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Trader Joe's

Fortune Magazine has a surprisingly good article about the secret world of Trader Joe's. Props to author Beth Kowitt for a well-done piece.

(from Flickr user M.V. Jantzen)

My roommates love Trader Joe's. I've shopped there a few times, but it's not my primary grocery destination. Maybe that will change if the rumored store in Clarendon opens sometime in the near future; but as long as the two closest stores are out in Virginia suburbia and across the river in DC, I'll stick with the supermarket for my grocery needs.

Maybe I'm not enough of a foodie to appreciate the value that Trader Joe's has to offer. I'm personally content with the store-brand groceries that I can buy inexpensively at the supermarket. The Trader Joe's business model is nevertheless fascinating.

Take, for instance, the company's approach to stocking products:
A closer look at its selection of items underscores the brilliance of Coulombe's limited-selection, high-turnover model. Take peanut butter. Trader Joe's sells 10 varieties. That might sound like a lot, but most supermarkets sell about 40 SKUs...

...Swapping selection for value turns out not to be much of a tradeoff. Customers may think they want variety, but in reality too many options can lead to shopping paralysis. "People are worried they'll regret the choice they made," says Barry Schwartz, a Swarthmore professor and author of The
Paradox of Choice. "People don't want to feel they made a mistake." Studies have found that buyers enjoy purchases more if they know the pool of options isn't quite so large.
Schwartz's book answers a lot of interesting questions about why we are so unhappy when presented with a lot of choices. And it makes sense. When there is an endless supply of every product, there's always the risk that you'll later regret what you chose. Even if you made the best objective decision, that voice in the back of your head always reminds you that maybe you could have done better.

Trader Joe's doesn't sound like a half-bad place to work, either.
You can't buy engagement from employees, but the pay at Trader Joe's helps. Store managers, "captains" in Trader Joe's parlance -- the nautical titles are a holdover from Coulombe (newly promoted captains are commanders; assistant store managers are first mates) -- can make in the low six figures, and full-time crew members can start in the $40,000 to $60,000 range. But on top of the pay, Trader Joe's annually contributes 15.4% of employees' gross income to tax-deferred retirement accounts.
This is the perfect case for why companies ought to 'overpay' their employees. Not in the sense of giving them obscene bonuses like on Wall Street, but offering a salary that means they never have to worry about bills, makes them feel valued, and offers them good reason to stick it out for the long-term. This is a strategy at odds with many retail businesses, which pay employees as little as possible and treat everyone as easily replaceable.

It's also good for business. When I interned at Southwest Airlines, I was incredibly impressed with the corporate attitude that employees should be taken care-of first and foremost. The well-being of customers came before both customers and shareholders. In theory, this sounds absurd; but happy employees made for happy customers and shareholders, so maybe it wasn't so silly after all.

Trader Joe's is clearly at a crossroads. It's popularity means expansion would be easy, but the risk of becoming just like Starbucks is undoubtedly high. Being a privately-held business that doesn't have to answer quarterly to Wall Street shareholders, I hope Trader Joe's can resist the urge to put growth above all else.

Comments

I hope they decide to open up in Clarendon. If you like to buy natural and organic foods it has much better prices and options than Teeter. We currently drive to Bailey's Crossroad when we want to shop at Trader Joes. Not to far, but the traffic is terrible over there.

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