TRADER JOE’S 50TH ANNIVERSARYRetailer Extra

The average grocery shopperthese days is tired, stressedout, worried about her bank

account, over-scheduled, constantlyin the car and at the end of a workday, hungry — and certainly not inthe mood to shop for groceries.Throw a couple of kids into theequation, and you have a recipe for aretail meltdown. However, if she’slucky, our world-weary consumerlives in a metropolitan setting full ofmany shopping centers — with atleast one of them home to a TraderJoe’s store.

Viewed by many as an oasis in avast desert populated byhomogenous, impersonal cookie-cutter grocery store formats, TraderJoe’s, which is celebrating 50 yearsin business this year, has made iteasier and sometimes downright funto be a consumer.

Although a typical Trader Joe’sstore is physically smaller andcarries far fewer SKUs than theaverage grocery store, its eclecticmix of staples and specialtyproducts has developed a cultfollowing — from single folks whohave trouble adjusting recipes forone to senior citizens whoappreciate the short distance

between the frozen foodsand produce departments.

Trader Joe’s is privatelyowned and notoriouslytight-lipped with regard tothe media. However, youdon’t need to readquarterly reports and stockprices to figure out howTrader Joe’s succeeds. Allyou need to do is step intoa store and take a good lookat the strength of thecompany’s private labelproducts to get a senseof the Trader Joe’s“experience.”

A Taste of theTropicsTrader Joe’s founder, JoeCoulombe, began with aconvenience store chain in andaround Pasadena, Calif., in 1958,under the name Pronto Markets. Inhis book, The Trader Joe’s Adventure,author Len Lewis writes thatCoulombe was inspired to turn hissmall c-store chain into nautical-themed gourmet and specialty shopswhile on a vacation to the tropics.Lewis says Coulombe recognizedthat people often are more open to

new andexotic tastes when theyare on vacation, which led him to tryto re-create that experience at theretail level. He changed the namePronto Markets to Trader Joe’s in1967.

Lewis also writes that Coulombealways believed his stores wouldperform best in areas that had morewell-educated consumers, but notnecessarily high-income consumers.Thus, he quickly recognized thatcommunities with colleges anduniversities were his best markets.

Southern California’sappreciation for slightly whimsicaland offbeat concepts — in acommercial as well as cultural sense— also benefited Trader Joe’s in thebeginning. Coulombe was able toimplement his tropics-themed décor,including employees wearingHawaiian shirts; displays made outof fishing nets, wooden planks andsurfboards; and sample-tastingbooths fashioned to look like Tikihuts.

GretchenGogesch, presidentof Integrale LLC,an innovationconsultancyspecializing inconsumer researchand emotion-drivenstrategy, saysretailers could standto learn a lot fromthe way Trader Joe’sdefines its image andits products.

“Dare to have aunique point of view.Customers appreciateit and are drawn to it,especially if it’s a

quirky one like T.J.’s,”Gogesch says. “Hawaiian

shirts, in-store nauticaltheme, friendly employees and

great food in a funky store? Whoknew? What Coloumbe did wascelebrate that playful place in all ofus.”

The process by which Trader Joe’sdevelops its products reflects theretailer’s informal and democraticcorporate culture.

“The process is inclusive,meaning everyone can attend andgive their thumbs-up/down to anyproduct, as well as serve up ideasfor how to improve something intest. Very smart. It draws from theT.J. culture established by founderJoe Coloumbe, who democratized, ifyou will, discriminating ‘taste pluspalate,’” Gogesch says.

She surmises that Trader Joe’soperates on the idea that you don’thave to be wealthy to appreciate orhave access to good-tasting food.

“That redefined the era ofspecialty foods and stores,” Gogeschsays, adding that Dean & Delucaand Silver Palate were all the ragewhen Coloumbe was rolling out hishumble stores.

“Coloumbe was likely one of the

BY MARY GUSTAFSON

In its 50th year in business, Trader Joe’s still manages to thrill its customers and impart its personality intoevery part of its business.

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pioneers who taught consumersthat cross-shopping was cool andsmart — not to mention fun,”Gogesch says.

Very early on, Coulombediversified his inventoryby buying specialtyand gourmetcloseouts andoverstocks on itemssuch as brie cheeseand local Californiawines.

These types ofproducts helpedattract a more nichecustomer base — andeventually theattention of Germanbrothers Theo and KarlAlbrecht, who ownand operate theEuropean Aldi chain,and to whomCoulombe sold thecompany in 1979.

Now, headquarteredin Monrovia, Calif.,

Trader Joe’s currentlyoperates approximately300 stores in nearly 25states and is expanding

rapidly.

BuildingtheBrandUndoubtedly,Trader Joe’ssuccess restson the strengthof its privatelabel products,whichcomprise,according tosome estimates,about 2,000products orabout 70 percentof its sales. Therest of itsselection,primarily in theproduce, prepared

meals, baked

goods and dairy departments, isfilled in with national brands andregional brands that vary bylocation.

