Trader Joes - Part 2
Trader Joe’s is a privately owned grocery store that sells a variety of natural and healthy food and beverage options - Trader Joes introduction. Their headquarters is located in Monrovia, California and they have about 350 stores in roughly 25 states. It was started by Joe Coulombe as a Los Angeles convenience store chain in 1958, and then the company was bought in 1979 by German billionaires Karl and Theo Albrecht, who founded the ALDI food chain. Trader Joe’s competes within their niche market of organic and health food grocery stores with stores like Wild Oats and Whole Foods, as well as big grocery stores such as Hannaford, Roche Bros, and Market Basket.
To keep costs down, its stores have no service departments and average about 10,000-15,000 sq. ft. The company’s specialty is its line of more than 2,000 private-label products (70% of sales), including beverages, soup, snacks, and frozen items. Some observers think that sales per square foot at Trader Joe’s are hovering at about $1,000 — twice the level of typical supermarkets. Sales last year were roughly $8 billion, the same size as Whole Foods and bigger than those of Bed Bath and Beyond.
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Their goal is to offer value and a dedication to quality service through warm, friendly, committed employees along with a pledge to offer quality products. Their mission is to “bring customers the best food and beverage values and the information to make informed buying decisions. There are more than 2,000 unique grocery items in our label, all at honest everyday low prices. We work hard at buying things right: Our buyers travel the world searching for new items and we work with a variety of suppliers who make interesting products for us, many of them exclusive to Trader Joe’s.
All our private label products have their own “angle,” i. e. , vegetarian, Kosher, organic or just plain decadent, and all have minimally processed ingredients. ” This mission requires a culture that supports loyalty and customer service through personal contact with the consumer. The commitment to the customer is captured on the Trader Joe’s website, “Our Product Guarantee: We tried it! We liked it! If you don’t, bring it back for a full refund, no questions asked. ” The underlying message is that Trader Joe’s desires to establish a personal relationship with the customer.
Q1. Using Porter’s Competitive Forces model, discuss Trader Joe’s industry competitive environment. A1. Despite their unique strategy, Trader Joe’s must still compete for customers with both large grocery stores and other ‘specialty food stores,’ such as Wild Oats and Whole Foods markets. To analyze the intensity of competition for Trader Joe’s we can use Porter’s Five Forces model. These forces include the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products and services, and the intensity of rivalry among competitors in an industry.
The threat of new entrants is medium for Trader Joe’s. There exists the possibility that competition in the form of a grocery store such as Whole Foods or Market Basket, a small specialty store, or a Wal-Mart or Target super store could open in the area at any time. In 2008, there were approximately 85,200 grocery stores, of which approximately 25,900 were convenience stores. The reason I would deem it medium and not high is because Trader Joe’s offers unique products that other stores do not which is one of their advantages.
It also appears that they have very loyal customers who would not be swayed by the lure of lower prices offered by another store. The power of the buyer is also medium due to the variety of goods and services provided by its competitors within the industry such as Whole Foods and other grocery stores. There are typically more than one food store located in an area and this allows customers to have their choice of where they prefer to shop. However, these stores serve so many individual consumers that individual buyer power is pretty much non-existent.
In order to retain customers Trader Joe’s offers a very high level of customer service which is exhibited by employees bringing shoppers baskets if their hands are full and by walking customers to items instead of just giving directions. The power of suppliers is low due to the fact that Trader Joe’s deals with a multitude of suppliers worldwide, thereby decreasing the leverage of an individual supplier. Also, Trader Joe’s has much more control over their suppliers due to the smaller size of their stores and the number of SKUs that they stock.
Most of the products sold at their store also carry their own brand name, which means that they could switch suppliers and the customer would never know the difference. Also, Trader Joe’s has all of their suppliers sign secrecy forms so neither shopper nor competitors know who is making their products. The threat of substitutes is medium. Grocery stores are found in nearly every city in the United States. However, in addition to some staple foods, Trader Joe’s carries extensive specialty items that are imported from all over the world.
Many competitors have jumped on board with the trend of offering organic foods, however the selection still does not measure up to Trader Joe’s. Restaurants do not really pose a threat either as there are not too many organic, specialty restaurants. Also, there is no other grocery or specialty store that offers the same shopping experience as Trader Joe’s does, such as: employees wearing hawaiin shirts, handing stickers out to kids, and refunds with no questions asked. Lastly, the rivalry among competitors is high.
