Trader Joe’s Case Analysis Essay
Trader Joe’s Case Analysis
About Trader Joe’s
Trader Joe’s has approximately 414 stores in 400 locations across 37 states in the United States plus the District of Columbia. Many Trader Joe’s stores can be found in old strip malls in suburban locations. The typical Trader Joe’s store has less than 15,000 square feet of selling space. The store works with a much lower square footage than larger supermarket chains that range from about 40,000-50,000 square feet. Experts estimate that Trader Joe’s generate approximately $10 billion in annual revenue. The store carries about 4,000 SKU’s per location compared to about 50,000 SKU’s for most other grocery stores. 80% or more of their products consist of private label items and you can’t find any major brands at the store. They do not offer a wide range of meat but instead they offer a wide range of frozen goods such as fruit.
Trader Joe’s do not offer all of the necessities that you may need while shopping therefore a typical family wouldn’t be able to do all of their shopping there. The company scoured high for interesting and dynamic products. They introduce 10-15 products per week and eliminate 10-15. Trader Joe’s is not a technology savvy store and they do not have things such as self-checkouts. Instead Trader Joe’s believes on being able to converse with their customers. Trader Joe’s employees are paid more than if they worked at another grocery store. New part-time hires typically earn $12 per hour. Full time employees earned approximately $50,000 per year. Store captains earn around $100,000 annually. Trader Joe’s main customer focus is people that are health-conscious, enjoy travel, and like trying new things.
Key Strategic Issues
Trader Joe’s has no formal corporate social media presence, and any social media presence the organization has is purely fan made. Trader Joe’s employees feel the company is becoming more bureaucratic as it expands (implementing more processes and procedures) which violates one of their 7 core values. These recent changes have also led to increased competition between employees seeking advancement, which tends to detract from the camaraderie Trader Joe’s crew members are known to have. Parking tends to be a big issue to customers who drive as the lots tend to be small, beat up, and not very well organized; this deters driving customers from visiting locations and limits customer base to predominantly those within walking distance.
Trader Joe’s carries only a minimal selection of meats and fresh produce and sells fruit and vegetables by the piece rather than by the pound. They also operate under a veil of secrecy which results in customers not being able to obtain knowledge of where the products they’re buying are sourced from. Trader Joe’s has limited ability to find rental spaces in ideal locations due to high costs for prime locations. The organization has difficulty keeping up to date with technological advancements and improvements that help to achieve more efficient processes and customer relations i.e installing self-checkouts
Product & Brand Diversity
Trader Joe’s has a comprehensive product range of company-owned brands that helps to allow them to address different customer requirements and attract customers to its stores. Trader Joe’s offers a broad array of products including wine, fruits and vegetables, bread and butter, imported cheeses, groceries, organic produce, hand-tossed pizzas, vitamins, frozen food, meat, packaged food, fish and salmon, confectioneries, and alcoholic and non-alcoholic beverages. All these products are sold under various national and private brands such as Trader Jose’s, Trader Ming’s, Baker Josef’s, Trader Giotto’s, Trader Joe-San, Pilgrim Joe’s, Joseph Brau and Charles Shaw. The combination of diversified product base and brands appeals to a wide range of customers and provides choice to suit varying requirements and budgets.
Trader Joe’s decentralized strategy to serve the customers efficiently according to their demands. Under its organizational structure, the company treats every store as an independent business and decision-making responsibility lies with the local management, the Crew members of the store. The managers of individual stores are required to make decisions regarding merchandising, marketing, operations, human resources, information technology and finance. This organizational structure helps the company to provide goods and services to customers as per local demands, and respond effectively to their dynamic needs. Thus, the company’s decentralized operational structure helps in empowering employees and efficient decision making.