But it’s the products that bear theTrader Joe’s brand, and thevariations of that brand, that areresponsible for the cult following theretailer enjoys.

Lynn Dornblaser, a new productsanalyst at the Chicago-based MintelInternational Group Ltd., saysTrader Joe’s employs savvy buyersand scouts who are always on thelookout for products that fit thechain’s philosophy, as well as thecompany’s commitment tosustainability, organics andinnovation.

“Trader Joe’s buyers are hittingall the natural and organic tradeshows, traveling, visiting WholeFoods, so that’s where their ideasare going to come from. They knowwhat their ethos is, what kind ofproducts fit with a Trader Joe’sexperience,” Dornblaser says. “Oneof the interesting things is that

they’re able to take niche products,or products you can only find in asmall specialty shop, and bring themto a wider audience.”

Laurie Demeritt, president andchief operating officer of theBellevue, Wash.-based HartmanGroup, says consumers seem torespond to the brand Trader Joe’salmost as if it were a real person. Assuch, they don’t differentiatebetween the stores’ private labelproducts and national brandedproducts. And because they seeTrader Joe’s as a person, they trustthat the products are safe (e.g.,pesticide-free), organic andsustainable — and most importantly,taste good.

“Consumers think they can relaxbecause T.J.’s has done all theresearch,” Demeritt says. “Theythink ‘I can have fun’ … That’s partof the feeling they have when theygo there — it’s very unique to theindustry, and it’s the most powerfulmarketing tool they have.”

The company’s lack of big

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advertising and marketingcampaigns is notable,

given the popularityand consumer loyaltyTrader Joe’s enjoys.The companyconcentrates on

promoting itself withinits own stores, on itsWeb site and throughparticipation in

events within thecommunities in which

stores are located.Demeritt says the best example

of Trader Joe’s-style marketing isreflected in its own Fearless Flyer,which is part newsletter, partadvertising circular. Or, asTrader Joe’s describes on itsWeb site, “a cross betweenConsumer Reports and MadMagazine.” The Fearless Flyeris a small booklet printedon what looks like oldnewsprint. It containsinformation about newproducts and suggestionsabout how to enjoy them.

According to Demeritt,consumers feel anemotional connection toTrader Joe’s because of whatthey read in the Flyer, the stories andnarratives that appear on productpackaging and the story thecompany tells on its Web site. That’sone point of differentiation, Demerittsays, that other retailers don’t offerwith their private label products.

Demeritt also adds that thecompany’s most powerfulmarketing tool is its own employees.At any given Trader Joe’s store, theemployees who stock the shelves arethe same ones who work the cashregisters, whereas inmost grocery stores,employees are usuallycharged with onefunction or the other.Using this strategy,Trader Joe’s ensuresthat all of a store’semployees areknowledgeable aboutits products and canmake recommen-dations about what’snew and what’s sellingwell at both ends of ashopping trip.

Above all, Trader Joe’s employeesalways appear to be genuinelyenthusiastic — about both theproducts they’re selling and theirdesire to be helpful to customers.That way, the “Trader Joe’spersonality” is expressed through-out the shopping experience.

“They’ve kind of managed toinject a huge amount of personalityand romance/mystique [into thebrand],” maintains Jim Hertel,managing partner of Willard Bishop,a Barrington, Ill.-based consultingfirm. “Look at all the variance on theprivate brand and how itcommunicates a story. They’vecreated an entire personality; they

are unique in that. Theyaren’t afraid to pokefun at themselves.They seem to be

saying, ‘We’re nottaking ourselves tooseriously, but we dotake food seriously.’”

The variance ofbrands to whichHertel refers are thenames of specificTrader Joe’s productlines. For example,

Trader Ming’s refers tothe company’s line of Asian/fusionfoods; Trader Giotto’s includes someItalian products; Trader Juan’srepresents the Latin/Mexican lines;and Trader Darwin’s includesvitamins and supplements.

“Merchandising and marketingare NOT competing functions. In somany retail organizations, thesefunctions are discrete silos,”Gogesch explains. “You have to askyourself, who wins in this scenario?If your answer is ‘the organization’

or ‘the bottom line’ you’re on asurefire track to failure. What isbrilliant about the T.J. model is thatthose silos are seemingly removed;what you get are employees whosesole purpose and shared passion isdelighting the consumer.”

As far as which products TraderJoe’s does best, both Hertel andDornblaser insist that the retailer’sfrozen foods — namely seafood,frozen entrees, veggies, appetizers,desserts and breakfast items — arethe biggest draws.

“They bring the quality and thetaste. I’ve never been disappointedwith the frozen or prepared foods.Given space allocation, theycertainly have a much greaterrepresentation of frozen meals andfoods compared to other retailers.From a family point of view,there’s nothing better than to havea freezer full of frozen T.J’.s foods,”Hertel says.

