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Tuesday, April 17, 2007

Trader Joe's - Where Values Drive The Brand

Imagine standing in a proper, Midtown Manhattan meeting space [i.e., the Penn Club], and seeing several guys walking around in Hawaiian shirts. Strange - until you realize that you're about to spend An Evening with Dan Bane, Chairman and CEO of Trader Joe's [sponsored by The London Business School Club of New York] - at which point it seems not only normal, but appropriate!

Are you familiar with Trader Joe's, the quirky, neighborhood grocery chain considered second in the nation after Wegman's? [per 10/06 Consumer Reports Supermarket ranking - registration required]. I am. I'm not only passionate about the store, but also really curious about the magic that Trader Joe's consistently creates.

After hearing Dan Bane talk about Trader Joe's, I understand a little better the magic that this strong, carefully and consistently nurtured brand creates.

Brief story of Trader Joe's:
[Refer, too, to the Wikipedia article on Trader Joe's for the more detailed version.] Joe Coulombe started Pronto Market in Pasadena, CA in 1958 around the notion of convenience. He was a classic entrepreneur and sold the company in 1979 to the Albrecht family - owners of the German grocery chain Aldi. Joe stayed on for 10 years, when John Shields took over.

Shields came from Macy's and instituted 3 brilliant changes: 1. he decentralized operations; 2. he developed training programs [including management classes on how to deal with people, and how to speak the same language]; 3. he brought professional buying experience to the organization.

Trader Joe's remains privately held. The Albrecht family has never taken any money out of the organization, nor put any back in. Their guidelines: grow the company as fast as you, without borrowing money. They review/approve leases over a certain level. They expect quarterly financials. On a yearly basis, they spend 3.5 days visiting stores. They are true retailers and want to share ideas and concepts.

Bane, an accountant by training, joined the company in 2001. This article from the USC News from 2/22/07 titled He's Got It in the Bag by Evelyn Jacobson gives a feel for Bane's style as well as for Trader Joe's.

Company financial overview: in 1998, after 40 years, Trader Joe's generated $1B in total sales. In 2006, this increased to $5.4B with 278 stores [175 west/103 east] and a tight product assortment of 3200 skus [vs. 60k normal supermarket]. Eastern region extends from Boston - opened 10 years ago - to Chicago, and recently to Atlanta. The NYC, opened 1 year ago, already generates the highest volume [Trader Joe's would like to have 5 NYC stores].

Stores target high density, high income, high education areas with the goal of 'bringing civilization' via primarily specialty foods.

The Values of Trader Joe's:
Bane described the 'values guide' that makes Trader Joe's what it is. It identifies what matters and what everyone in the organization relentlessly pursues, lives by, and makes decisions according to. It's serious stuff!

1. Integrity. This goes beyond accepting any gifts or free tickets [Freebies must go through an auction process for company-wide reallocation. Any proceeds go to charity.]. It's about simply treating people as you would want to be treated and always acting as if your customer were looking over your shoulder.

2. Product driven company [vs. vendor driven]. Trader Joe's actively seeks out great products and suppliers. It is purposely 80% private label, avoids middlemen, preferring to deal directly with manufacturers and growing with them. The company would rather obtain a low price for a product than receive promotional dollars.

Although it advertises via radio, its flyer/circular -- which beautifully captures the quirky, adventure-loving and humorous quality that Trader Joe's stores express -- is its primary vehicle. These are Trader Joe's produced/created pieces. The other marketing focus consists of in-store tastings or demonstrations. It's the largest marketing expense and brings not only the products to life, but also the story-telling and entertainment qualities that you'll read more about below.

Definitely, treat suppliers fairly and with respect - work as partners; pay bills - in contrast to the traditional relationship which is about traditional buying, waiting for others, brand name focus, buying through distributors, lots of promo $$ [slotting, promo and demonstration fees, culminating in an adversarial relationship with suppliers].

As a product driven company, Trader Joe's expends a great deal of energy around product development. Buyers are passionate about their category. Not surprisingly, 2 are former chefs. They search the world for the unusual, the unexpected, the delicious and the memorable. They are hip and definitely recognize trends. They live up to their description as 'traders on the culinary seas'.

In fact, tasting panels to test new products take place twice a day in Boston or Monrovia. Just listen for the ringing of the maritime bell! During these sessions, participants [buyers, regional managers, executives...] discuss the taste, the pricing, whether it's worth the store space? whether it's private label-able? whether the product is necessary? is the supplier dependable? And, is there a good STORY to tell about the product? All very serious business!

[Check out the Trader Joe's website Products page and you'll get a better taste for their seriousness.]

