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Trader Joe Essay

Issue #1

Trader Joe’s first problem is that information is occasionally leaked regarding the identity of their private label suppliers. Trader Joe’s thrives off keeping the identity of their suppliers a secret to all consumers and media in order to maintain the integrity of their products. Since 80 percent of the products sold at Trader Joe’s are private label, the identity of the supplier is not known because the product is sold under the Trader Joe’s brand name. Information leaks regarding Trader Joe’s suppliers could damage their brand image because it could cause Trader Joe’s to lose its charm to consumers and because it could make other companies wary of supplying their goods.

First, information leaks could cause Trader Joe’s to lose its charm in the eyes of the consumer. There were news reports spread within the last few years saying that Stonyfield Farm supplied Trader Joe’s yogurt and Frito-Lay supplied the retailer’s pita chips. Although these reports could have been fabricated, the idea that Trader Joe’s products are no different from that of other grocers would cause their unique brand image to weaken. Consumers might begin to think that Trader Joe’s offers the same products as everyone else, so they can shop at another grocery retailer to get the same product at a lower price or at a more convenient location. If these reports continue to circulate, Trader Joe’s could lose its competitive advantage, its unique and “cool” brand image.

Second, information leaks could make other companies wary of supplying goods to Trader Joe’s. The relationship of secrecy goes both ways between Trader Joe’s and their suppliers: not only does Trader Joe’s not want the public or their rivals to know their suppliers because it increases the charm and wonder of the products, but the suppliers don’t want the public to know their dealings with Trader Joe’s because many of these goods are sold at lower prices than the branded products. Consumer knowledge of the supplier’s vending to Trader Joe’s could decrease the profitability of the supplier’s branded products.

These information leaks regarding Trader Joe’s suppliers is not good for either company and Trader Joe’s needs to investigate this issue and evaluate how it can be resolved. Even though these leaks are not happening frequently, even a small number of them could cause major damage to Trader Joe’s and their suppliers.

Issue #2

The second issue facing Trader Joe’s is that their ever-quickening expansion into new states could cause their authentic neighborhood feel and unique appeal to fade. One of Trader Joe’s core competencies throughout the history of the company is they have been seen as a market unique to a certain neighborhood, with not many other communities being served in the same manner and with each store being organized a little differently according to the preferences of the store manager. But with the continual expansion of the company, this customer perspective could deteriorate. Increased expansion could lead to a lack of rareness for each store and could lead to increased standardization and bureaucracy across the company.

First, Trader Joe’s could lose its uniqueness if more stores continue to be opened across the country. Their rareness (only 414 stores in the U.S.) is one of their strengths because it creates an increased desire by consumers. If Trader Joe’s was commoditized, with as many locations as Wal-Mart, Kroger, or another major grocery retailer, the company would lose much of its brand image and consumers would shop less often and less loyally. Trader Joe’s chief executives have been careful in their expanding of the brand to more geographic locations, and they must continue to seek out their target market of “intelligent, educated, inquisitive individuals” and settle around them.

Second, greater expansion could lead to increased standardization and bureaucracy across the company. Trader Joe’s thrives off the creativity of their employees, even to the extent that each store is free to organize products however they see fit and each store has unique signs created by employees. Trader Joe’s trusts their employees and gives them much freedom in how they interact with customers and conduct themselves during work, but this creativity and freedom could be crippled because of expansion. Also, bureaucracy could increase as the company increases because it becomes harder from the executives to control the direction of the business with such a loose grip on each store.

Issue #3

The third issue for Trader Joe’s is their lack of social media presence. Trader Joe’s from their beginning has used a customer newsletter and occasional radio ads in order to promote their brand, and these advertising methods have not changed with the introduction and prevalence of social media. Many brands nowadays are seeking to gain a competitive advantage over the competition through use of social media marketing, but Trader Joe’s has not entered this battle. This lack of social media presence could end up being a glaring weakness as social media continues to increase.

Social media has grabbed the attention and affection of many people in the United States, and using social media as a way to promote your brand has become a cutthroat market. An effective use of social media marketing can provide companies with that extra punch in reaching the consumer. Trader Joe’s, however, has not reached out to this market, but has continued steadily with their newsletter and radio ads. According to the case, many marketing experts think that this lack of social media use is a glaring weakness for Trader Joe’s. Many of their consumers are raving about the company via social media, praising the grocer for their stores, but Trader Joe’s is not joining the conversation.