Dornblaser thinks the bestTrader Joe’s products are the onesthat are completely original, asopposed to knock-off versions ofnational-branded products such asCheerios.

“I think some of their mostunique attributes is what they’vedone with ethnic foods in general— with Indian flavors, frozen bowlmeals. For example, the TraderGiotto line is much more

authentic-lookingand tasting thanother mainstreamproducts insupermarkets …in terms ofraising the bar,”Dornblaser says.

Dornblasergoes on toexplain that sheis very surprisedthat even herelderly motherloves TraderJoe’s, as

consumers of hermother’s generationtend to stick to whatthey’re used to whenit comes to grocerystores. Dornblaserexplains olderconsumers are lesslikely to branch out

into the more exotic and ethnicfoods, the kinds of products TraderJoe’s is known for. Shoppers likeher mom, says Dornblaser,appreciate Trader Joe’s partly forthe portion sizes and theaffordability of products such asfrozen fish, but mainly becauseeach store’s physical size —typically between 10,000 to 15,000square feet — makes shopping alot easier.

Arguably, one of retailer’s mostsuccessful products has been itsprivate label Charles Shaw wine,also known as “Two Buck Chuck.”A July 22 article in the Los AngelesTimes details how in the 1970s,Coulombe and his wine buyerswere able to engage in “aggressivewine merchandising” tosuccessfully sell local wines veryinexpensively under the TraderJoe’s label. Charles Shaw becameknown as Two Buck Chuck in the1990s when some stores startedselling it for $1.99 per bottle.

But a small group of those inthe retail industry find workingwith Trader Joe’s to be frustrating.Some would-be suppliers say theywould love to work outpartnerships with the retailer, butcan’t seem to get an audience withthe company.

According to one supplier,Trader Joe’s has a closed-doorpolicy to new vendors. Othersargue that if such a policy existed,Trader Joe’s would never have newproducts, and would lackinnovation completely.

As Hertel says, if Trader Joe’sfelt like this was a strategy thatwasn’t working, the companywould change it.

“It’s working for them now, andI can understand the frustrationfrom suppliers, but so far so good.If it ain’t broke, don’t fix it. They’reprobably in the mode where theyfeel like they’ve got the rightformula,” Hertel contends.

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Room To GrowEven with our current rockyeconomy, where every company hasto re-evaluate what it needs to do tostay viable, Trader Joe’s still isplanning expansions and faces noshortage of communities eager towelcome a new store. If its next 50years look anything like the first 50,Trader Joe’s will definitely stickaround.

Trader Joe’s remains fairly mumabout its current and futuredevelopment plans, but Hertel sayshe is encouraged that the Aldifamily of stores, of which TraderJoe’s is part, has been moreforthcoming in recent months aboutits activities.

“I’ve seen a real opening up onthe German Aldi side, in terms oftalking about their plans and wherethey are heading, especially in thelast six months,” he says.

“T.J.’s has been on a real hotstreak for many years. It’s got a lotof space to grow geographically.When you’re on that kind ofwinning streak, you don’t need to

tell everyone whatyou’re doing. Whenyou’ve got a hotconcept, there [are]a lot of opportun-ities,” he adds.

However, thathot streak is notwithout itsweaknesses. TraderJoe’s could improvein some areas as itmoves forward.Some weak spotsare produce andfresh-preparedmeals, a placewhere competitorssuch as Whole Foodsshine. To some extent, thosechallenges are related toinfrastructure and distribution.Hertel says Trader Joe’s might beasking itself how to keep therotational items fresh so it cansurprise and delight its coreshoppers.

“There certainly are not clouds onany horizon, but they’ve got some

built-in limitations andfixtures,” Hertel notes.

One of thoselimitations is auniversal problem forall retailer privatelabel programs —how to compete withheavily marketednational brands whenit comes to beverages,particularlycarbonated softdrinks.

“Non-alcoholicbeverages are a toughgo for anyone in theprivate brand

business,” Hertelobserves. “From a developmentstandpoint, they haveopportunities there. But it’s hard.You’ve got strength from thenational players — such strongmarketers and brands in theexisting space.”

Dornblaser agrees, butacknowledges that Trader Joe’soffers Italian sodas and sparkling

lemonadesthat are very well done, andadds that they are getting better atcoffee and tea as well.

Gogesch greatly admiresindividual Trader Joe’s productsoverall, but points to packaging asan area in which the retailer couldreally improve.

“Two areas that T.J.’s could paymore attention to are packagingand design. Because they’ve hadsuch success with their quirkystores and positioning, and greatproducts, consumers have giventhem lots of permission to not bea leader in offering greatpackaging or leading-edgedesign,” she says. “Ever try toopen a bag of T.J. potato chips?You nearly need a chainsaw.”

Of course, no retailer can meetevery demand perfectly, or affordto overhaul a department ormarketing campaign every timesomething doesn’t work. But ifTrader Joe’s continues to innovatelike it has in recent years, itshould do just fine. PLB

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