Is Trader Joe’s success formula becoming obsolete?

Discussion
Photo: Getty Images/PeopleImages
Nov 11, 2022

Through a special arrangement, presented here for discussion is an excerpt of a current article from Frozen & Refrigerated Buyer magazine.

With its high-quality products, value proposition and knowledgeable and friendly staff, Trader Joe’s often finds itself at or near the top of various industry “best of” lists. However, the quirky chain may still face some challenges as it expands.

An obvious potential shortcoming is not offering e-commerce as e-grocery has taken off. Beyond challenges associated with attempting curbside pickup in a Trader Joe’s parking lot, the grocer doesn’t want customers ordering online because it takes away from the store experience. Trader Joe’s president of stores Joe Basalone said in a recent interview with Kitchn, “For us, the brand is too important, and the store is our brand.”

Karen Kelso, VP of retail insights for mass and club at Kantar, agrees Trader Joe’s in-store experience is “a fundamental part of its brand,” but also said Kantar’s data shows “commerce and omnichannel options are firmly embedded in shopper preferences, and this is a long-term, sustained trend that we don’t expect to change.”

Ms. Kelso also believes some improvements in the area of logistics and supply chain would help Trader Joe’s maintain a more consistent supply of high demand items.

Supply chain disruptions could have an outsized impact on Trader Joe’s compared to other retailers. Jim Hertel, SVP at Inmar Intelligence, observes, “In small-format limited assortment stores, each SKU plays a disproportionately important role because there aren’t as many substitutes on the shelf. What’s more, the many unique items in Trader Joe’s range with destination appeal mean that out-of-stock items are that much more meaningful to shoppers and that much more difficult to source from other suppliers.”

Trader Joe’s lacks a loyalty card that could provide customer data and its EDLP strategy removes the thrill of deal-hunting shoppers may find at other grocers. Gary Stibel, founder of New England Consulting Group, however, believes “the lack of promotion actually reinforces the value proposition.”

Inflation could be beneficial as shoppers trade down from places such as Whole Foods, but also a challenge. Said Neil Saunders, managing director at GlobalData Retail, “Trader Joe’s needs to walk a tightrope between maintaining its margins and maintaining its reputation for value.”

DISCUSSION QUESTIONS: What do you think Trader Joe’s needs to work on? Will the lack of e-commerce, a loyalty program or discounts found at other grocers become bigger liabilities for the chain down the road?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Trader Joe’s loyal customers are fine with the retailer’s quirks. The things that make shopping there different are what its customers love."
"It would be madness to try to cram online order fulfillment into its compact footprint locations."
"Thinking like this from Kantar is why the grocery shopping experience is so homogeneous – every store is the same – and why these smaller alternatives are flourishing."

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36 Comments on "Is Trader Joe’s success formula becoming obsolete?"


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Neil Saunders
BrainTrust

The lack of e-commerce at Trader Joe’s may not to be everyone’s preference. However the proposition is so strong across so many attributes – value, quality, taste, uniqueness of offer – that most consumers are willing to overlook this and visit stores. This shows up in Trader Joe’s strong trading numbers over the past few years: it has gained market and shopper share. The other point to make is that e-commerce in grocery is rarely profitable. So Trader Joe’s could implement something and end up damaging its business model which relies on low prices and high volumes sold from stores. As for loyalty programs: largely these are not about loyalty – they are about gathering customer data so again, not having one is not that detrimental to the customer experience.

Bob Amster
BrainTrust

The store experience is the brand at Trader Joe’s. They are unequaled in their segment. The supply chain needs attention as the company has had many out-out-stocks recently for which customers have been loyally waiting. Some subtle forms of automation are also due, although one could understand that Trader Joe’s does not want to hurt their hand-holding customer service image by becoming more cold and impersonal.

Steve Montgomery
BrainTrust

I agree. Admittedly there is a relatively limited number of items we buy in their stores but several have been out of stock for months. The very friendly staff has told us to keep coming back to look for them because they have not been discontinued. We do so when going to the area where their local store is. No more special Trader Joe’s trips.

Georganne Bender
BrainTrust

Who are you calling obsolete? Not every grocery store needs to be slick and shiny, and not every grocery store has to live and die by curbside pickup. Trader Joe’s has already proven that.