As stated earlier, many big chain grocery stores have been offering more organic, specialty foods as public awareness to proper diets continues to increase. Trader Joe’s is also facing stiffer competition from Whole Foods and Wild Oats Markets. However, these stores are actually focused on organic foods and environmentally friendly products, and charge a higher price for this differentiation. For now, Trader Joe’s is able to stay ahead of these stores due to their low prices. Q2)
List Trader Joe’s SWOT factors. Trader Joe’s strengths include a selection of healthy and unique foods that are difficult to find in other local stores. They send their employees all over the world to find the best quality foods that cannot be found in most other stores. They are famous for their everyday low prices and their dedication to customer service. There are many stories of employees going out of their way to assist customers and they also have a no questions asked refund policy. They are known for their employees’ goofy attire, their great service, and their great selection of exotic and healthy foods.
They have been in the business since the late 50’s and have consistently been market leaders. They have a great brand reputation and they have extremely loyal customers. Their weaknesses include: a limited inventory selection, a lack of storage space at the stores, and the shroud of secrecy that hangs over the store’s operations. A typical family cannot do all of its shopping at Trader Joe’s. The store does not stock staple items such as baby food, toilet paper, and other necessity items.
Also, the lack of storage space in the stores means ordering and distribution must be precise. One of the opportunities that I can see for Trader Joe’s is continuing to capitalize on the growing trend of healthy eating. Despite our country’s battle with obesity, Americans continue to show that they’re concerned with health and physical appearance. Trendy diets become all the rage, new products with health claims fly off the shelf and health and wellness campaigns capture a lot of mainstream media.
In the retail industry it has become clear that baby boomers, in particular, have shown an intense focus on health and wellness. For retailers to focus on healthy lifestyle choices is a strategic and savvy move as there are dollars to earn and consumers to capture. Also, I think that Trader Joe’s could only stand to benefit from an increase in advertising. The threats facing Trader Joe’s would be the poor economy, the growing trend of conventional supermarkets expanding their organic food offerings, and government regulations on organic food.
The Food Marketing Institute reports that 57 percent of supermarkets are now offering a separate natural and organic food aisle or section, with Whole Foods Market and Wild Oats Markets leading the way. Also, I see a potential problem arising from their refusal to provide information on where its products come from and how they’re made. In an era of increasing scrutiny on local sourcing and having products be truly organic, Trader Joe’s has kept many of its products’ origins, particularly its own house brands, covered in mystery.
As a result, the once all-fun brand has increasingly drawn the ire of environmental groups. Greenpeace recently created a “Traitor Joe’s” campaign to pressure the company into stocking only sustainably harvested seafood. The chain caved, saying it will go sustainable, only by 2012. Some of its so-called “homegrown” products have surprisingly big-corporate roots, as with the chain’s pita chips, which are really made by a company in the portfolio of PepsiCo. Awareness and concern about what’s in our food and where ingredients originate is only growing.
This is an issue that won’t be going away, and Trader Joe’s management would be smart to get on the right side of it as soon as possible. If Trader Joe’s wants to keep its credibility in the health-food niche, it will have to meet the standards of rival Whole Foods, which offers consistent country-of-origin labeling and submits to independent, certified-organic monitoring checks. Q3) Discuss Trader Joe’s strategies in terms of Corporate strategies, Business strategies and a few functional strategies. A3) Trader Joe’s uses various methods in order to provide their products at a low cost. Their main trategy is to buy products directly from suppliers in large volumes. This allows the company to act as its own distributor which decreases transaction costs. Even though the store does not sell in large volumes like other major grocers such as Market Basket and Shaw’s, they are able to purchase large volumes due to the limited assortment of available products. What this means is that that there is often only one package size offered and only one brand available (typically the Trader Joe’s private label). This strategy cuts down on costs to suppliers and the savings are then passed on to the customer.
The relationship and interactions with suppliers is also an important component of the corporate strategy. Calling themselves the “traders on the culinary seas,” this corporation sends their buying staff all over the world to negotiate prices on high quality foods. They taste more than 8000 samples per year, and buy from many different suppliers, thus lowering the relative bargaining power of any individual supplier. They pay the suppliers with cash, on time, and thus build strong relationships and a good reputation.
