Trading Its Way to the Top

August 17, 2010
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Quick - what’s the first thing you think of when you hear the name Trader Joe’s? A funky little grocery store selling cheap wine to laid-back, organics-loving hippies across California? Well, think again.

“My mother (87 years old) even shops at Trader Joe’s,” jokes Lynn Dornblaser, director of CPG trend insight with research firm Mintel International Group in Chicago. “She doesn’t see any California vibe; she just sees this weird little store that sells some interesting things.”

Quick - what’s the first thing you think of when you hear the name Trader Joe’s? A funky little grocery store selling cheap wine to laid-back, organics-loving hippies across California? Well, think again.

“My mother (87 years old) even shops at Trader Joe’s,” jokes Lynn Dornblaser, director of CPG trend insight with research firm Mintel International Group in Chicago. “She doesn’t see any California vibe; she just sees this weird little store that sells some interesting things.”
That “weird little store” is becoming a national powerhouse that - as it reaches from coast-to-coast and perhaps even across the ocean to Europe - is setting a standard for how private label products can be marketed in unique ways that spur consumer demand and consumer satisfaction.
While it’s doubtful most retailers would want to copy Trader Joe’s Hawaiian-shirt-wearing employee dress code or start putting grass huts in their aisles, they can learn some important lessons on how to make their private label lines as appealing to consumers as are Trader Joe’s, retail experts agree.
“What Trader Joe’s does particularly well is to make the brand consistently stand for the same things. They have a brand promise … and they have a brand personality that is consistently brought to their marketing campaigns,” says Jim Hertel, managing partner with Willard Bishop, a retailing consulting firm in Barrington, Ill.
Trader Joe’s, based in Monrovia, Calif., last year saw sales rise 11 percent to an estimated $8 billion as its footprint rose to 350 stores, an increase of 7 percent or 24 stores in a year, Hertel’s firm estimates in a recent research report. That sales estimate would put the chain close to breaking into the PL Buyer Top 25 retailers in the United States, depending on other chains’ results. Last year, Winn-Dixie was No. 25 on the PL Buyer Top 25 list with 2008 sales of $7.3 billion, and Whole Foods was No. 24 at $8 billion.
Trader Joe’s total store footprint is up by 97 stores since the last time PL Buyer took a look (see PL Buyer, May 2006). The chain that was once a California phenomenon is now national.
And if there was any doubt whether the Trader Joe’s mystique would work in urban areas, one need only look at the retailer’s 8,000-square-foot store in New York’s bustling Union Square. That location did $15 million in sales last year, not including receipts from a separate Trader Joe’s wine shop at the same location, estimates Len Lewis, author of The Trader Joe’s Adventure, published in 2005. (Lewis today is a freelance writer.) Trader Joe’s average annual sales per square foot for all its stores are $1,372, double the industry averages, estimates Planet Retail, a London-based retail research firm.
Checkout lines at the Union Square location routinely snake through the store at all times of the day and night, to the point where Trader Joe’s employees stand at the end of lines with signs letting shoppers know where the lines end. The outlet is in a New York University dormitory. Urban legend at NYU has it that students asked the university specifically to get Trader Joe’s in the site back in 2006 when it opened. The store has been so successful that another longtime New York food retailer, Gristede’s, renamed a nearby outlet Trader John’s, leading Trader Joe’s to sue in 2009 for trademark infringement.
Longtime Trader Joe’s watcher Lewis thinks the chain’s ambitions won’t end in Lower Manhattan. He has heard reports that Trader Joe’s private label products are beginning to show up in ALDI stores across Europe.
“You may be seeing the emergence of a new global brand,” Lewis says.
Trader Joe’s and ALDI are controlled by the same German family, the reclusive Albrecht brothers, who last year ranked ninth (Karl) and 31st (Theo) on the Forbes list of the world’s richest people. The chains have been operated separately to date.

Now, “I get the impression there is a little more interaction between the two companies,” Lewis says. “You’re not going to see ALDI products in Trader Joe’s, but I could see more Trader Joe’s products showing up in the ALDI stores overseas and possibly in the ones they have here.”