Trader Joe’s loyal customers are fine with the retailer’s quirks. The things that make shopping there different are what its customers love.

Richard Hernandez
BrainTrust

I like that they do not have e-commerce at Trader Joe’s. The stores are crowded already and it would be a big issue with those carts in the aisles. It’s fun to walk into the store and shop not knowing what you will find. I believe they need a loyalty program though – I think it would be a thank you to those that shopped the stores for years.

George Anderson
Staff

Trader Joe’s rationale has been that it offers the lowest price possible to customers on a day-in and day-out basis and that added expenses such as loyalty programs will only drive prices up.

The company counts on developing true loyalty with its customers, in the human sense, by offering products they value and backing them up with a no questions asked and no receipt required guarantee. It also excels at hiring people who are true brand ambassadors who customers value for their knowledge and willingness to help. If there was ever a retailer that didn’t need a loyalty program – Trader Joe’s is it.

The only real pain point for Trader Joe’s customers is the chain’s parking lots. There is a method to the madness there, as well. Crowded stores suggest that it isn’t being hurt too badly.

storewanderer
Guest
28 days 6 hours ago
Trader Joe’s already has a loyalty program. It just doesn’t involve databases or data collection (and who knows if they may be doing some data we don’t know about on the back end with credit/debit card purchase data): 1. Satisfaction guarantee- you have a problem with an item, you get a refund, no questions asked and no hassle. You don’t even have to bring the product back. 2. Quick checkout. Efficient and friendly, every time. Every location. 3. Strong private label mix, very tight quality controls, and many very clean labels. 4. Fun to shop atmosphere. 5. Small store size making it easy to gather what you need quickly and easily. 6. Everyday low pricing. It really is low. Go price them on various categories vs. other grocers (or Walmart) and you will see Trader Joe’s comes in 20-30% cheaper on staple grocery items like coffee, milk, olive oil, bottled beverages, pasta, everything basically. And yes I am comparing private label to private label here. I think Trader Joe’s has the best loyalty program in… Read more »
Dave Bruno
BrainTrust
As a long-time, loyal customer of Trader Joe’s, I will do my best to be objective. I love their assortments, I love the simplicity of EDLP: no apps, no coupons, and no loyalty card required. What you see is what you pay. Those two things have kept me coming back to their stores for more than 20 years. I am not convinced that offering online options diminishes their brand promise in any way. But they spend a lot more time and money thinking about those things than I do. So, as much as I would love to be able to order my TJ’s favorites through Instacart or DoorDash, I respect their decisions. And guess what? I rarely walk out of a Trader Joe’s store with only the things I had on my list when I entered the store. Their ability to constantly evolve their assortment with interesting temptations continues to impress me (and my taste buds). Maybe they know what they are doing by forcing me into the store to get my annual Candy Cane… Read more »
Ron Margulis
BrainTrust

The biggest disconnect for Trader Joe’s is the inability to target its most profitable customers. For instance, the retailer doesn’t know for sure if a product it’s delisting is going to cause those shoppers to move to other stores or online. While they can conduct market basket analytics to get some answers, and I’m sure they do, the lack of a loyalty program inhibits them from really understanding what products the most profitable shoppers consider most important.

storewanderer
Guest
28 days 6 hours ago
Also customers are advised to provide feedback regarding discontinued items and store teams are provided with channels to flow that feedback upstream. Many products have been returned after being discontinued, or seasonal products made year around products, due to that process. They are old school in how they do things. They write orders by hand. They don’t have any security cameras in their stores. They definitely could improve various technology. They probably have higher shrink than they should have due to a lack of data to optimize ordering. But why change? Their formula works. The ownership is obviously satisfied with the profits the chain generates and they have constantly expanded and have the highest sales per square foot in the industry and it isn’t even close. Also Trader Joe’s are not necessarily a weekly shop or every shopper’s primary store. They are not saturated in a market and just because someone doesn’t come to Trader Joe’s for a few weeks doesn’t mean they have moved on due to an item being discontinued. It may just… Read more »
Jeff Sward
BrainTrust

There’s nothing obsolete about quality and value. But there is also no denying that Trader Joe’s needs to implement many of the evolutionary measures called out above. At some point they risk truly testing the patience of even their most die-hard fans and supporters.