Strong Market Position
Trader Joe’s strong market position has built its brand equity and helped the company in establishing itself as a leading retailer of food and non-food items in the US. According to Supermarket News, a weekly trade magazine for the food distribution industry, in 2012, the company was ranked at 22nd position, among the Top 75 food retailers in North America based on sales volume. Furthermore, the company has been operating since 1958, indicating its strong heritage that has enhanced customer trust. Such significant presence in retail market has enhanced its customer loyalty and relationship with local suppliers, along with strong reputation generated over decades. Therefore, leading market position helps the company in attracting larger customer base while improving the performance of the company.
Strong Brand Image
Strong brand image helps the company to attract and retain customers. The private labels are named according to the ethnicity of the food, including: Trader Jose’s (Mexican food), Trader Ming’s (Chinese food), Baker Josef’s (bagels), Trader Giotto’s (Italian food), Trader Joe San (Japanese food), Arabian Joe’s(Middle Eastern food), Pilgrim Joe’s (Seafood) and JosephBrau (beer). Moreover, it is also an exclusive retailer of Charles Shaw Wines and stocks a large selection of Californian and New-World Wines. Therefore, a strong brand image coupled with a wide private label portfolio enables the company to attract new customers and enhance customer loyalty, thereby increasing profit margins.
Lack of Retail Channels & Online Presence
Although Trader Joe’s is a prominent retail player with broad product range, it still falls behind in terms of retail channels offered when compared to its global competitors. Absence in e -retailing has prevented the company from realizing the benefits of online shopping. Its competitors such as Safeway Inc and Supervalu Inc provide the facility of online shopping along with in-store outlets. Customers are increasingly inclined to buy from web-based stores, as they provide the convenience of shopping from home and delivery to doorstep, reducing both costs and time.
Thus, lack of presence in web-based format limits the operations and customer reach. Such a drawback restricts the company’s consumer reach and confines its operations to limited regions. It also adds to its operational cost as maintaining physical stores require higher expenditure than online shops. Through online retailing, the company may save on cost and utilize the excess funds for other activities such as product expansion and development. It may also pass on the excess margins that it earns, to customers, in the form of lower prices.
Product recalls may significantly affect Trader Joe’s brand equity. Product recalls indicate poor quality measures, which in turn might tarnish the company’s brand image. Furthermore, besides sales lost due to product unavailability during the recall process, the company incurs various costs associated with the recall process that may increase operational expenditure. The company’s revenues and profits could be adversely affected by product recalls, damaging the company’s brand image.
Overdependence on US Market
Depending solely on the US market for its revenues could cause a concern to the company. With its key competitors such as Wal-Mart Stores, Inc. and Safeway already having diversified geographical operations, the company is at a major disadvantage as the sales from other regions diversify its risk. Overdependence on a single geographic region also puts the company at a risk as any adverse development in the political, economic or climatic environment of the region might have an adverse impact on the company’s business and also restricts its market share and growth options.
Rising Demand for Organic Products
Rising demand for organic products is expected to strengthen the sales of the company. The increasing organic farming and organic foods supply in conventional food stores are driving market. In addition, increasing health concerns among people, growing awareness about the harmful effects of pesticide residues and increasing trend of standardization for organic foods are also the driving factors. Trader Joe’s offer organic products such as natural meats, organic produce, grocery and dairy products, through its private label brands. Therefore, it may capitalize on the rising demand for organic products to have a competitive edge over the peers and increase its market share.
Rising Demand of Private Labels
Trader Joe’s stands to benefit from increasing demand for private label products. Following a period of slow and negative economic growth, private label sales are rising as consumers increasingly shop to a budget. While price is a prime factor driving private label sales, improvements in packaging and quality have helped to remove the stigma attached with buying store brands. Trader Joe’s well positioned in the private label segment with label products that include Trader Jose’s (Mexican food), Trader Ming’s (Chinese food), Baker Josef’s (bagels), Trader Giotto’s (Italian food), Trader Joe-San (Japanese food), Arabian Joe’s (Middle Eastern food), Pilgrim Joe’s (Seafood) and JosephBrau (beer). It is also an exclusive retailer of Charles Shaw Wines and stocks a large selection of Californian and New-World Wines. The private label products offered by the company are supported by an intensive promotional effort involving specifically designed advertisements.
