product-driven company; at Trader Joe’s we create a
WOW customer experience everyday; no bureaucracy; we are a national chain of neighborhood grocery stores;
KAIZEN!; the store is our brand.” These core values are reflected in the way the firm treats is employees and customers.
In a human resources lens, Coulombe believed strongly in paying employees a good wage, which is why the
average full-time employee earns the median family income for the state of California ($7,000 per year at the time it was
founded and around $50,000 per year in the present), which is more than what rival grocers pay. Trader Joe’s also
contributed 15.4% of employees’ pay to retirement accounts. The company sought extroverted individuals who could
empathize with customers. These employees are also trained ot be generalists, not specialists, rotating jobs on the floor
every hour or so. By opening jobs to “the pool of artsy, creative, college-educated young people who graduate without
the hard skills that would allow them to get technical jobs,” these employees come to work feeling appreciated and that
work is almost an extension of their social life, because they’re surrounded by people like themselves. It is because of
these reasons that Trader Joe’s was voted one of the Top 50 Companies to Work For by Glassdoor.com.
In terms of customer relationships and marketing, the company embraced an “everyday low-pricing” philosophy,
in contrast with its competitors that offered coupons, sales, and other promotions. Because of the company’s cult-like
following, Trader Joe’s past CEO deemed paid advertisements as an unnecessary expense. Despite its lack of official
social media presence, Trader Joe’s still makes an imprint on the internet with its pages, posts, and videos made by
fans. In store, customers are comfortable enough to start conversations with other customers who they don’t even know.
Many flock to the openings of new stores, some even complaining that there aren’t enough parking slots to
accommodate the number of people who arrive. The firm did not invest a great deal of technology within the stores. It
did not offer self-checkout lanes, and it did not have flat-screen TVs at the checkout counter. CEO Bane seems to have
done this purposefully, joking that their customers had the opportunity to actually talk to employees. It was through the
fulfillment and application of the company’s core values that the Trade Joe’s customers “find unexpected products. They
experience cheap thrills. Our people are helpful and knowledgeable. They know that we have tested each product to
ensure quality and satisfaction. They trust us.”

Products and Merchandising

With its target market in mind, Trader Joe tried to offer “cheap chic” products not typically found at supermarkets,
such as whole-bean coffees, sprouted wheat bread, and black rice. The company then began offering price label items
(Trader Joes, Trader Ming’s, Trader Jose, Trader Giotto, etc.) that made up 80% of the firm’s products, even
experimenting with nonfood items albeit these items later on not staying on shelves. Its most notable product offering
was its wide selection of California wines. It was from selling these wines that CEO Coulombe was inspired to
deliberately pursue a scarcity strategy (or a policy of discontinuity), offering specialized products for a limited amount of
time. Trader Joe’s carried about 4,000 SKUs per location, as compared with as many as 50,000 SKUs for most grocery
stores. As a result, customers could not find many of the major brands at Trader Joe’s. However, the scarcity strategy
also pushed buyers to purchase very large quantities of each SKU at low prices.

The Aldi Acquisition

In 1979, German grocer Theo Albrecht, who owned one of Germany’s most successful grocery chains Aldi
North acquired Trader Joe’s. Coulombe remained CEO and Albrecht gave him a great deal of autonomy to continue
running the firm as he wished.

