Why Trader Joe's is the best

Trader Joe's is the best. It's quirky, has great products and makes grocery shopping fun. Today you're going to get a look at what Trader Joe's is, how it's different from a regular grocery store, and what the next version of Trader Joe's could look like.

What is Trader Joe's?

Trader Joe’s is a retail grocery store based in the United States, with over 550 locations across the country. The US grocery market does over $800 billion in sales. The market is extremely fragmented compared to European standards. Kroger, the largest player in the grocery space owns less than 20% of market.

Trader Joes does over $15 billion in annual revenue. The business plays in a higher end of the market, and focuses on high value per sq. meter. It is estimated that Trader Joes does about 6-7% margins (way above average), which means that the business does over 1 billion in EBIT profit annually.

How is Trader Joe's different?

Trader Joe's takes advantage of a few key factors that make it unique. It's taken the worst parts of grocery shopping and made them wonderful. The business focuses on a very specific demographic, has unique store footprints, and a unique focus on customer service.

Trader Joes has a unique target audience, the budget conscious well educated well traveled professional in densely populated urban areas. They tend towards gourmet and healthy products, and don't intend to be a store for everyday shopping. The business also thrives around University Campuses. The map below shows the concentration around major urban areas and Universities.

Each Trader Joes is designed to fit its respective area and has a distinct layout. Each store has its own unique character, and appeals to its local audience. They use handwritten signs with puns and wit to attract customers. Employees wear Hawaiian shirts and are known for being laid back and conversational.

Compare this to a discounter, where experiences are set up to increase average cart size. There is a full science that helps grocery chains optimise and build percentage gains. It's unusual how much variety Trader Joes allows across the chain.

The business also has a generous return policy, where they encourage shoppers to try all of their products. If you want to return an opened package, they make it easy. Walk to the desk, tell them you didn’t enjoy the product and they’ll take it back and recommend a new one. No questions asked.

Trader Joe’s takes the unenjoyable parts of grocery shopping and flips them on their head to build a wonderful customer experience. Customers love this brand.

Private Label Products

Private Label Products are products that are manufactured by contractors with and branded as Trader Joe’s products. This has been a pillar of the companies strategy since its inception. This allows the company to have higher quality products at better prices. It also lets them cycle through products at incredible speed. If a product doesn't work it's out of stores, fast.

They find the producers of the best quality products they believe will sell and practically ignore margin. Trader Joe’s obsession with identifying quality products gives consumers the confidence that they are getting great products. By owning everything except the production of the goods, Trader Joe’s improves margin and reduces product risk. This also allows the chain to carry less products than an average grocery store… by a factor of 10.

The private label strategy is the most important pillar of Trader Joe’s success. By doing what is counterintuitive and taking on more responsibility, Trader Joes is able to secure more loyal and higher value customers.

Happy Staff

Trader Joe’s is often recognised as one of the United States top employers. While it should be common sense, creating a better experience for employees makes the Customer Experience more pleasant.

Each individual location has a sliding wage scale that adjusts for the cost of living in that city. Store workers are offered paid time off, health insurance, retirement plans and flexible work hours. None of these are expected when applying to jobs in a normal American grocery store. Throughout its history the company has never been forced to lay employees off. Employees are also product experts, and are always the first ones to taste products when they reach the store’s shelves.

All of this together creates an experience that customers love. They know the employees are taken care of, and because will create a great experience.

The next Trader Joe's

If Trader Joe’s were to be started today it would probably begin online as a D2C store. But it would take a slightly different approach.

Most D2C brands look for high margin items and buy expensive ads. This would use a model more like Italic, which aggregates luxury manufacturers excess capacity and charges a membership fee. It would find high quality producers of unique items and aggregate them into one shop under a unified brand.

It would eventually use physical locations as showrooms and tasting rooms for its products. Customers could come, interact with staff (that are awesome like TJ's), and try products. They could then order to their home, rather than take home.

Products would be rigorously tested for performance and cycled out if they don’t hit targets. This product turnover would allow a tight feedback loop based on numbers. If something doesn't work, Trader Joe's removes it as quickly as it can.

Going to Trader Joe’s meant taking a look at the Fearless flyer, it’s newsletter. This included new product announcements and deals. The next iteration of this could be with dynamic emails, which allow a browser like experience within email. Customers could get offers for products they might run out of soon, or new offers that just came online.

34% of shoppers are looking at their phones while buying groceries. This means there would need to be some sort of online experience that lets them order home, create lists, and remind them of products. Adding a game element would allow certain shoppers to have fun while doing what can be a boring task. When customers are engaged both physically and digitally their retention rates are higher and they spend more time in store.

Closing Thoughts

The Grocery experience is one that has a lot of room for improvement. Trader Joe's is one of the grocers that does it right. Just by treating their employees well, they improve the customer experience. When you factor in high quality products, and localised experiences you see the markings of a great brand.