Trader Joe’s has always maintained a deep level of secrecy, from not releasing financial numbers to having a vague website for much of their existence, and they have continued that trend of secrecy by not engaging in social media. But in order to keep up with this digital age and an increasingly digital market, they need to enter social media in order to interact with consumers. For a brand like Trader Joe’s that is beloved by so many consumers across the United States, entering the social media realm would help them immensely to inform and capture consumers.

Recommendation

I recommend that Trader Joe’s enters social media by creating a Facebook page or by creating a Twitter account. Promoting through social media will become increasingly important as time goes by, and Trader Joe’s does not need to get left behind in this market. The quirkiness of the Trader Joe’s brand and the frequent usage of social media by their customers are two reasons why they should use social media.

First, Trader Joe’s has thrived off a quirky, unique brand image ever since their creation as a company. Today, they do so many things that set them apart from conventional supermarkets: small stores with a low number of SKU’s; aisles that are slanted slightly to the left instead of being perpendicular to the store entrance; 80 percent of products that are private label; employees wearing Hawaiian shirts. All of these quirks make social media an attractive market for Trader Joe’s; they could easily hire someone to manage one or more social media channels, using funny and clever remarks to promote the brand. This quirkiness would work extremely well with social media being comprised of concise, clever, memorable blurbs that portray a person or firm’s feelings.

Second, Trader Joe’s should use social media because their customers and fans use it. Many consumers have created Facebook pages, Twitter accounts, and YouTube channels in order to talk about or show Trader Joe’s. Consumers go to a Trader Joe’s store and then look for Trader Joe’s on Twitter to talk about the great products they found in the store, but they cannot directly speak of Trader Joe’s because they do not have a Twitter account.

Trader Joe’s is missing out on a huge amount of exposure and customer interaction by not using social media. Thus, I recommend that Trader Joe’s creates a Twitter account to post clever remarks regarding their brand and a Facebook page where consumers can find more info about the grocery retailer.

Dominant Economic Characteristics

Trader Joe’s is in the broad market of grocery retailers, a market where the top 10 revenue-generating companies accounted for over $360 billion in sales in 2011. This market is saturated with supermarkets (Publix and Kroger), large discount retailers (Wal-Mart and Target), premium retailers (Whole Foods and Fresh Market), warehouse clubs (Costco and Sam’s Club), and “hard discount” retailers (Dollar General). With this large variation in grocer strategies, the market is heavily penetrated and competition is fierce. Supermarkets are continually losing market share in grocery sales (51 percent in 2011 as opposed to 66 percent in 2001) as players like Wal-Mart and Costco continue to generate more revenue. Although the supermarket share is decreasing, the overall grocery market is steadily increasing as the population of the United States increases. People always need to eat, so there will always be a significant market for grocery sales.

The scope of competitive rivalry is very wide as there are so many unique players in the grocery market. Whether a consumer likes to buy organic and natural foods at a premium store like Whole Foods or they are searching for the greatest bargain by shopping at Wal-Mart, it is clearly seen that there is vast diversity in the grocery retail market. Additionally, more players have entered the grocery market in recent years such as warehouse clubs and pharmacy chains, and their addition is only aiding in competition become increasingly steep.

Product innovation is an important factor to a grocery retailer’s success: consumers are often seeking new, exciting food and beverage items, and updated packaging also plays a major part in the buying of grocery goods. Although there is not a large amount of new food entering the market, there are many new brands and creative packaging constantly being introduced into the grocery market, and food companies are constantly competing for slots in grocery stores. For these reasons, product innovation is key to the grocery market.

Economies of scale play a major part in grocery sales. Since many food and beverage items are commodities, there is a fairly predictable demand for each product, so companies seek to gain a competitive advantage through economies of scale. Wal-Mart is the poster child for economies of scale because they are constantly seeking to lower costs for their supply chain so they can continue to offer the lowest price among grocery retailers. Also, since many products are nonperishable items they can be bought at huge quantities for very low prices.