Not bad for what began in 1958 as a convenience store chain called Pronto Markets. That early history is now the stuff of legend. Squeezed by increasing competition from an expanding 7-Eleven, founder Joe Coulombe in 1967 hit upon a unique niche by adding health and beauty aids while also expanding his wine and spirits selection to 17 brands, the largest assortment in his trade area at the time. By the 1970s, he had moved his renamed Trader Joe’s into gourmet foods and natural products. Coulombe, who sold out in 1979, told Bloomberg Businessweek in a 2008 story that he envisioned Trader Joe’s as a cross between Brooks Brothers, which only sells its own brand of clothing, and Stew Leonard’s, a Connecticut store famous at the time for selling a limited assortment of quality food items. He also wanted the store to be fun for shoppers, so he went with the Caribbean island vacation theme for his décor. The rest is retailing history.
True, there have been a few bumps along the way, particularly as it has become larger and more known nationally. Trader Joe’s had a run-in with Greenpeace in 2009 over the issue of how it sources seafood, for example. In 2007, the issue of the safety of products it sourced from China hit the headlines. Each time a controversial accusation came up, Trader Joe’s, which traditionally does everything it can to stay out of headlines - it would not grant interviews for this story, for example - responded quickly by changing its operating practices to diffuse the criticism.

“They don’t want any controversy with their customers if they think their customers are right,” Lewis says.

Trader Joe’s clientele has moved way beyond those first California hippies. Today, its customer base is a generally well-educated one that has come to cross various income levels, experts say. They are attracted by the information Trader Joe’s provides about its products and their origins.



Through it all, Trader Joe’s has remained remarkably consistent with Coulombe’s early vision for it. Today, it stocks a limited assortment - about 2,025 SKUs - and roughly 85 to 90 percent of those are private label offerings, says Lewis.
“It’s really kind of hard to separate their private label strategy from their business strategy because private label is their business strategy fundamentally,” says Hertel. Trader Joe's outlets are smaller than the traditional supermarket, and until recent urban forays, they had been largely in small malls with handy parking.
Trader Joe’s delivers quality in its private label products at prices below those of national brands. At the same time, it sprinkles in uniquely sourced outside brands and products to cultivate the sense that shoppers are in for a shopping adventure every time they step into the store. When it finds branded products that click with consumers, the retailer often will create a private label version with differentiating characteristics to help it stand out on shelves, notes Dornblaser.
She points to how Trader Joe’s has handled Greek yogurt as an example. It first brought in a branded product, but eventually produced its own version in different-sized packaging. In another example, Trader Joe’s got national attention for its deal in 2002 to merchandise Charles Shaw wines for $1.99 a bottle, giving the wine a now-famous nickname, “Two Buck Chuck.”
It maintains a consistent image, from the look and feel of stores, to packaging and product sampling, to its offbeat marketing through the Fearless Flyer newsletter.
Unless they do some research, shoppers likely have no idea Trader Joe’s is owned by a foreign company. Rather, shoppers likely think of the retailer as a local gem in their neighborhood. Towns vie openly to lure in new Trader Joe’s stores. Indeed, word in July that Trader Joe’s was seeking a liquor license in Greenville, S.C., presumably for a new store there, was reported as a boom for a local retail area in the Greenville News.
“What they do is they borrow a page from our idealized past where the store had a very localized and very relevant offering to the community in which they operate. Trader Joe’s plays off of that. For the last 30 years, retailers have been standardizing everything, but technology today allows localized offerings with economies of scale,” explains Brian Kilcourse, managing partner with RSR Research LLC, a Miami-based retail research firm.

Even Trader Joe’s packaging contributes to that overall retro funky image, says Jonathan Asher, senior vice president with Perception Research Services, a Fort Lee, N.J.-based packaging research company.

Packages don’t scream that they’re from Trader Joe’s, he explains.

“It’s that subtlety and understatedness that I find very interesting,” Asher says, adding that the packaging is so unique, it also serves as a marketing billboard in people’s homes when others see it.

On the supply chain side, relying on private label allows Trader Joe’s to “structure themselves as operationally efficient as a company,” working to develop exclusive supplier deals, adds Kirsten Osolind, CEO and founder of RE:INVENTION Marketing, a marketing consulting firm based in San Diego, Calif. Osolind was national marketing director for Whole Foods in the late 1990s and early 2000s, a position from which she closely watched Trader Joe’s.
Suppliers need to adhere to a strict set of specifications regarding product and packaging quality, and they have to meet the Trader Joe’s designated price point. While not as notorious for squeezing suppliers as Walmart is, Trader Joe’s knows what price it wants to pay to meet its margin objectives and isn’t shy about getting it from suppliers.

