Trader Joe’s Success Formula and What Can Other Retailers Learn From It

At the core of Trader Joe’s “modus operandi” is a focus on simplicity, better value and a fun shopping experience. The grocery retailer's success factors are there for everybody to observe and copy, yet nobody has been able to do so successfully.

The company's founder, Joe Coulombe, was asked in 2006 by Coriolis Research if anyone ever tried to do so. His answer was that many did, but none were ever willing to give the same level of wages and benefits to its full-time employees. The superior remuneration package, a specific recruiting approach (seeking people with a personality that love people), and the cultural values instilled during training all help explain the superior quality of staff and very low levels of turnover at Trader Joe's. A happy staff means happy customers.

“Staff Friendliness and Service” was ranked among the top five store choice drivers identified in Minerva Insights & Solutions recent study of primary grocery drivers. Guess which company got the highest score among all U.S. retailers for this driver?

While it doesn't seem possible or meaningful for any competitor to try and recreate the unique world of Trader Joe’s, there are specific elements such as staff quality that other retailers can adapt and implement into their own corporate culture and brand identity. Let’s look at a few other core competitive advantages of Trader Joe’s.

Very similar to its parent company Aldi Nord, Trader Joe’s operates stores with a small footprint and a limited product range (around 4,000 SKUs, with about 2,000 standard SKUs). This leads to high volume and velocity on existing items. That brings huge buying power, allowing Trader Joe's to negotiate competitive cost prices/volume discounts with suppliers while not compromising on quality. As a result, Trader Joe’s sells high-quality products at prices considered in the survey as second best on “Everyday Low Prices,” right behind … Aldi.

Given the limited range, each SKU needs to be outstanding, with great quality and taste plus a little uniqueness in terms of origin, ingredients, taste profile or production method. Trader Joe’s delivers on this premise through its strong private-label brands (again ranked best in our survey), which account for 80 percent of all SKUs. Each product under the Trader Joe’s brand has its own specific story to tell the customer, something that requires deep category and product knowledge when developing these products.

Adding regular new items, imported products, and seasonal in and outs keeps the customer discovering regularly innovative, new products (another top driver for Trader Joe’s). Furthermore, Trader Joe’s received the highest ratings on “Right Company Values” for being transparent in its consumer marketing about what it stands for (e.g., no use of artificial flavors, coloring or preservatives, non-GMO, etc.), including a commitment to high health and ethical standards for all its products.

At the end of the shopping experience comes checkout. Trader Joe’s gets top ratings here for the speed and proactiveness of its cashiers to open extra checkout lanes or help out by bagging products.

The fact that Trader Joe’s still only has 475 stores means that the company is careful about store expansion and putting its culture, operational model and store-brand affiliation at risk. It also means that a retailer can be successful without the huge scale of a Walmart or Kroger, provided it chooses a targeted, differentiated approach that considers implementing any of the following elements:

• Identify a strong and unique culture (internal) and brand identity (external) with a clearly defined core customer target.
• Hire the right staff, pay them well and keep them happy.
• Sell more from fewer (stronger) products.
• Strengthen your private-label products by having profound product knowledge and the ability to create differentiated product lines each with a story to tell. Avoid commodity products that only compete on price — hence scale always wins.
• Innovate. Bring to the table unique products and a memorable shopping experience.
• Fiercely guard your unique identity and culture.

Philip Cop is the owner of Minerva Insights & Solutions, a startup market intelligence and consulting company in the consumables, retail and private brand space.