Trader Joe's: A Case Study and Analysis Joe Coulmbe, the innovative and unorthodox founder of Trader Joe's, opened his first grocery store chain in 1958 called Pronto Markets. Originally located exclusively in Southern California, Joe Coulombe began building his empire by revolutionizing traditional business strategies employed by the supermarket industry. After 10 years of quiet expansion throughout Southern California, Joe Coulombe changed the name of his markets to the popular name recognized across the country today, Trader Joe's. From 1967 to the present, Joe Coulombe Markets and his Trader Joe's have methodically expanded across the country with 460 stores in 41 states and the District of Columbia. This article will explore the methods that Trader Joe's has incorporated into their business model that has created a cult following. To patrons of Trader Joe's it is more than a supermarket; it has become a social movement. It's very common for patrons to camp outside the new Trader Joe's location days before the grand opening, for the honor of being the first in the door. Although Trader Joe's is known for being incredibly secretive and maintaining a very light social media presence, patrons of the store have stepped up to create a social media frenzy. Countless Facebook pages and other consumer-organized media have amassed thousands of followers. The pages are dedicated to advertising new products, recipes and promoting promising new locations. Trader Joe's is a privately held company purchased by Theo Albrecht, the owner of one of the most successful discount grocery store chains in Germany, Aldi North, in 1979. Although Theo Albrecht purchased Trader Joe's, he left the organization to run himself alone, with executives Visiting Trader Joe's headquarters only once a year to maintain a light presence. Trader Joe's was able to maintain its original identity as a “quirky and interesting” South Seas market. Joe Coulombe created an environment with customers and employees that made people feel comfortable and enjoy being around in the shop. It paid employees higher-than-average wages and offered more benefits than most major retailers. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay The supermarket industry is one of the most challenging and competitive industries in existence. With razor-thin margins averaging between 1% and 3%, companies must be very creative and innovative to maintain profitability. Key companies in the industry include names like Walmart, Whole Foods, Safeway, Kroger, and Trader Joe's. Each of these companies uses a different strategy to be profitable and maintain their competitive strategy. Walmart, the highest-grossing supermarket in the United States, has adopted a strategy that has allowed them to be the most dominant department store in the world. Walmart is focused on being the undisputed champion of cost leadership. Walmart is so large and powerful that its bargaining power with suppliers allows them to purchase products to stock their shelves at the lowest possible price. These deals are then passed on to their consumers. Walmart creates profitability by buying name-brand products at a discount that other chains can't match. Walmart attracts consumers from all socioeconomic categories thanks to its enormous diversity of SKUs (up to 100,000) and products. Unlike many other grocery store chains that supplement revenue by charging rent for shelf space, Walmart has dominated the market to become the undisputed leader incosts, generating billions in revenue from product turnover. One of the new competitors in the supermarket industry is Whole Foods. Known as the darling of the food industry, Whole Foods rose to fame and dominance in the late 1990s and early 2000s. Whole Foods used a competitive strategy of focused differentiation to carve out a successful niche in the industry. Unlike traditional supermarkets, Whole Foods has focused on smaller stores, organic and health products, and perishable foods, including deli and vegetables. Per square foot of store space, Whole Foods ranks second with $940 in annual sales, behind only Trader Joe's. Whole Foods' farmers' market atmosphere and healthy, focused marketing attract a crowd of educated consumers who have disposable income and are less price sensitive. Using its focused differentiation strategy, Whole Foods has been able to maintain strong profitability by charging a premium for its products. Patrons who frequent Whole Foods aren't looking for a good deal, they're looking for a premium product. Safeway, one of the nation's largest grocery retailers, uses more traditional methods to gain profitability. Safeway offers the consumer a wide range of products necessary for everyday life. When you walk into a Safeway, you know you'll find the product and brand you want. With this strategy, Safeway charges food manufacturers a rental fee for space on their shelves. This fee supplements much of the profit lost on low-margin food sales. Safeway does not aim to be the leader in low-cost products or differentiate itself from other stores, but instead offers consumers convenience. In addition to convenience, Safeway has invested millions of dollars in developing