Operations, Expansion and Financial Standing in a Competitive Environment

Unlike rival grocers usually 40,000 to 50,000 square feet, Trader Joe’s stores are as small as less than 15,000
square feet. Many Trader Joe’’s stores could be found in old strip malls in suburban locations.During its first CEO
Coulombe’s stint, stores were only located in Southern California, but CEOs John Shields and Dane Bane expanded
beyond this base to the Midwest and the southeastern part of the United States, with plans to expand even more
throughout the country.
Trader Joe’s tends to keep its relationships with its suppliers secret so as to prohibit its competitors from copying
its operations. The company did not charge suppliers to slot their products on their shelves, restocking even during peak
store hours with no fixed planogram. Trader Joe’s paid these suppliers promptly rather than stretching out its accounts
payable for as many days as possible. Similar to Aldi North’s business model, Trader Joe’s also ran a lean low-cost
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operation with minimal overhead. The firm’s revenue currently ranks 12th in the top supermarkets in the United States,
with its top three competitors being Wal-Mart, Kroger, and Safeway. These competitors have now started to experiment
with their stores in order to compete with the small-format category, with Wal-Mart announcing strong comparable store
sales growth at these smaller locations.

Analysis
SWOT Matrix using Value Chain Analysis and PESTEL Analysis
Strengths
1. Human Resource Management. Trader Joe’s takes pride in the way it treats its employees, offering higher-than-
industry-average wages and benefits, as well as providing jobs to like-minded people whom they are not typically
offered. The firm has a strong company culture due to this and the lack of bureaucracy, as employees are trained
to be generalists and not specialists. Furthermore, the company’s core values are stated during employees’ training
and are consistently upheld throughout the business’ strategic decisions as well as day-to-day store management.
2. Firm Infrastructure. The company’s differentiation in its private label items proves to be its strong suit, as CEO
Coulombe says they are a product-driven company. The firm was able to achieve strong competitive advantage
because what can be found in Trader Joe’s cannot be typically found in other grocery stores, and vice versa.
3. Procurement. Trader Joe’s is able to globally source unique products and foster relationships with its vendors. Top
management is able to recognize which products are of quality and “trendy” for their target market at the moment it
hits stores. Even store managers and employees are able to strategically decide how to stock the shelves so that it
would be appealing to consumers. Trader Joe’s’ scarcity strategy seems to be playing to their advantage because
customers buy in bulk and await new products that they haven’t tried each time they visit the stores. Furthermore,
because the company has good relations with its suppliers, they are able to source goods at a lower cost compared
to other grocery competitors.
4. Customer Service. Because the company knows its consumers and their lifestyles well, it was able to train its
employees to give them the best customer service. As such, Trader Joe’s was able to gain a cult-like following. It
was able to build communities both online and in-store, positively affecting word-of-mouth marketing. Employees
go out of their way to converse with the customers, and the firm even allows returns for any product if the customers
are not satisfied with them for whatever reason.

Weaknesses
1. Operations. With relation to the information the case provided on the operations of Trader Joe’s (or lack thereof),
the firm’s sole operations problem seems to be the lack of parking spaces in its stores, which could cost them more
potential sales if it is not solved. The store’s locations seem to be too small for the number of consumers that go to
them.
2. Marketing and Sales. The company’s no coupons or discounts, “everyday-low-pricing” strategy is able to draw
sales from its customers that appreciate value for their money. However, social media experts critique Trader Joe’s
for not capitalizing on the positive feedback it receives from its fans online. As Sarah Meyer and Jennifer Ashley of
Infinity Marketing Solutions commented, “We think they are missing a great opportunity to spread the loyalty and
the customer experience outside of their store. Their customers are talking about them on Twitter, on Facebook and
beyond, so why not get involved in that conversation?”
3. Lack of Technology Development. Trader Joe’s refuses to offer self-checkout counters and does not have flat-
screen TVs in its locations, which may be wasted opportunities to have more efficient operations and increased
sales.
4. Inbound Logistics. The company stocks less SKUs than its supermarket counterparts and it does not stock several
well-known brands such as Coca-Cola, which are both wasted opportunities for more sales.
5. Outbound Logistics. At the time of the case, Trader Joe’s stores have not yet expanded to all of the USA, with a
high concentration in California. Many consumers also use social media channels to request for a Trader Joe’s to
open at their location, meaning that the company is not available wherever they are wanted. This means that the
company is not able to match its supply to the amount of demand, which is a lost opportunity for more revenue.