Also, unlike most grocery stores, they do not require suppliers to pay a “slotting allowance”, which is money to put suppliers’ product on the shelf, or promotional fees. This reduction in cost to the supplier comes from using Trader Joe’s private label on the goods. In order to sell the same products as other grocers at a lower price, Trader Joe’s buys direct from the manufacturers and puts the product in Trader Joe’s private label. The other grocers must charge a higher premium for the product with a brand name.
The cost associated with the brand name comes from the high price of national marketing, selling, couponing and advertising. This strategy was used by Aldi foods, and then passed along to Trader Joe’s in 1979. Since it is important that consumers will only become repeat buyers if the quality of the food is high, Trader Joe’s sets high quality standards on all of its private label foods. The growth of the organization has been achieved without debt. Their expansion is fully self-financed. The operation remains free of union involvement—salaries and benefits are sufficient to ward off labor unrest.
Expansion is carefully and cautiously executed because the challenge associated with expanding its unique culture requires a very detailed selection and training process. Store location is determined by three key factors: density of population, educational level of the consumer, and distribution efficiencies. Market research has revealed a relationship between education and consumer choices: The more highly educated tend to travel more and, hence, are more inclined to be attracted to the unique product lines offered by Trader Joe’s.
The last major strategy to reduce costs, and thus price to consumers, is the method of advertising. While most grocery stores spend a significant portion of their budget on television commercials, newspaper advertisements, coupons, and club cards, Trader Joe’s has very limited advertising. Trader Joe’s uses weekly circular highlighting key items for sale for the week. They also have in-store promotions where customers can sample highlighted products in order to influence them to buy them.
Trader Joe’s does not have sales or club cards because they offer the lowest price every day. Fearless Flyer is another marketing strategy Trader Joe’s employs. Fearless Flyer, is distributed to the public and arouses environmental awareness among consumers. It is one of their most successful marketing strategies. Q4) Can Trader Joe’s sustain its competitive position? A4) I believe that Trader Joe’s can sustain their competitive position. Trader Joe’s holds a competitive advantage due to its strategy to differentiate itself from any other grocery store chain.
The strategy includes carrying highly selective products, offering private-label products, offering small, neighborhood stores that offer comfort, providing attentive employees and offering extraordinary value. They seem to be committed to providing selective products that cannot be found in grocery stores. It does not carry commodities such as soft drinks and other staple items typically found in your local grocery store. The company prides itself on the quality of its private label products, which account for 70 percent of the product offerings.
Personnel at Trader Joe’s scour the world for products free of preservatives, artificial colors or flavors or genetically altered ingredients. They taste-test all foods considered for private labeling. If the taste testers are unanimous in their high recommendation of the product, Trader Joe’s buys it and re-labels it. The result is an assurance of quality that other grocery stores cannot provide. The value that Trader Joe’s offers to customers includes “taste, quality, private labeling and price” according to the CEO Don Bane, and the strategy is successful.
Conclusion Trader Joe’s has successfully created a nice little niche for itself in a highly saturated market and has been able to create what appears to be a sustainable competitive advantage by offering high quality products at low prices. It is clear that the unique branding strategy of Trader Joe’s differentiates itself from all other grocery store chains and that differentiation as a corporate strategy can produce incredible results. How they accomplish this is also very different from their most obvious competitors such as Whole Foods.
For their customers Trader Joe’s provides value not primarily through the quality of its products, as does Whole Foods, but rather through their distinct shopping experience. Shopping becomes an adventure that takes them into a store whose characteristics are often in opposition to those of traditional markets: casual, low price, high service with a constantly changing and somewhat unpredictable product mix. Their culture is both unique and difficult to copy because it involves the customers in an ongoing sense of discovery and adventure.
And because it is aligned to their specific target market rather than broad differentiation built around quality and service, it is more difficult to copy by those companies that are serving a bigger competitive space. Finally, at least at this time, there are no substitutes for the combination of attributes provided by their culture and customer experience, because at Trader Joe’s, customers become part of the culture rather than merely experiencing it.
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