Organic Growth Initiatives
The company’s success depends on the ability to expand its existing business operations. It has been adding several new destinations to the existing network in order to expand operations. The company intends to open 16 new stores across eight states of the US by end of 2014. As a part of this plan, in February 2014, the company opened its first three specialty grocery stores in Denver, Boulder and Greenwood Village. Additionally, two more Trader Joe’s stores are under development, in Fort Collins. Such expansion of the company’s business operations helps it in gaining further market share and increase in the total revenue.
Trader Joe’s is taking various strategic initiatives to drive its business growth. The company intends to expand its retail network through the opening of stores in the US. Increasing the number of stores provides the company with close proximity with its customers, increasing the footfalls. The company consistently reaches out to new customers through store expansion and introduction of new concepts into both existing and new markets.
Opening Smaller Retail Location
Trader Joe’s has a loyal following of customers and a strong brand image. With these strong factors they could a Trader Joe’s Pantry. The store would be much smaller than a regular Trader Joe’s store and would offer a fraction of the products that a regular retail location would offer. They could open these stores up in busy retail locations where they may not be able to find the store space for a larger store. By opening a smaller location they would be able to both appeal to new customers with their best selling products as well as have the opportunity to open up in new markets.
Evolving Consumer Preferences
Consumers’ preferences are dynamic and ever changing, this poses a major challenge to the company. The success of the company’s business depends on its ability to identify dietary habits and taste preferences of consumers and to offer products which match their preferences. At the same time, regular introduction of new products and product extensions in its menu involves considerable development and other expenditures. Therefore, if the company fails to add new items that meet the customers’ taste preferences, its operations might be affected.
Presence of Retail Giants
Trader Joe’s has been in retailing business for 55 years. However, significant advances and growth in retail segment has brought new challenges for Trader Joe’s. Presence of strong retailers such as Safeway Inc., The Kroger Co. and Wal-Mart Stores, Inc. intensifies the competition for the company. These retailers are well-positioned than the company due to extensive store network, better price-quality equation, wider range of merchandise and global presence. Therefore, the US grocery market experiences cut-throat competition, with every retailer trying to grab the maximum market share.
Increase in Counterfeit Products
Trader Joe’s business may be affected as a result of the huge influx of counterfeit products in the US. Such a high penetration of counterfeit merchandise may lower the company’s sales and adversely affect its profit margins. Furthermore, as customers mistakenly purchase counterfeit products bearing fake labels, the low quality of the products affects consumer confidence and also, damages the brand image of the genuine company. Through low price offerings, the imitated goods are affecting the sales of the branded products. As the company sells several national branded food and beverage products, it is prone to such challenges that may affect its performance.
Trader Joe’s VRIO
Valuable Resources and Competencies
One of Trader Joe’s main competitive resources is its network of suppliers that are willing to remain secretive about their business relationships with the organization and provide them with quality, diverse products that are then branded under Trader Joe’s private label. This creates value for the organization as they can source these products at costs that are much lower than those of their competitors. The organizations main competency is its ability to attract and retain a high volume of extremely loyal customers with minimal to no marketing and advertising. This can be attributed to their well-trained, friendly, involved staff or “crewmembers” and their perceived low prices for their quality private label goods. This creates value for the organization as they are able to provide their customers with an above industry average shopping experience without the need for outrageous investments and costs.
This main resource and competency is not particularly popular with large grocery chains within the industry as most organizations tend to lean toward more bureaucratic processes and procedures in order to simplify communications and transactions throughout their value chains and physical retail locations. Most organizations within the industry also rely on advertising, special sales, and coupons in order to attract customers to make purchases from their standard product offerings; the cost of these marketing campaigns and advertising strategies also has a negative impact on employee wages and the quality of the physical locations.
Cost of Imitation
Though a competing organization could undertake a company overhaul in order to duplicate Trader Joe’s practices, it would be very costly. Trader Joe’s has been built on historical customer loyalty, with die-hard fans being sometimes being referred to as members of “The Trader Joe’s Cult”. The social complexity of the organization is almost inimitable as loyal customer or fans have created a vast social media presence for the organization with absolutely no corporate presence. The major cost factor for imitation would be the organization’s causal ambiguity, as its private label suppliers are virtually unknown.
