CASE 1 Trader Joe's: Keeping a Cool Edge The average Trader Joe's stocks only a small percentage of the products of local supermarkets in a space little larger than a corner store. How did this neighborhood market grow to earnings of $6.5 billion, garner superior ratings, and become a model of management? Take a walk down the aisles of Trader Joe's and learn how sharp attention to the fundamen- tals of retail management made this chain more than the average Joe. From Corner Store to Foodie Mecca In more than 280 stores across the United States, hundreds of thousands of customers are treasure hunting. Driven by gourmet tastes and hungering for unique deals, they are led by cheerful guides in Hawai- ian shirts who point them to culinary discoveries like ahi jerky, ginger granola, and baked jalapeño cheese crunchies. It's just an average day at Trader Joe's, the gourmet, specialty, and natural-foods store that offers curious, one-of-a-kind foods at below-average prices in twenty- odd states.¹ Foodies, hipsters, and savvy shoppers alike are attracted to the chain's charming blend of low prices, tasty treats, and laid-back but enthusiastic customer service. Shopping at Trader Joe's is less a chore than it is immersion into another culture. In keeping with its whim- sical faux-nautical theme, crew members and managers wear loud tropical-print shirts. Chalkboards around every cor- ner unabashedly announce slo- gans like, "You don't have to join a club, carry a card, or clip coupons to get a good deal." "When you look at food retailers," says Richard George, professor of food marketing at St. Joseph's University, "there is the low end, the big mid- dle, and then there is the cool edge that's Trader Joe's."2 RITK O When you by your Basics at Trader Tyou can afford to be dang and our More Trader Joe's didn't always stand for brie and baguettes at peanut butter and jelly prices. In 1958, the company began life in Los Angeles as a chain of 7-Eleven-style corner stores. Striving to differentiate his stores from those of his com- petitors in order to survive in a crowded marketplace, founder "Trader" Joe Coulombe, vacationing in the Caribbean, reasoned that consumers are more likely to try new things while on vacation. He transformed his stores into oases of value by replacing humdrum sundries with exotic, one-of-a-kind foods priced persuasively below any reasonable competitor.3 In 1979, he sold his chain to the Albrecht family, German billionaires and owners of an estimated 7,500 Aldi markets in the United States and Europe. Trader Giotto, Trader José, Trader Ming, and Baker Josef futik The Albrechts shared Coulombe's relentless pur- suit of value, a trait inseparable from Trader Joe's success. Recent annual sales are estimated at $6.5 billion, landing Trader Joe's in the top third of Super- market News's Top 75 Retailers.5 Because it's not easy competing with such giants as Whole Foods and Dean & DeLuca, the company applies its pursuit of value to every facet of management. By keeping stores comparatively small-they average about 10,000 square feet-and shying away from prime locations, Trader Joe's keeps real estate costs down. The chain prides itself on its thriftiness and cost-saving measures, proclaiming, "Every penny we save is a penny you save" and "Our CEO doesn't even have a secretary."7,8 Trader Joe's strongest weapon in the fight to keep costs low may also be its greatest appeal to customers: its stock. The company follows a deliciously simple approach to stocking stores: (1) search out tasty, unusual foods from all around the world; (2) contract directly with manu- facturers; (3) label each product under one of several catchy house brands; and (4) maintain a small stock, making each product fight for its place on the shelf. This common-sense, low-overhead approach to retail serves Trader Joe's well, embodying its commitment to aggressive cost-cutting. Management Skills and Competencies ■ 29 Most retail megamarkets carry between 25,000 and 45,000 products; Trader Joe's stores carry only 1,500 to 2,000. But this scarcity may benefit both Trader Joe's and its customers. According to Swarthmore professor Barry Schwartz, author of The Paradox of Choice: Why Less Is More, "Giving people too much choice can result in paralysis.... [R]esearch shows that the more options you offer, the less likely people are to choose any."10 Most Trader Joe's products are sold under a variant of their house brand-dried pasta under the "Trader Giotto's" moniker, frozen enchiladas under the "Trader Jose's" label, and so on. But these store brands don't sacrifice quality-readers of Consumer Reports awarded Trader Joe's house brands top marks.11 The house brand success is no accident. According to Trader Joe's President Doug Rauch, the company pursued the strategy to "put our destiny in our own hands." "12 But playing a role in this destiny is no easy feat. Ten to fifteen new products debut each week at Trader Joe's-and the company maintains a strict "one in, one out" policy. Items that sell poorly or whose costs rise get the heave-ho in favor of new blood, something the company calls the "gangway factor."13 If the com- pany hears that customers don't like something about a product, out it goes. In just such a move, Trader Joe's phased out single-ingredient products (such as spinach and garlic) from China. "Our customers have voiced their concerns about products from this region and we have listened," the company said in a statement, noting that items would be replaced with "products from other regions until our customers feel as confident as we do about the quality and safety of Chinese products."14 Conversely, discontinued items may be brought back if customers are vocal enough, making Trader Joe's the model of an open system. "We feel really close to our customers," says Audrey Dumper, vice president Michael Nagle/Getty/NewsCom 30 Chapter 1 The Management Process of marketing for Trader Joe's East. "When we want to know what's on their minds, we don't need to put them in a sterile room with a swinging bulb. We like to think of Trader Joe's as an economic food democracy."15 In return, customers keep talking, and they recruit new converts. Word-of-mouth advertising has lowered the corporation's advertising budget to approximately 0.2% of sales, a fraction of the 4% spent by supermarkets. 