To illustrate the success of their product focus, realize that Trader Joe's sold 9,644,544 tortillas last year, and 13m cases of Charles Shaw wine [i.e., 2 buck chuck] at $1.99 on West Coast/$2.00 in NYC [the equivalent of here and back to the moon twice if you placed the bottles end to end; the best selling item for the past 5 years].

Dan Bane referred to The Myth of Excellence: Why Great Companies Never Try to Be the Best at Everything which suggests that no business should excel at all five business categories [product, price, accessibility, service, experience]. Instead, a business should be world class at one, be great at another and then meet customer expectations on the rest. So, for example, Trader Joe's is world class on product, great at experience, and meets customer expectations on service, accessibility and price [vs. Wal-Mart which is price driven, then product focused, and meets expectations on service, experience and accessibility].

3. Create a WOW customer experience. Retailing is all about creating a Wow experience. This consists of two aspects: the internal/how do you make me feel? do you care I'm there? do you care I'm safe? do you respect me? do you trust me? and the external which includes signs [local artists create the in-store artwork and make each store great, individual, distinct and connected to its neighborhood], product demonstrations [the right person makes it fun] and entertainment [e.g., the flower displays, having store crew members dress up as Cookie Monster]. When it all clicks, the end result is a WOW experience for the customer!

4. No bureaucracy. This is a lean, flat, simple, focused organization. Corporate headquarters consists of cubicles - even for Dan Bane! - and no secretaries. The focus is on connecting with customers and supporting the stores. Bane visits each store 3 to 4 times per year. And, when he visits the stores, he becomes "Bagger First Class", greets customers, helps them carry groceries or listens to them talk about their likes and dislikes.

5. National chain of neighborhood stores. Trader Joe's stores maintain a tight connection with their communities. Continuing with the nautical/South Seas imagery, a captain runs each store, and ensures that all customers truly feel that they have an inalienable right to shop there.

6. Kaizen. Everyone has a duty to do better. Although the organization does no budgeting [amazing!], it constantly challenges itself on how to improve over the previous year - sales? managerial profit percentages? sales per crewmember %? The focus is completely on improving the performance at Trader Joe's - rather than worrying about what competitors are doing.

7. The store is the brand. Look at the Trader Joe's website and appreciate how consistently the stories get told. Examine the flyer which captures the mystique of these traders on the culinary seas. Look at the Hawaiian shirts. Read the product descriptions. Every element, every story, every detail reinforces the Trader Joe's brand and leads the consumer directly into the Trader Joe's store. Captured here are some ferocious emotional and personal consumer responses, forged by strong connections to the stores. These truly are neighborhood stores. Their stores. In fact, this 2/14/06 Business Week article, My Valentine to Trader Joe by Amy Dunkin, represents one customer's ode to the store.

The 'values guide' codifies the process so that the company makes consistently focused decisions. For example, the guide meant saying no to purchasing a store chain in Texas. Internet sales make no sense even though they represent easy money. Same goes for product sales in Japan. Just wrong. However, the guide will support nationalizing what makes sense to be nationalized [bananas, olive oil] to support growth, and localizing other products [e.g., bakery].

Sources of Inspiration:
Bane mentioned that he and his crew had dined at several of the Danny Meyer restaurants given their reputation for hospitality [per his book Setting the Table: The Transforming Power of Hospitality in Business]. They learned a great deal about the customer experience - including that all it takes is one person to blow it!

He routinely goes to department stores for ideas.

He has stolen ideas from Disney [i.e., the hand done signs and music that changes every 20 feet within Disney theme parks - that's why each store has its own theme]. [This reminded me of Drew McLellan's Magic of Disney series with Marketing Lessons from Walt].

Miscellaneous
Trader Joe's wants to be the first and favorite grocery stop. Banes loves to be located next to Costco or Whole Foods.

Supermarkets were trying to out Wal-Mart Wal-Mart and they forgot about the customer in the process. Now, they are trying to differentiate themselves and doing more private label to be unique.

Trader Joe's has world record fast turns in store, but -purposely- slow warehouse turns. They focus on having the right products that sell in-store. Although they manage their warehouses, they contract out the actual warehouse and trucks. Their goal is have every product available to every store, every day.

The product line is very carefully managed. Nothing can be introduced without removing a lesser performing product. Buyers monitor weekly sales thresholds per product. If the product doesn't hit the target, the buyer checks to see that everything possible to promote the product has been done. If they have, then they eliminate it. It's a rigorous score keeping process.

Trader Joe's: The Trendy American Cousin in the 4/26/2004 issue of Business Week by Larry Armstrong provides you with a nice perspective on the Trader Joe's magic, a place where values truly drive the brand.

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