It is constantly searching for new products. Buyers can spend 10 months of a year traveling in search of unique new offerings, Lewis notes.



The overarching message for other private label retailers in the Trader Joe’s formula is consistency in knowing and communicating what your brand is all about.

“Figure out who you want to be as a brand, what is your brand essence, your special point of difference,” Asher says. “Whatever that is, define it as narrowly and as specifically as you can. What are you all about as a brand? And then you want to represent that as full and as completely and as accurately as you can.”

Don’t be afraid to create private label brands that have some quirkiness of their own, Osolind advises. Whole Foods attempted to do that after watching Trader Joe’s success with its various labels such as Trader Jose’s and Trader Ming’s for some of its ethnic offerings.
Constant product innovation is another Trader Joe’s hallmark others can emulate. The retailer’s Web site notes that it rolls out 10 new products each week. Don’t shy away from introducing new private label offerings and even limited time ones that create the sense of discovery common at Trader Joe’s and others such as Costco, which employ rotating limited-time specials. Be the first in a new category rather than a follower of national brands, says Blair McCaw, president of Constellation Management Group, a Chicago-based brand marketing agency.
“For so long, retailer private label strategy was really about just mimicking the national brands. It’s only been the last three to five years that retailers have started to develop brand management functions in their companies and think about building or licensing brands to differentiate themselves. Trader Joe’s was out in front of that for a long time,” McCaw says.
Another lesson is to do whatever you can to make the shopping experience a fun one for consumers. That doesn’t mean just making kitschy outfits standard uniform, says Osolind. Rather, it can relate to store flow and consumer education efforts in-store.

“In a hypercompetitive world, differentiation is really the holy grail of retailers,” Osolind says.

There’s no question Trader Joe’s has differentiated itself. It will face increased competition from other small format stores coming down the pike in the near future, experts agree, but they will all be chasing Trader Joe’s rather than the other way around. PLB






2009 Sales: $8 billion

2009 Stores: 305

Sales per square foot: $1,372

Private Label Brands: Trader Joe’s, Trader Ming’s, Trader Jose,    

Trader Giotto, Pilgrim Joe and more

Private Label Sales:

85-90% of total sales

CEO: Dan Bane


Monrovia, Calif.


Sources: Industry estimates, Trader Joe’s Web site.




Private Label Lessons

from Trader Joe's


• Define your brand essence - who do you want to be as a brand?

• Define your point(s) of difference from the competition.

• Don’t just imitate national brands - innovate with new products and packaging.

• Look to gourmet and specialty stores for products to offer in private label.


• Involve consumers in your products by talking intelligently to them about product attributes.



SIDEBAR 3: The Trader Joe's Timeline


1958: Pronto Markets, the predecessor of Trader Joe’s, opens.


1967: The first Trader Joe’s opens in Pasadena, Calif.


1970: Trader Joe’s first customer newsletter, The Insider Report, introduced.


1972: The first Trader Joe’s private label grocery product - granola - appears


1977: Trader Joe’s expands its private label offerings, rolling out Trader Ming’s, Trader Jose, Trader Giotto and Pilgrim Joe.

First private label organic item is introduced: organic unfiltered apple juice.


1979: Founder Joe Coulombe sells out to the Albrecht brothers, Karl and Theo, who own ALDI, the German discounter.


1984: Trader Joe’s starts doing radio advertising.


1985: Newsletter changed from the Insider Report to the Fearless Flyer, the primary form of advertising used by Trader Joe’s today.


1988: A Trader Joe’s opens in San Rafael in Northern California, the chain’s first leap out of its Southern California base.


1993: First non-California store opens in Phoenix


1995: First stores in the Pacific Northwest: Beaverton, Ore., and Bellevue, Wash.

Nevada became home to the 70th Trader Joe’s.


1996: Trader Joe’s Web site,      , goes live.


1997: First East Coast store opens in Brookline, Mass.

Trader Joe’s starts offering 10 new items      a week.


2000: First two Midwest stores open in Chicago suburbs.


2002: The first bottles of Charles Shaw wines are sold in Trader Joe’s.


2006: Trader Joe’s opens in New York.

Trader Joe’s enters the Southeast with a store in Roswell, Ga., followed by another in Cary, N.C.


2007: Trader Joe’s makes a commitment to eliminate added trans fats, artificial colors, flavors, preservatives and GMO ingredients from all private label products.



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