In the entire world of retailing perhaps there is no single operation that breaks more rules, defies more standard practices and is so successful as Trader Joe’s, the grocery chain founded by Joe Coulombe … and now 500 stores strong. Coulombe, who sold the company to the big German retailer Aldi Nord in 1979, died earlier this year at age 89, but not before he had written “Becoming Trader Joe: How I Did Business My Way and Still Beat the Big Guys,” a combination autobiography and business guide whose title pretty much sums up the company’s story.
And an amazing story it is. With its offbeat merchandising style, extremely heavy reliance on private label (80 percent), employees dressed in Hawaiian shirts rather than god-awful smocks, and lack of conventional supermarket tactics including sales, coupons and loyalty programs, Trader Joe’s is the quintessential exception to the rule.
Coulombe’s book, which was published summer ‘21, reveals a lot of the foundation and reasons behind its unorthodox strategy, some of which defies logic and others that amount to just good old plain common sense. In its review this fall, the New Yorker called the book “a sort of ‘Kitchen Confidential’ (the Anthony Bourdain book that first brought him to prominence and exposed the secrets behind the restaurant business) for the grocery business but without the drugs or rage.”
As much as people love shopping at Trader Joe’s, most probably don’t know an awful lot about how the retailer got to where it is today and why it does some of the things it does. And those in the retailing trade are no doubt equally as uninformed about why the things Joe does amount to an amazing business model. To that end, here’s the answers to your Top Ten Trader’s Joe questions.
- How did Trader Joe’s really start?
Joe Coulombe was a double major – economics and business administration –Stanford graduate when he went into the grocery business at a local Bay Area chain named Pronto Markets. The grocery legend is that one day an egg supplier came in, offering him an oversupply of the extra-large eggs he had for the same price as plain large eggs. Joe took the deal and realized giving the customer the unexpected was a winning idea. A short time later he created Trader Joe’s with a simple mandate: good food, often bordering on the healthy, at a good price…often bordering on an outright bargain.
Yes, Virginia, there really is a Trader Joe…or at least there was one.
- Why are the people who work there so good … and seem so happy?
In his book Joe says that while he was a businessman first and not a tree-hugging do-gooder, he tended to “do the right things for all the wrong reasons” when it came to his employees. “This is the most important single business decision I ever made: to pay people well.” That included generous benefits, a fun working environment where everyone wore Hawaiian shirts, managers are called “captains,” employees are “crew” and from time to time people will ring a ship’s bell…for reasons that aren’t always clear. “We think grocery shopping should be fun, not another chore, so we wear ourselves (and our shirts!) lightly,” is how the website puts it. Happier employees mean less turnover and better productivity is how Joe put it. Duh.
- How in the world did Joe come up with his merchandising mix?
Walking the aisles — usually slightly off-center compared to conventional supermarkets – of a Trader Joe’s, you often are stymied by the mix of products. Why are there exotic cookies, snacks and prepared meals but no cans of Spaghetti-O’s or loaves of Wonder Bread? In his book Joe says he came to understand that a better educated, more world traveled customer would develop a better palette and appreciation for something more sophisticated than mac and cheese (although you can buy mac and cheese at the store and it’s quite delicious). “Dimly, I saw an opportunity to differentiate ourselves radically from mainstream retailing to mainstream people.” TJ’s, as many of its shoppers refer to the store, typically carries about 2,000 skus, compared to as many as 30,000 in a large supermarket and they are often picked by the store’s own employees who will work with suppliers to develop items specifically for the store. It’s why some people in the trade call Joe’s “the anti-Amazon.”
- What do you mean, there aren’t any sales?
No sales, no coupons, no customer loyalty programs and most tellingly over the past two years, no online sales or curbside pick-up. And yet, it doesn’t seem to matter when it comes to the company’s balance sheet. Even though it’s private, outside estimates are that Joe’s outsells every competitor when it comes to sales per square-foot, the key metric in the grocery business. A research report from several years ago puts those sales at close to $1,800 a square-foot, double that of Whole Foods. That’s even with a lower unit cost than its most-compared-to competitor, as much as 15 percent below the 356 Whole Foods house brand.