Learning/experience curve effects are pretty low in this market for established grocery retailers. Since most foods have relatively predictable demand, companies are able to estimate shipments and demand numbers accurately. Companies can always improve their supply chain efficiency and seek lower costs, but most aspects of the market are fairly stable. As the grocery market continues to evolve through new entries into the market, there may be an increased opportunity for learning as customers make decisions about what to buy and from whom to buy.

PESTEL Analysis

The case did not specifically describe political factors that influence the grocery market, so I am not aware of any factors affecting grocery retailers or consumers. Economic conditions regarding the grocery market were not specifically mentioned in the case, but since the case takes place in 2011 in the aftermath of the economic recession of 2008, I would guess that consumers have less discretionary income than they did prior to the economic downturn. Because of this recession, discount grocery retailers have become very popular to the majority of consumers.

One sociocultural factor that greatly affects the grocery market is the health and organic food market. Many consumers are seeking and buying more organic and health foods than ever before, and this trend is causing premium grocers such as Whole Foods to gain significant market share. According to the article, in 2011 Whole Foods achieved 8.4 percent same store sales growth. Many consumers are buying less fatty, sugary unhealthy foods and are looking for more natural or healthy items in grocery stores.

Technological factors were not heavily mentioned in the article, but it was stated that Trader Joe’s has throughout their history they have utilized little technology in their stores. They do not offer self-checkout lines nor do they have television screens at the registers because they desire to create more interactions between customers and employees. Most grocery retailers, on the other hand, offer these amenities along with others.

Environmental factors play a moderate role in the grocery market. Since many food and beverage products come from natural ingredients, sometimes weather can damage supply. However, usually only significant weather will greatly affect grocery retailers, because a small disturbance in the weather will only push retailers to seek new suppliers for their products. Weather can also affect the efficiency of transportation in the food industry because many products have to travel across the ocean or across much land in order to reach their final destination.

There are a couple legal and regulatory factors affecting the grocery market: import/export regulations and FDA regulations are some of the major factors. Import and export laws affect the grocery market because many food and beverage products are manufactured outside of the United States and imported into the country. If countries hinder commerce of some food items through governmental regulations, this could have a varying effect on the U.S. grocery market.

Five Forces Analysis

The force of competition from new entrants is weak for Trader Joe’s. Because most cities where Trader Joe’s is located are larger, the grocery market is most often dominated by large companies such as Wal-Mart, Kroger, Target, and Publix instead of small, independently-owned grocers. Because of this domination by large companies, it would be difficult for a small company to come in and take away significant market share. Also, because many food and beverage products are commoditized and companies seek to compete through efficient supply chains and cost-saving techniques, it would be very difficult for an independent grocer to steal much market share.

The force of competition from substitutes is moderate for Trader Joe’s. Since 80 percent of the products offered at Trader Joe’s are private label goods, customers have become loyal to the Trader Joe’s brands and find great value in those brands. Because of that, they will not easily switch to another grocery retailer for those products. However, the grocery market is widely substitutable because there are multiple brands and multiple grocers that offer the same foods and beverages, except sometimes they are labeled differently.

The force of buyer bargaining power is weak for Trader Joe’s. Because Trader Joe’s is a company that has a fair number of locations across the United States, the prices are primarily standardized by geographic location and the customer does not have a say in the price they pay; if they do not like the price, they can just go to another grocer who sells the same product for less.

The force of supplier bargaining power is weak. Because most of the goods sold at Trader Joe’s are commoditized, there are many companies that exist who can supply those goods for Trader Joe’s. Also, since Trader Joe’s offers most of their products as private label, the supplier is not known to the customer and can easily be replaced by Trader Joe’s if they offer poor service or quality. Trader Joe’s is a major grocery retailer and has much control over suppliers.

The force of competition from rival sellers is strong for Trader Joe’s. Their market strategy of small stores with limited SKU’s in a neighborhood setting is being copied by many other retailers. The most significant rival for Trader Joe’s is Wal-Mart, who has begun diligently pursuing the neighborhood market approach. In 2013 the firm indicated that 40 percent of new store openings would be in the small format category, which directly competes with Trader Joe’s. Although Wal-Mart is their primary competitor for small formats, companies such as Kroger, Publix, and Target are also experimenting with the small format. There is also a competitive force coming from other-format grocers such as pharmacy chains and premium retailers.