Opportunities
1. Social: trend of conscious consumption. More and more consumers are jumping on the social movement of
conscious consumption, which is based around increased awareness of the impact of purchasing decisions on the
environment and the consumers health and life in general, as well as the effects of media and advertising on
consumers. Trader Joe’s could capitalize on this trend as it is a company that upholds these values already, thereby
increasing its customer base and revenues.
2. Technological: advancements in the grocery industry. The company can put efforts towards upgrading its
checkout lanes to allow customers to self-checkout, as many other supermarkets have nowadays. Amazon has
introduced its Amazon Go stores that recognize which items customers carry on their way out, so that the don’t
even have to go through the checkout process at all. Applying this technology to Trader Joe’s stores may increase
efficiency and reduce costs in the long-run.

Threats

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3. Political: trade restrictions. Given that Trader Joe’s sources its private label items globally, trade restrictions by
the government pay pose a threat to its inbound logistics. The lack of specialized items for which the firm is known
for could perform a serious blow to the revenues of the company as well as its public image, especially given its
already inferior number of SKUs to industry averages.
4. Environmental: scarcity of raw ingredients of suppliers. Because of the environmental problems the world is
experiencing now such as climate change, Trader Joe’s’ suppliers may be affected and thus not be able to supply
the company with its private label items. As mentioned above, this could perform a serious blow to the revenues of
the company as well as its public image.
5. Economic: increase in wages. An increase in industry wages may pose a threat to Trader Joe’s, which offers
higher-than-industry average wages. As human capital is one of their most precious resources, losing their
employees to their investors could change the company culture.
6. Legal: property rights cases. Although Trader Joe’s is known for its specialty private label items, some have
started to question whether or not some of these items can really only be found in Trader Joe’s or they are just
repackaging suppliers’ other products. Because of this, the company losing their property rights could result in
several products being taken off of shelves.

Porter’s Five Forces

Threat of New Entry
In 2013, the threat of entry has increased because of larger retailers starting to compete in the small-format
category. These retailers (Wal-Mart, Kroger, Safeway, and the like) have the advantage because of their firms’ large
pool of capital from its favorable market shares as well as connections with their existing suppliers.

Threat of Substitutes
Despite not selling private label items, warehouse clubs such as Costco, BJ’s, and Sam’s Club where
consumers usually buy goods wholesale pose a threat to Trader Joe’s scarcity strategy and “everyday low-pricing”
philosophy. Online retailers like Amazon also pose a threat to this market given their ability to offer a larger selection of
goods—even specialized goods—to a wider group of people.
Bargaining Power of Suppliers
Although typically in the supermarket industry, suppliers have a lot of power because there are several other
stockists they could go to, suppliers have special arrangements with Trader Joe’s, as mentioned in the case. The firm
purchases goods directly from manufacturers rather than working through distributors or wholesalers, which would then
lessen suppliers’ bargaining power.

Bargaining Power of Buyers

Buyers have a high bargaining power because they are the people who drive the business. As their entire
marketing rests on word-of-mouth due to lack of public relations efforts, keeping the customers satisfied with Trader
Joe’s is highly important. Although the business has positive traction now, this could go wrong even with just one major
issue that could draw its “cult-like” fans away from the business,

Industry Rivalry
At the time of the case, the grocery industry had been starting to become more competitive, Competitors such
as Wal-Mart, which already existed in large-format supermarkets, are starting to expand their business into smaller
formats. The growth in number of rivals is a threat to Trader Joe’s not only in terms of price competition, for which these
larger firms have advantage due to low costs, but also in targeting “overeducated and underpaid” people with “cheap
chic” items.

Problem Statement
Should Trader Joe’s continue Founder Coulombe’s product-driven strategy to keep its cult-like following happy and
maximize the conscious consumption trend, or move forward in new CEO Bane’s expansion strategy to keep up with
industry competitors?

