PLBuyer: Trader Joe’s Remarkable Journey
By Mary Gustafson
Through a
special arrangement, what follows is an excerpt of a current article from
Private Label Buyer, presented here for discussion.
Undoubtedly, Trader Joe’s
success rests on the strength of its private label products, which comprise,
according to some estimates, about 2,000 products or about 70 percent of
its sales. The rest of its selection, primarily in the produce, prepared
meals, baked goods and dairy departments, is filled in with national and
regional brands that vary by location.
But it’s the products
that bear the Trader Joe’s brand, and the variations of that brand, that
are responsible for the cult following the retailer enjoys.
Lynn Dornblaser, a new products analyst at the Mintel International Group Ltd., said Trader Joe’s employs
savvy buyers and scouts who are always on the lookout for products that
fit the chain’s philosophy, as well as the company’s commitment to sustainability,
organics and innovation.
“One of the interesting
things is that they’re able to take niche products, or products you can
only find in a small specialty shop, and bring them to a wider audience,” said
Ms. Dornblaser.
Laurie Demeritt, president of the Hartman Group, said consumers
seem to respond to the brand Trader Joe’s almost as if it were a real person.
And because they see Trader Joe’s as a person, they trust that the private
label products are safe, organic and sustainable – and most importantly,
taste good.
“Consumers think
they can relax because T.J.’s has done all the
research,” Ms. Demeritt said.
While one of retailer’s
most successful products has been its Charles Shaw wine, frozen foods – namely
seafood, frozen entrees, veggies, appetizers, desserts and breakfast items – are
the biggest draws.
“They bring the
quality and the taste,” said Jim Hertel,
managing partner of Willard Bishop. “Given space allocation, they
certainly have a much greater representation of frozen meals and foods
compared to other retailers.”
Ms. Dornblaser thinks the best Trader Joe’s products are the
ones that are completely original, as opposed to knock-off versions of
national-branded products such as Cheerios.
“I think some of
their most unique attributes is what they’ve done with ethnic foods in
general – with Indian flavors, frozen bowl meals. For example, the
Trader Giotto line is much more authentic-looking and tasting than other
mainstream products in supermarkets … in terms of raising the bar,” Ms. Dornblaser said.
However, some weak spots
are produce and fresh-prepared meals, a place where competitors such as
Whole Foods shine. To some extent, those challenges are related to infrastructure
and distribution. A universal problem for all retailer private label
programs – how to compete with heavily marketed national brands when
it comes to beverages, particularly carbonated soft drinks. Packaging is
also seen as an area in which the retailer could really improve.
“Because they’ve
had such success with their quirky stores and positioning, and great products,
consumers have given them lots of permission to not be a leader in offering
great packaging or leading-edge design,” said Ms. Dornblaser. “Ever try to open a bag of T.J. potato chips?
You nearly need a chainsaw.”
Discussion Question:
Why do you think Trader Joe’s has been so successful with its private
label assortments? On the other hand, how can it improve its private
label programs?
Price, product quality and availability, with a proven history of quality and performance all work in tandem to make TJ’s house brands a success. This drives higher margins in TJ’s stores (there is no middleman) and eliminates many of the costs that national brands have to bear (advertising, market testing, competitive costs, shelf positioning costs, etc.). Together these concepts combine to make the TJs brands a hit. This same combination is seen at other retailers like Costco (Kirkland) and Walmart (Sam’s Choice among others).
I have to agree with Lynn Dornblaser that the products TJ’s develops themselves are far better, and probably more profitable for them than national brand knockoffs.
However, I would like to raise another point; that Trader Joe’s strength in developing new products and getting new ones into the store all the time, can also be its Achilles heel when a product that gains a following is, all of a sudden, no longer available.
This has been their modus operandi for years and no one can dispute the chain’s success. But you might want to discuss the potential impact–positive and negative–of short-term product introductions
Trader Joe’s initial strategy of offering high quality, unique, closeout merchandise at good values created a very favorable image among consumers for its stores. TJ extended this favorable brand image to a set of private label offerings that are consistent with the quality and brand image of its stores. Many of the private label offerings use the Trader Joe’s family brand name to facilitate this image transference. Thus, the success of TJ’s private label products traces back to the initial development of store brand image and its success in translating this image to its private labels.
