Trader Joe’s Strategy: 12 Keys to its Success
Since Trader Joe’s was founded in 1967 in California it has become a customer favourite with its low prices and high-quality products. It is also known for its laid back vibe but don’t let those homey Trader Joe’s stores fool you, Trader Joe’s has one of the highest sales per square feet in the industry. Success is never an accident or a result of just luck. If you want to know how Trader Joe’s has generated such a loyal following with the sales to match consider these 12 keys to its success.
1. Low prices. Unlike McDonald’s secret sauce one of the keys to Trader Joe’s success is not a mystery. Trader Joe’s attracts customers looking for a bargain by selling items like wine, peanut butter and humus at low prices, between $2.00 to $4.00. You can also get a banana at Trader Joe’s for only 19 cents. As Trader Joe’s writes on its website: “we know that maintaining our everyday focus on value is vital, which is why we don’t have sales, we don’t offer coupons, and there are no loyalty programs or membership cards to swipe at our stores. Trader Joe’s believes every customer should have access to the best prices on the best products every day. To consistently deliver value:
We buy direct from suppliers whenever possible, we bargain hard to get the best price, and then pass the savings on to you.
We buy in volume and contract early to get the best prices.
If an item doesn’t pull its weight in our stores, it goes away, making room for another innovative new product.
Most grocers charge their suppliers fees for putting an item on the shelf. This results in higher prices... so we don’t do it.
We keep our costs low because every penny we save is a penny you save.”
2. A fun and friendly atmosphere. If you walked into a store and didn’t know it was a Trader Joe’s you would never guess the store is part of a grocery chain that generated $16.5 billion in 2020. Trader Joe’s feels like your neighborhood grocery store. It’s stores are small, fun and cheerful. While its stores do not have the most expensive design elements they are inviting, encouraging customers to come inside and stay a while. Trader Joe’s also proves you do not need the most beautifully designed or expensive store to attract the most customers. Both Walmart and Dollar General can also attest to this strategy.
3. Details that matter. What makes a retailer memorable? It’s all of the small things it does along the way that together form a great customer experience. Trader Joe’s has put considerable thought into details like store signage. Signs inside of a Trader Joe’s are often handwritten with fun copy like the one below. A small detail like this can make a customer laugh creating a positive experience enticing them to spend more and return again next time in search of a shopping experience that simply feels better than others.
Trader Joe’s also uses fun names for its private label products like Reduced Guilt Mac & Cheese and The Everything But The Bagel Sesame Seasoning Blend. All of these “details” provide one more reason for shopping at Trader Joe’s versus another grocer.
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4. Excellent customer service. Like most companies known for providing excellent customer service, Trader Joe’s employees are empowered to do what it takes to ensure its customers are happy. Mark Gardiner, author of the book Build a Brand Like Trader Joe’s, took a job as an entry level employee at Trader Joe’s for a year to gain insight into why the retailer is so successful. Reflecting on his experience he said: “even as a new crew member (the lowest-level employee) I was empowered to do almost anything for a customer. Spend 15 minutes in the storeroom looking for a $5 item at a customer’s request? No problem. If I encountered a customer who seemed to be having a bad day, I could give her a bouquet of flowers on my own initiative. Any time a customer asked, “What are these like?” I could open a package and give them a free sample.”
Your employees and their actions form one of the most important building blocks for your brand. Having employees that are engaged and willing to go out of their way goes a long way in building customer satisfaction and long term customer loyalty.
5. Best in class private branded products. In 1972 when Trader Joe’s introduced its first private label product, a brand of granola, Trader Joe’s Founder, Joe Coulombe, called it a “game changer” for the retailer. Today, approximately 80% of Trader Joe’s products are private label which allows the retailer to charge lower prices than national brands as it cuts out the middleman and goes directly to suppliers.
As Trader Joe’s has written on its website in the past: “focusing on private label (products with “Trader Joe’s” name on them) simplified a lot of things, and removed a lot of costs – no more slotting fees, marketing fees, middlemen fees… We passed along those savings to our customers (still do), because the value of Value is invaluable. And to us, “Value” means offering the best quality products for the best, everyday prices.”