Alternative Strategies
1. Coulombe’s Strategy
Purpose: Continue selling private label products to intelligent, educated, inquisitive individuals who appreciate
value for money, focusing on small Southern California locations.
Nature: Focus on increasing satisfaction from its cult-like following, introducing new products using a scarcity
strategy, while also taking advantage of the conscious consumption trend.
Competitive Strategy: (S1-O1 Strategy) Ensure that the company’s seven core values and “quirky cool” are not
tarnished.
2. Bane’s Strategy

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 Purpose: Continue selling private label products and start product development for new products to intelligent,
educated, inquisitive individuals who appreciate value for money, expanding the market across the nation at a
pace more rapidly than in the past, although still at a measure pace relative to most retailers.
Nature: Focus on securing more market share from its leading competitors and increase debt if necessary.
Competitive Strategy: (S2-O5 Strategy) Open new stores to maximize positive word-of-mouth marketing and
gain more customers in locations that are already asking for a Trader Joe’s in their area.

Recommended Strategy
My recommendation would be to move forward in new CEO Bane’s expansion strategy to keep up with
industry competitors. Trader Joe’s already has competitive advantage insofar that it has drawn communities around the
United States to believe in its core values and consequently drive its sales. Despite critiques that the company may lose
its “charm” and “quirky cool” as it expanded, this strategy does so conservatively, not expanding as fast as its rival
groceries. Furthermore, it was seen it this case that there is already a demand for Trader Joe’s in several other locations,
and it would be an opportunity cost for the company to ignore this demand.

Impact - Financial Projections

To generate higher incomes, players in the supermarket industry typically buy goods on credit (accounts
payable). Retailers such as Wal-Mart, Kroger, and Safeway have strategies that include incurring debts unlike Trader
Joe’s, but still have a favorable return on equity. Trader Joe’s might not have a financial problem with expansion if it is
open to incurring debts as well instead of immediately paying suppliers as they do currently.

Risk Analysis
SPACE Matrix
Financial Strength Environmental Stability Industry Attractiveness Competitive Advantage
average: 3.3 average: 4.9 average: 5 average: 3.7
ROI – 3 Technology changes – 4 Growth Potential – 6 Market Share – 2
Leverage – 2 Rate of Inflation – 6 Financial Stability – 6 Product quality – 5
Liquidity – 2 Price Range of Competing Profit Potential – 6 Customer Loyalty – 6
Working Capital – 3 Products – 6 Resource Utilization – 6 Technology Know-How – 2
Cash Flow – 4 Barriers to Entry – 4 Ease of Entry – 3 Control over Suppliers and
Inventory Turnover – 6 Competitive Pressure – 4 Extent Leverages – 3 Distributors – 5
Gross Profit Margin – 3 Demand Variability – 6 Productivity – 5 Product Life-cycle – 3
Ease to Exit– 4 Capacity Utilization -– 3
From the SPACE matrix we can determine that the strategy that Trader Joe’s should adopt is competitive. If
Trader Joe’s continues with CEO Bane’s expansion strategy in order to compete with Wal-Mart’s small-format stores as
well as the similar ventures of other retailers, the only risks would be that the company lose sight of its core values
and/or not be able to train the employees to be as consumer-centric as it currently is.

Conclusion
Trader Joe’s founder Coulombe was able to set-up an organized company, founded on its core values, that
served its specific target market. There were no huge problems in the way the company was run, but instead, new CEO
Bane was pushed to move forward with a new strategy given a shift in its competitive environment and the increase in
demand from customers. This goes to show that even a company doing as well as Trader Joe’s still has to constantly
evaluate internal and external factors in order to sustain its competitive advantage.

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 Appendix

Appendix A. SPACE Matrix

Financial Strength

Competitive Industry
Advantage -6 -5 -4 -3 -2 -1 1 2 3 4 5 6 Attractiveness
-1

-2

-3 Competitive
-4

-5

-6

Environmental Stability