Drivers of Change in the Industry

There are three primary drivers of change in the grocery retailer industry: efficient supply chains, organic and health food craze, and small neighborhood stores. There are others that could be stated, but I think these three things have the greatest influence on the future of the grocery market.

First, the quest for a more fluid supply chain is a driver of change. Grocery retailers are constantly seeking to meet customer needs at a greater level while also reducing the costs of activities. This can be done through improving a company’s supply chain. Because most food items are commoditized, the profit margins are very low, so companies must compete on creating a more cost-efficient and lean supply chain. This emphasis on supply chain improvement will make competition more fierce, but will also help consumers because prices can be lowered for products because it costs less to put the items on the shelves.

Second, the organic and health food craze is a driver of change in the grocery retail market. This trend has caused brands like Whole Foods to increase significantly in popularity and market share, and I think this trend will only get stronger as the next years pass. Organic and health foods are more expensive to manufacture, process and ship, which makes customers pay more for the items. I am not sure whether this craze is increasing industry profitability or not, but I know that this craze is significantly changing the products offered by grocers, and I believe this trend will only increase in severity and effect.

Finally, the retailer format of small neighborhood stores is a driver for change. Before companies like Trader Joe’s stepped onto the scene, the primary grocery retailers in the U.S. (supermarkets) operated huge stores with a magnificent number of SKU’s. But Trader Joe’s strategy was to have small stores with much fewer, more specialized product offerings. The Trader Joe’s small format began to gain popularity among consumers, and other companies such as Wal-Mart, Kroger, and Publix opened their own neighborhood stores. These small formats attract customers because there is a more intimate feel to the grocery experience than at a massive store such as a Wal-Mart Supercenter, and because customers can complete their grocery trips in much less time than at large supermarkets. I believe that the small format will only become more popular as time progresses, and that large format grocery stores will fall significantly out of the grocery market.

Current Strategy

Trader Joe’s current overall strategy is very unique, and it is a major component to them being a market leader of grocery retailers. They have determined to take a different approach than the average supermarket in store layout, merchandising, promotion, and work force. This one-of-a-kind strategy has given them a competitive advantage in the grocery retailer market.

First, their store layout and design is a key component to their strategy. Instead of creating a space like Wal-Mart with 185,000 square feet and over 100,000 SKUs or like Whole Foods with 38,000 square feet and 21,000 SKUs, the typical Trader Joe’s location is under 15,000 square feet and carries about 4,000 SKUs. They also align their store aisles slanting some instead of being perpendicular to the entrance; the reason behind this decision is because it gives customer an easier understanding of products offered as they look down each aisle.

Merchandising for Trader Joe’s is another source of competitive advantage in their strategy. They seek to introduce 10-15 new items each week, which means they discontinue 10-15 items each week as well. Trader Joe’s has made it a common occurrence that they would be out of a certain product due to their frequent stock changes. This method of regularly eliminating products is vastly different from another grocery retailer, such as Wal-Mart, whose strive constantly to never have an item out of stock. Trader Joe’s also gives each store manager the freedom to arrange products in the store to their preference according to their customers.

Promotion is another vital part of Trader Joe’s current strategy. Throughout their history they have communicated to consumers using a customer newsletter and occasional radio ads. They have also influenced much word of mouth promotion between consumers. They do not offer any coupons or sales because they employ an “everyday low price” strategy. Trader Joe’s does not use social media to promote their products or interact with customers, but they may need to join social media soon if they want to stay ahead of the curve.

Last, the work force at Trader Joe’s is a distinct aspect of their current strategy. Foundationally, Trader Joe’s pays their employees higher salaries than other grocery retailers, even offering baseline employees the median income for each state. They also receive strong additional benefits such as good retirement planning, health insurance, and other things. Employees at Trader Joe’s wear Hawaiian shirts at work, and each store is quite nautically themed. Trader Joe’s also rotates their employees through multiple jobs during each workday. They don’t simply desire their employees to be specialized, but they train them to be generalists; so a worker may work the cash register for two hours, then restock for an hour, then greet at the door for two hours, and so forth.

