{"id":6951,"date":"2015-12-09T22:41:51","date_gmt":"2015-12-10T03:41:51","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/unpacking-trader-joes\/"},"modified":"2015-12-09T22:48:55","modified_gmt":"2015-12-10T03:48:55","slug":"unpacking-trader-joes","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/unpacking-trader-joes\/","title":{"rendered":"Unpacking Trader Joe\u2019s"},"content":{"rendered":"

In a heavily competitive industry, Trader Joe\u2019s (TJ\u2019s) has proven to differentiate itself from the traditional grocery store.\u00a0 That differentiation is rooted in its business model of offering value products and excellent customer service.\u00a0 Yet, what has led to its tremendous success is arguably its effectiveness of aligning its business and operating models.<\/p>\n

Value Products<\/u><\/p>\n

Trader Joe\u2019s delivers value to customers by adopting an everyday low price strategy.\u00a0 It executes on this strategy partly by carrying a limited number of products.\u00a0 In fact, TJ carries 5x fewer products (~2,500 SKUs) than the traditional supermarket.\u00a0 TJ\u2019s doesn\u2019t aim to be a one-stop shop like a full-service supermarket and rather serves as the secondary store.\u00a0 For example, TJ\u2019s intentionally lacks a pharmacy, meat and fish counters, and wide selection of produce and staples.<\/p>\n

Another way to deliver on its low price value proposition is through private label.\u00a0 Over 75% of TJ\u2019s product offerings carry the TJ\u2019s label. Unlike competitors, such as Bristol Farms and Whole Foods, TJ\u2019s doesn\u2019t carry any national brands. Executing on this strategy allows it to keep costs low without compromising on quality.<\/p>\n

The buying process is another source of differentiation.\u00a0 TJ\u2019s buys directly from manufacturers and by cutting out middleman distributors, the company is able to keep prices low.\u00a0 Beyond this streamlined process, the purchasing team is also disciplined about buying products that it can sell for a better price than supermarkets.\u00a0 Its strategy lies in part in its ability to buy in large volume and strike deals with suppliers.\u00a0 TJ can thus pass the results of its buying efficiencies through to customers.<\/p>\n

Exhibit 1<\/strong>: Range of TJ\u2019s Private Label Products<\/p>\n

\"Private<\/a><\/p>\n

Source: Huffington Post<\/p>\n

Good Customer Service<\/u><\/p>\n

TJ\u2019s executes on this customer centric strategy by empowering its employees, specifically through training programs, its hiring process and compensation packages. Employees collectively exude a level of enthusiasm and energy, and are cross-trained across multiple functions such as cashier, stocker and customer interface roles.\u00a0 They are also trained in communication skills, teamwork, leadership skills and product knowledge.\u00a0 Besides opportunities for personal development, employees also enjoy attractive compensation packages.\u00a0 For example, part-time clerks earn between $8-12 per hour and full-time clerks make ~$16 per hour.\u00a0 Assistant store managers can make an average of $94,000 a year while store managers can make on average $132,000, comparable to that of a Wal-Mart store generating 6-7x in store revenue.\u00a0 Compensation is a key driver of employee satisfaction, which is particularly pertinent in any customer facing role.\u00a0 On the talent acquisition side, TJ\u2019s looks to hire people who are ambitious, friendly, and engaging.\u00a0 These qualities are also stressed in performance evaluations as they are key to employing good customer service.\u00a0 At the corporate level, the company runs on a lean organization with only two levels between the CEO and a cashier.\u00a0 All of these factors create a strong culture and results in a low annual turnover of 4% amongst full-time employees.\u00a0 A happy and motivated workforce allows TJ\u2019s to maintain a high level of customer service.<\/p>\n

Alignment Between Business and Operating Models<\/u><\/p>\n

The success story of Trader Joe\u2019s has proven the importance of aligning a company\u2019s business and operating models.\u00a0 Every aspect of its business from its purchasing process and private label strategy align with its commitment to low prices.\u00a0 Similarly, its focus on instilling a customer-centric culture and hiring the right talent delivers on its promise for excellent customer service.\u00a0 Trader Joe\u2019s epitomizes a company\u2019s business model aligning with its operating model as evident in the results of the satisfaction survey below (Exhibit 2).\u00a0 Thus, it\u2019s no surprise that Trader Joe\u2019s is has one of the highest sales productivity metrics in the industry (Exhibit 3) and has proven to be a formidable player in the grocery business.<\/p>\n

Exhibit 2<\/strong>: Reader\u2019s Satisfaction Rating by Category by Select US Supermarket Chains<\/p>\n

\"Untitled\"<\/a><\/p>\n

Source: Coriolis Research<\/p>\n

Exhibit 3<\/strong>: Grocery Store Sales Per Sqft and Store Opening Plans<\/p>\n

\"screen<\/p>\n

Sources<\/strong><\/p>\n

Aiken, Kristen. “Who Really Makes Trader Joe’s Food?.”\u00a0Huffington Post. <\/em><http:\/\/www.huffingtonpost.com\/2013\/02\/12\/who-makes-trader-joes-food_n_2664899.html><\/p>\n

Lutz, Ashley. \u201cHow Trader Joe’s Sells Twice As Much As Whole Foods.\u201d <http:\/\/www.businessinsider.com\/trader-joes-sales-strategy-2014-10<\/a>><\/p>\n

Mallinger, M., Rossy, G. \u201cThe Trader Joe\u2019s Experience.\u201d Graziadio Business Review.\u00a0 <https:\/\/gbr.pepperdine.edu\/2010\/08\/the-trader-joes-experience\/><\/p>\n

Palmari, Christopher. \u201cTrader Joe’s Recipe for Success.\u201d http:\/\/www.bloomberg.com\/bw\/stories\/2008-02-20\/trader-joes-recipe-for-success<\/a><\/p>\n

\u201cUnderstanding Trader Joe\u2019s.\u201d Coriolis Research. May 2006. < http:\/\/www.coriolisresearch.com\/pdfs\/coriolis_understanding_trader_
\njoes_final.pdf><\/p>\n","protected":false},"excerpt":{"rendered":"

In an industry dominated by large incumbent players and razor thin margins, Trader Joe's has discovered a winning recipe. 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