Cathy Hotka
BrainTrust

Trader Joe’s isn’t broken and there’s no need to fix it. Its parking lots are full and its customers are enthusiastic. If customers want to frequent a store where the aisles are jammed by associates picking orders for customers at home, they can visit an Amazon Fresh.

Rich Kizer
BrainTrust

The real boss here on how to do business is the consumer. So you don’t want customers ordering online? That is your call, but remember customers will do what they want. Customers today make the choices, as it always has been.

Ryan Mathews
BrainTrust

To be honest, I think Trader Joe’s is just fine. Obviously out-of-stocks are a challenge for them as they are for any retailer. Jim Hertel is right, to a point, but he’s not figuring in another component — Trader Joe’s customers’ fanatic loyalty and appreciate of the chain’s culture, which buys them more than their fair share of forgiveness. And I agree with Gary Stibel. EDLP pricing plus a lack of faux discounts through “loyalty programs” the only purpose of which is to gather data reinforces Trader Joe’s value proposition. As to ecommerce, we’ll see what they do. Right now it’s clearly not a deal breaker with consumers.

Joel Goldstein
BrainTrust

The benefits of Trader Joe’s have been focused on the quality and transparency of ingredients. While they were ahead of the curve, it seems the curve is catching up with more and more products at traditional retailers being offered with quality ingredients and organic alternatives that do not bear a huge price tag.

Lisa Goller
BrainTrust

Trader Joe’s spectacular stores, private labels and people spark retail joy. Yet, shopping habits have changed. Today’s shopper is omnichannel and younger shoppers in particular expect digital options. Resisting omnichannel choice could harm the brand down the road as Gen Zs and Generation Alphas grow up.

Brad Halverson
Guest

I’ve wondered the same, Lisa. And my own unscientific poll among Gen Z customers is they don’t seem to care that TJ’s doesn’t offer digital options. That could change, of course.

Richard J. George, Ph.D.
BrainTrust

The Albrecht family has done a terrific job of positioning Aldi and Trader Joe’s. As for a lack of an online shopping alternative, it really is inconsistent with its in-store shopping experience. As for loyalty programs, Trader Joe’s realizes that it is not customer loyalty that matters, but retailer loyalty to the customer which is king. How has Trader Joe’s maintained its loyalty to its customers? Simple – it delivers on its promises.

Joan Treistman
BrainTrust

The article didn’t mention any specifics on Trader Joe’s problems. The commentary is about “let’s make Trader Joe’s like every other grocer.” The business model Trader Joe’s works within may be just right for Trader Joe’s. Without knowing their particular goals it’s hard to say what is or isn’t working for them. But when I’m in their new store under the bridge on First Avenue in NYC, I see over 30 cashiers at work to keep the shoppers coming through at an even and comfortable pace. The store is bustling and has all the positive characteristics of inventory and staff mentioned in the commentary. The question is, can an outlier continue to be successful?

There are lots of grocers with e-commerce, loyalty programs and discounts that aren’t having shoppers line up at more than three or four cashiers. That’s not a sign of success to me.

Shep Hyken
BrainTrust

First, Trader Joe’s is a benchmark of value that other retailers should aspire to be like. They have good products, competitive pricing, and incredible service. That’s what keeps them in the game – and at the top of the game.

As for a loyalty program, Trade Joe’s already has one. It’s their customer experience. That’s what gets their customers to come back again and again.

There are other ways to get customer data outside of a loyalty program. If Trader Joe’s wants or needs that information, they will find ways to get it.

Paula Rosenblum
BrainTrust

If anything, I always felt Trader Joe’s was expanding its footprint too slowly. I’ve waited 20 years for a Trader Joe’s I can shop at without it being a day trip! That day has finally come.

I don’t care as much about e-commerce, because Trader Joe’s with its poorly designed checkout stands, remains a real adventure that I actually enjoy.

storewanderer
Guest
28 days 6 hours ago

Those poorly designed checkstands allow them to have more checkstands and more actual humans behind the registers to get the lines moving faster….

Those poorly designed checkstands also make it so you don’t have to stand there and unload your cart then re-load your cart at the end, like you do at a standard Safeway or Kroger.

Those poorly designed checkstands also take up significantly less space than standard grocery belted checkstands, so there is more room for merchandise.

I do agree they are a bit closer together than I’d prefer, but there are a lot of reasons.