Competitor Analysis

One primary competitor for Trader Joe’s is Wal-Mart. In 2011 they generated the most grocery sales with $118 billion, and their market share continues to increase year after year. Their primary strategy has been using supercenters that sell groceries, clothing, electronics, auto and sports equipment, medicine, and many other things; however, now Wal-Mart has begun to compete more directly with Trader Joe’s by focusing on Neighborhood Markets, which are similar in size and layout to Trader Joe’s stores. In 2013 Wal-Mart has indicated that 40 percent of new store openings will be Neighborhood Market stores, which shows that Wal-Mart is attacking this grocery segment diligently.

Another competitor for Trader Joe’s is Whole Foods. They specialize in organic and health-related foods in much smaller stores than Wal-Mart’s supercenters. Because of the recent organic and health food craze sweeping across the United States, Whole Foods is in an attractive spot to reach these health-conscious consumers. Their products are much more expensive than Trader Joe’s, but many consumers find their products to be of highest value of all retailers.

Another competitor for Trader Joe’s is Dollar General. They are a “hard discounter” retailer who own very small stores with essential SKUs. Dollar General is also very inexpensive, with even the brand name drawing consumer attention to the bargain price. Dollar General wants to create the quickest grocery shopping experience for its customers, even if variety of goods offered suffers.

Key success factors for the grocery retailer market are accessibility of goods, variety of goods, store presentation, price, and customer service. Accessibility of goods is important because customers need to know they can trust you to have the products they want to buy in stock. Wal-Mart is the leader in product availability because they believe that out of stock means out of business. Variety of goods matters because customers are often seeking a wide variety of food and drink products when they go grocery shopping.

Dollar General is the worst in the area of variety because they only offer essential groceries. Store presentation is important because the presentation and feel of a store can turn off a customer or attract them to your store. Price is key because consumers are often looking for the best deal when it comes to buying groceries. Wal-Mart offers the lowest prices for its products, thus it has the highest score for price. Finally, customer service is important because it either builds trust or distrust in consumers. If you are able to treat your customers well through responding effectively to questions, making retribution for errors, and having friendly and energetic employees, consumers will be likely to come back to your grocery store.

SWOT Analysis

The strengths of Trader Joe’s are the strong brand image, their dedicated fan base, and the frequent product introductions in their stores. Trader Joe’s brand image may be their strongest asset, as they are set apart from the competition through their brand. Whether it be from the employees’ Hawaiian shirts, a bottle of Trader Joe’s wine, or the quirky layout of the store, their brand image sets them apart from competition. Trader Joe’s also has a dedicated fan base, even with people creating social media sites and writing letters begging Trader Joe’s to open a location near them. Finally, their frequent product introductions are a strength because it encourages consumers to visit very often and to buy new things.

Trader Joe’s weaknesses are the lack of social media involvement, frequent lack of availability, and the fact that they have such a specific and small target market. With the explosion of social media, the fact that Trader Joe’s does not engage in social media marketing makes them behind the times, and they need to make sure they don’t get left behind by their competitors. The frequent lack of availability for their products is also a weakness because it disappoints consumers and motivates them to visit other grocers because they can’t find what you need where you are. Last, their small target market is a weakness because they only appeal to a certain, small crowd. If they appealed to a broader base of people it would probably increase their sales.

Trader Joe’s threats are Wal-Mart’s Neighborhood Markets, the possibility that they would lose their brand charm with further expansion, and that supplier identities would be revealed. Wal-Mart focusing on increasing their Neighborhood Market section is a major threat to Trader Joe’s because these markets, lead by the world’s largest retailer, is now going to compete in your small market model directly. It is also a threat that their company charm could be lost as they grow because their stores no longer are special to consumers. Finally, their supplier identities being supplied is a threat because this could damage both the relationships with consumers and the relationships with their suppliers.

Trader Joe’s opportunities are that more people are becoming educated and moving to cities to live. Since Trader Joe’s reaches out primarily to educated, inquisitive consumers who live in or near a big city, it is an excellent thing that more people are becoming educated and moving to cities because it increases the size of their market share drastically.

Financial Analysis

Specific financial numbers for Trader Joe’s are not stated in the case because it is a privately owned company. Experts estimated in the case that Trader Joe’s generated revenue of over $10 billion in 2011. Analysts also believed that even though Whole Foods was known to have the highest sales per square foot of any publicly traded grocer, Trader Joe’s doubled their sales per square foot.


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