software to increase efficiency allowing for higher margins on sales. The strategy of Kroger, America's largest grocery chain by volume, uses a competitive strategy of running a very low-cost operation that can sell products at relatively low prices and still generate good financial returns. Supporting their success is a marketing strategy that focuses on the customer and their desires. Kroger refers to this as their “Customer First” strategy. This marketing strategy drives sales and results in economies of scale that allow the company to offer lower prices without negatively impacting financial returns. Implemented in 2010, the “Customer 1st” strategy took the form of focusing primarily on offering very low prices, based on the company's perception that one of the main things consumers look for is low prices. Although Kroger offers very low prices, it is still unable to surpass Walmart as the undisputed champion of cost leadership, but their combination of low prices and quality service has put Kroger at the top of the list. Trader Joe's has revolutionized the way supermarkets maintain a profitable margin. Trader Joe's has reduced overhead by maintaining smaller stores in prime locations, fewer staff, unique relationships with manufacturers, the ability to produce products in-house, superior employee training and unsurpassed customer knowledge. These factors have enabled very low prices without compromising product quality and creating an extraordinary brand image. Most grocery stores average 40-50,000 square feet, while the average Trader Joe's is less than 15,000. Obviously the smaller space requires less rent and less management, which results in huge financial savingscompared to larger grocery stores. These savings are automatically passed on to users as a reduction in the cost of food purchased. Smaller stores also mean fewer workforces are needed to run the store, further reducing costs. Trader Joe's strategically places their stores in locations targeted to their demographic. Smaller stores, fewer staff and prime locations create an incredibly efficient and low-cost business model. Trader Joe's is a very secretive company and goes to great lengths to keep its relationships with manufacturers under wraps. Trader Joe's is among the minority of grocery stores that do not charge display fees to their vendors to place their products on shelves. This relationship with manufacturers has reportedly led to great partnerships with mutual benefits. The store has a policy of removing 15-20 items from shelves each week and replacing them with new ones. By consistently removing poorly selling products and replacing them with products that sell well, they have maximized the profitability of shelf space. Trader Joe's gains valuable insights into consumers' shopping habits by understanding which products sell well. Another advantage of Trader Joe's is that they can produce many of their products in-house. This allows for significant cost savings, without the fear of a reduction in quality. The awareness of constantly controlling the cost and quality of their product ensures high-level products on the shelves. This only adds to the amazing brand image that Trader Joe's has created. Their strong image is perhaps their best competitive advantage. Porter is quoted as “the essence of strategy is choosing what not to do”. Trader Joe's has used this concept very well. They went their own way and decided not to follow any trends. While other companies ask for rented space to supplement revenue, Trader Joe's has focused on establishing strong, mutually beneficial relationships with manufacturers and suppliers. This concept has created an incredible variety of high-quality products that are in high demand among consumers. Many of the other major grocery chains have invested heavily in social media to raise awareness of sales and product information. Trader Joe's on the other hand has almost no social media exposure, aside from consumer-created pages. To raise awareness about their products, Trader Joe's publishes a newsletter called "Fearless Flyer." The Fearless Flyer is not designed to offer coupons or advertise, but to provide information about their products and fun recipes that can be created with Trader Joe's unique products. Trader Joe's never offers coupons but instead offers low prices every day on high-quality products. The newsletter is less about selling products and more about sending letters to loyal customers, letting them know that Joe's is thinking of them. Trader Joe's limits their products to approximately 4,000 SKUs. Most grocery chains offer up to 40,000 products to bombard the consumer with everything available. This might seem like a great strategy, but it's so unselective that most products will sit on the shelf gathering dust. Instead, Trader Joe's will continually pull products that aren't selling off the shelf to fill those spots with products that will generate revenue. This targeted approach has served Trader Joe's well by generating the highest sales volume per square foot of floor space. Trader Joe's has leveraged its unique competitive advantages to great economic success. Although there are many other chains