- What is the deal with that pricing, anyway?
Make no mistake about it, some of the items for sale at Joe’s carry incredible markups, particularly those impulse items around the checkout counters. But others are downright crazy, right? Take bananas. They are 19 cents each – and have been so seemingly forever – and that’s a great value. But the reason behind this pricing tells you even more about Joe’s. The stores do not have scales at their checkout stations, so unit pricing eliminates the need to weigh individual items. The same thing goes for all kinds of other produce and items.
And then there’s Two-Buck-Chuck. More technically, it’s Charles Shaw wine that sells for $2, or $2.50 in certain parts of the country. The story is that Joe went to wine producers and agreed to buy their excess production in bulk for one low price. That allowed the store to create a brand and sell it for that ridiculously low price. The fact of the matter is that the store has a great selection of wine, some of its considerably more expensive than two dollars, but this opening price point offering serves as a great entry point for shoppers. All over the store shoppers can find amazing bargains but like any smart retailer, they often sit next to high-margin items.
- Did the “treasure hunt” school of retailing begin at Trader Joe’s, not off-price stores?
The simple answer is yes. Shoppers at Joe’s never know what they’ll find walking the store and it’s one of the reasons it has developed such a devoted following. The Wesleyan Business Journal, in a story on the chain several years ago, pointed out this core strength: “Trader Joe’s produces unique, low-priced goods, including a high-quality wine collection. Each customer develops an appreciation for different Trader Joe’s selections and returns to its stores again and again specifically for those selections. But even beyond product selection, customers have come to value the Trader Joe’s experience itself. “Trader Joe’s also knows how to appeal to its customer base to preserve high repeat customer rates. Trader Joe’s ensures that it differentiates its original products. Trader Joe’s consistently possesses one of the highest customer satisfaction ratings in the grocery store industry. It has been rated consumers’ favorite grocery store chain in America.”
- When did Joe Coulombe sell the company?
For reasons that are aren’t entirely clear more than 40 years after the fact, its founder sold Trader Joe’s to the big German grocery chain Aldi Nord in 1979. At the time it had 19 stores, primarily in California. Aldi was originally one company but its owners, two brothers, split the company up into north (Nord) and south (Sud) units in what stories say was a dispute about whether to carry cigarettes or not. Because of the similarity in names, many people believe Joe’s is owned by the same company that owns the Aldi stores here in the U.S., but that’s Aldi Sud. Today the two German Aldi companies are separately owned and operated.
- How big is Trader Joe’s today?
Today there are more than 500 Trader Joe’s stores in the U.S. and because it remains privately owned, getting hard numbers on the size of its business is not easy. In 2019, consulting company Edge by Ascential estimated Trader was doing $13.7 billion in net sales. That’s still much, much smaller than the giants in the field like Walmart, Kroger and Costco – not to mention Aldi – but it’s a sizeable amount indeed.
- Is there anything wrong with Trader Joe’s?
Like any good business, Joe’s messes up every now and then. It recently caught some flack over some of its product names, such as Trader Jose’s and Trader Ming’s, which critics said were racist. Joe defended the policy, saying it was committed to playing off its brand, but it said it would change the names…reluctantly. There are also some anecdotal complaints about the quality of its produce, which is often bagged – remember the lack of scales – as opposed to being sold individually. And if you’re used to giant supermarkets with endless selections of national brands, Trader Joe’s is probably the wrong store for you. Because of its real estate strategy which searches out low-cost locations, sometimes with limited parking, some shoppers used to ginormous stores have their gripes. But based on customer loyalty and satisfaction studies unhappy shoppers are decidedly in the minority.
- What did Joe think about bad businesses?
Joe Coulombe built a successful business that has grown substantially with its basic model unchanged, and he had the last word on why bad businesses fail. And it is a blunt warning to managements looking to put the blame on everybody and everything…but themselves: “A deeply troubled company is always the fault of the CEO, the board of directors and the controlling stockholders who appoint those worthies,” he wrote in his book. “It is never the fault of the frontline troops.”