Organized to Capture Value
Though a competing organization may be able to duplicate Trader Joe’s superficial resources and capabilities, the organization’s processes and procedures are what make it unique. Trader Joe’s teaches it’s employees to adhere to its seven core values which are “Integrity, we are a product driven company, we create WOW customer experience every day, no bureaucracy, we are a national chain of neighbourhood grocery stores, KAIZEN( refers to activities that continually improve all functions and involve all employees from the CEO to the assembly line workers), the store is our brand.” These values are the basis of training and induction of new employees, and crew members are trusted to adhere to these values and implement them into all aspects of their job within the organization.
Trader Joe’s External Environment
The Canadian population continues to grow and because the population is growing this means that it will have an impact on food consumption. Single and couple households currently outnumber families of four or more, therefore, the need for Super-Marts to carry products in family sizes are excessive. Canada continues to have more and more Immigrants moving into the country which increases the population, and increases the wants and needs for particular food selections.
Canadians are becoming more focused on healthy living and dietary management. They are trying to decrease the obesity rate and avoid disease caused by eating poorly, to live longer and healthier lives. In today’s society there is an increase in the amount of consumers who decide to live by eating a meat-less diet, looking for many more choices and variety in foods when purchasing. Many consumers have decided to only no longer eat red meat because of the negative perceptions associated with it. Families today, where both partners are working and have full-time jobs are continuously busy and on the go, so they are looking for quick and convenient meals. With consumers now being focused on their better and healthier lifestyle, a lot of companies have looked at and experimented on how to keep consumers buying their favorite, go-to product by finding ways to make it healthier and more appealing to this cultural change.
Consumers are very price conscious; they are always looking for a great deal but also looking for a great deal with healthier food.
Legal and Political Conditions
The government makes sure food is safe and regulated properly. The government also educates the Canadian Population about the risks that can be caused by not eating properly. Companies are only allowed to choose from five general health statements to print on the packaging of their products. The wording and circumstances are regulated as to what can be stated.
Open up Trader Joe’s Pantry, they would be able to open these locations in various geographic locations including new areas they may not already be in as well highly populated areas where they may not have access to a large retail location but they could have access to a smaller store. These pantry style stores would carry a very limited amount of products, perhaps even just their best selling products based on customers in the area. They might even be able to open small pantries in areas such as universities and heavily populated downtown districts. They could increase their online presence and begin to sell their products online to customers. By doing so they may see that a lot of their customers come from a particular area that they may not have a store nearby. They may then find opportunities where they can help grow their retail locations. Trader Joe’s should invest into building quality and accessible parking lots at any new location and should renovate any existing locations that have received high volumes of complaints from customers.
This would increase the amount of regular customer traffic nationwide and ensure that Trader Joe’s is positioned as a desirable retail location by consumers. Understanding that Trader Joe’s bases its success off of its secrecy as it relates to their suppliers, they should provide more information as to where they source their products, particularly their meats and produce. It is possible for this information to be available to the public without Trader Joe’s naming its suppliers directly; they can provide information as to how and where the products are made and processed and under what regulatory certifications the products are created.
Trader Joe’s has had much success in the grocery industry without investing heavily into formal marketing and advertising. This also helps to keep their overall costs low and as a result their prices. However, the popularity of social media is a perfect opportunity for Trader Joe’s as it can enable them to push the awareness of their organization at minimal costs. Trader Joe’s can accomplish this through an overall corporate social media campaign or have each store location create its own online presence; this would also retain the neighbourhood grocery store feel as each location can design their online presence to suit the preferences of their local customers.
(October 31, 2014). Canadean – SWOT Analysis, Retrieved from www.lexisnexis.com/hottopics/lnacademi
(October 30, 2012). WMI – SWOT Analysis, Retrieved from