Many of Trader Joe’s private branded products are customer favourites like its Dark Chocolate Peanut Butter Cups or Triple Ginger Snaps or Mandarin Orange Chicken meaning that customers have to go to Trader Joe’s to get them, generating additional foot traffic and sales for the retailer.
6. Only the best products. Unlike retailers that have tens of thousands of SKUs Trader Joe’s only has about 4,000 skus. This means that Trader Joe’s is forced to sell the best of the best. There is not a lot of room to make product mistakes given the limited amount of shelf space. This gives shoppers more confidence that when they find a new product it will be a good one since Trader Joe’s can only stock so many items. Poor quality products need not apply.
7. Products with limited availability. Trader Joe’s also has many limited trial run products which draw customers in who do not want to miss out. This is a tactic that many retailers use to keep customers curious about what is coming out next, enticing customers to visit their stores on a frequent basis.
8. Managed growth. With Trader Joe’s popularity and size it could open stores at a faster rate but instead it has chosen not to fall into the trap of growing so fast that it cannibalizes its own success, an issue that retailers like Starbucks have faced in the past. “We won't open a store just because we can, we want to open a store that's run by the right kind of people doing the right kinds of things, and that's really important to us” says Dane Bane, Trader Joe’s CEO.
9. Word of mouth marketing. A focus on word of mouth instead of traditional advertising has set Trader Joe’s apart from its competitors. The last time you went to a Trader Joe’s did you try a sample of a tasty treat? If you did you are not alone. "So what a lot of people might not know is the biggest marketing expense we have at Trader Joe's is actually just letting people try our food,” says Tara Miller, Trader Joe’s vice president of Marketing.
Customers can sample anything they want to in the store as long as it does not have to be cooked. The investment Trader Joe’s puts in making high quality on trend products pays off when customers discover new items and tell others about it. There are several Instagram accounts dedicated to Trader Joe’s fans that are run by people that aren’t even employed by the brand who discover and share products with millions of followers at no cost to Trader Joe’s.
10. A tried and tested brick and mortar shopping experience. Trader Joe’s does not offer online shopping and does not plan on offering it even after the COVID-19 pandemic pushed more and more consumers to shop online. Trader Joe’s defends its decision by saying: "customers are asking if given current circumstances, we're planning on offering delivery or curbside pickup," says Miller, on an episode of the company's podcast Inside Trader Joe's, "we understand the impulse, and we know that some other retailers are offering these services. We also know those offerings don't always translate into positive results." "While other retailers were cutting staff and adding things like self-checkout, curbside pickup, and outsourcing delivery options [during the pandemic], we were hiring more crew and we continue to do that."
Trader Joe’s is sticking to what it does best even in the face of changing customer habits. Another benefit of not having an online presence is that an eCommerce business is expensive to run and not offering online shopping forces customers to shop at stores which is a more profitable selling channel.
11. Trader Joe’s pays its employees well. Part time crew members (an entry level store position) can make up to $24 per hour which is nearly twice the highest average minimum wage in the United States. Captains (store managers) make around $100,000 per year. Joe Coulombe, Trader Joe’s now deceased Founder once said that: “the fundamental difference between Trader Joe's and all other retailers is the income level of employees.” Speaking about his dad, Joseph Coulombe said: “he loved and believed in his employees and he wanted to keep them. And the only way to do that was to pay them well.”
12. Trader Joe’s makes it a priority to hire nice people. Speaking about this Trader Joe’s president and COO Bryan Palbaum said that Trader Joe’s explicitly tries to find people that have “outwardly nice” personalities since it is hard to “train someone to be nice”. One of Trader Joe’s former CEOs, John Shields, said that he wouldn’t hire someone if they didn’t smile within the first 30 seconds of an interview. The nice and friendly people Trader Joe’s hires attracts similar people to work there creating a positive working environment.