16 Trader Joe's connects with its customers because of the culture of product knowledge and customer involvement that its management cultivates among store employees. Most shoppers recall instances when helpful crew members took the time to locate or recommend particular items. Despite the light- hearted tone suggested by marketing materials and in-store ads, Trader Joe's aggressively courts friendly, customer-oriented employees by writing job descrip- tions highlighting desired soft skills ("ambitious and adventurous, enjoy smiling and have a strong sense of values") as much as actual retail experience.17 Those who work for Trader Joe's earn much more than their drab-dressed counterparts at other chain grocers. In California, Trader Joe's employees can earn almost 20% more than counterparts at super- market giants Albertsons or Safeway.18 Starting ben- efits include medical, dental, and vision insurance, company-paid retirement, paid vacation, and a 10% employee discount. 19 Assistant store managers earn a compensation package averaging $94,000 a year, and store managers' packages average $132,000. One ana- lyst estimates that a Wal-Mart store manager earning that much would need to run an outlet grossing six or seven times that of an average Trader Joe's.20 Outlet managers are highly compensated, partly because they know the Trader Joe's system inside and out (managers are hired only from within the company). Future leaders enroll in training programs such as Trader Joe's University that foster in them the loyalty necessary to run stores according to both company and customer expectations, teaching managers to imbue their part-timers with the customer-focused attitude shoppers have come to expect.21 If Trader Joe's has any confounding trait, it's that the company is more than a bit media-shy. Executives have granted no interviews since the Aldi Group took over. Company statements and spokespersons have been known to be terse-the company's leases even stipu- late that no store opening may be formally announced until a month before the outlet opens!22 The future looks bright for Trader Joe's. More out- lets are planned up and down the East Coast and in the Midwest, and the company continues to break into markets hungry for reasonably priced gourmet goodies. But will Trader Joe's struggle to sustain its international flavor in the face of rising fuel costs and shrinking discretionary income, or will the allure of cosmopolitan food at provincial prices continue to tempt consumers? DISCUSSION QUESTIONS 1. In what ways does Trader Joe's demonstrate that top managers do or do not highly value employee talents? 2. This is a German company operating in America and sourcing products from around the world. What are the biggest risks that international events currently pose for Trader Joe's performance effectiveness and performance efficiency? 3. In a casual and nontraditional work environment like the one at Trader Joe's, what are the keys to a team leader or supervisor becoming an effective manager? 4. FURTHER RESEARCH-Study news reports to find more information on Trader Joe's management and organization practices. Look for comparisons with its competitors and try to identify whether or not Trader Joe's has the right model for continued suc- cess; are there any competitors or industry forces that might cause future problems?/n Overview As part of the triple bottom line (TBL) focus, your organization's CEO, Ms. Ann Hernandez, has asked each departmental manager to conduct a SWOT analysis of how transitioning to TBL will affect their departments. These SWOT reports will be provided to you for further analysis and interpretation in the upcoming week. While you wait to receive these inputs from your CEO, you have decided to hone your business analysis skills by analyzing and interpreting the results of a well-known company, Trader Joe's. Prompt 1. Review the Trader Joe's Case Study provided in the textbook. • Case Study: Trader Joe's | Keeping a Cool Edge 2. Your task is to create a consulting report based on your analysis of the Trader Joe's case. In your report, address the following items: Part 1: Key Performance Indicators (KPI) 1. Describe the relationship between strategic thinking and operational thinking. a. Distinguish between strategic thinking and operational thinking. b. Identify the aspects of the Trader Joe's case that relate to strategic thinking. c. Identify the aspects of the Trader Joe's case that relate to operational thinking. 2. Determine one key performance indicator each for strategic thinking and operational thinking and explain why these are most appropriate for measuring success in marketing for Trader Joe's. Part 2: SWOT Analysis 1. How should an organization interpret the results from a SWOT analysis? 2. Identify the strengths, weaknesses, opportunities, and threats (SWOT) from the Trader Joe's case. To answer this question, use the SWOT analysis template provided below. One example for each quadrant has been added to help you get started. a. Which information from Trader Joe's SWOT analysis is internal? Which information from Trader Joe's SWOT analysis is external? Trader Joe's: SWOT Analysis • STRENGTHS • Example: "Trader Joe's culture of product knowledge and customer involvement is carefully cultivated among new hires and current employees." ▪ This phrase implies that the company has a process for collecting, reviewing, and using knowledge to make product improvements, which results in market responsiveness. • WEAKNESSES • Example: "If customers don't like something about a product, out it goes-count spinach and garlic from China among the rejected losers." ▪ Because the company tests new products with customers and is willing to take a loss if customers don't like products, this could lead to increased opportunities costs for those products that company purchasing agents passed up and decreased profits. • OPPORTUNITIES • Example: "However, Trader Joe's has a cozy and intimate atmosphere that its rival lacks." ▪ This could be an opportunity to bring in local artists and designers to co-promote the Trader Joe's brand and to increase local brand engagement and adoption. • THREATS • Example: "search out tasty, unusual foods from all around the world" ▪ This could be a potential threat in times like we are experiencing right now, when global supply chains are disrupted and fewer products are available. What to Submit In a Word document, use double-spacing, 12-point Times New Roman font, and one-inch margins. This assignment should be 2 pages in length, and include references cited in APA format. Consult the Shapiro Library APA Style Guide for more information on citations.