I think we will all agree that Trader Joe’s is successful because of their unique niche products and low prices.
Considering Trader Joe’s probably has the highest sales per square foot performance of any supermarket chain, I am in no way going to suggest how they can improve their business. My only suggestion would be that they don’t over-expand and dilute their good fortune the way Whole Foods has done. Only Trader Joe’s would be able to make a difficult-to-open bag of potato chips an endearing characteristic.
Trader Joe’s is successful for a number of reasons. First, it provides a fun shopping experience. Second, it provides products not offered by other retailers. Third, it maintains high quantity control standards. Fourth, it changes its product mix and does not wait for the consumer to stop buying to replace items.
The second reason above is most likely the greatest contributor to their success. They know the customer. They develop; not copying other products is a recipe for success.
Trader Joe’s has made “unique” fashionable to an army of consumers that are just beyond the cusp of “conventional.” Their PL products are noticeably different, exclusively packaged and more exotic than most other PL products found in the supermarkets and warehouse clubs…their employees are always at top of the friendly game…and the smaller store size suggests an aura of exclusivity to their customers. Combined, these ingredients have made Trader Joe’s “cool” and, of course, successful.
I think the article summed up the reason Trader Joe’s has been able to make their private label brand into a perceived national or at least a regional brand. Uniqueness, quality, consistence, and fair price.
I disagree with the majority here. Fresh food and produce would take Trader Joe’s out of its core competency, and raise the issue of “spoilage” by orders of magnitude.
Why compete on “fresh” when you can compete so well on everything else? I know the margin is higher, but the company has a winning formula with nothing that I can see pulling it to change.
“…always on the lookout for products that fit the chain’s philosophy”
– ’nuff said.
There’s a spirit of fun you can see in the Fearless Flyer that I suspect carries over into meetings/decisions at Trader Joe’s. I don’t see their PL buyers surrounded by data and caught up in analysis paralysis and “we tried that once and it didn’t work.” Lynn Dornblaser nailed it well when she said the avoidance of me-toos really is a big part of their success. I think self-confidence and a spirit of fun is equally important.
One thing to point out about their PL program is that pricing is not a huge factor. While price point is important, they are not competing with a national brand within the store. So in turn, quality becomes the priority as opposed to price point. Using this ‘marketing equation’ Trader Joe’s can offer unique, high quality products under their own banner.
And yes, customers have become very comfortable with the label and give their complete trust when shopping them. Add the excellent customer service and extensive product knowledge the staff has, and you have the makings of an outstanding customer service experience.
Trader Joe’s is simply an interesting place to shop and nice people work there. Personally I’ve not even thought about the private label issue. And forget the legendary “Two Buck Chuck” wines. As part of the super-elite upper-class one of our favorite excursions is seeing what amazing wines we can get from TJ under $6. Everyone loves Trader Joe’s!
The obvious answer to the Discussion Question is the question itself. Trader Joe’s is successful because it’s private label product has long appealed to its customers.
Every successful retail endeavor has built a niche in which it excelled and built a customer base who returns because of their ability to deliver on that promise.
Trader Joe’s doesn’t need to improve on its private label programs so much as ensure that it studies its niche and customers and remains relevant.
If TJ remains relevant, then it remains successful.
I think the broad answer that the BrainTrust is giving is correct. But for me, there are two interesting side notes:
1) My family actively dislikes many of the TJ’s private label products (e.g., the Indian food doesn’t taste like real Indian food!). However, we think others are just fantastic: raw pizza dough, long spaghetti in the yellow package, frozen croissants, crumpets, etc. We are highly loyal to the store because of this subset of products–so highly loyal that we don’t care about the stuff we don’t like. So long as everyone feels this way, and is willing to cut TJ’s some slack in finding the products they like in the portfolio, TJ’s can target “micro-segments” without really having to target.
2) My wife says that TJ’s has very good prices on staples– especially milk and eggs. This takes away her main reason to go to Safeway frequently.
Trader Joe’s has it all going on; great product, fun atmosphere, attentive employees…at the end of the day, it’s just a great, great BRAND, hitting on all the classic marketing P’s– place, people, price, projection and in turn, positioning.
Let us not forget (as it is scarcely mentioned above) potentially the best part of the Trader Joe’s experience–it’s just plain FUN to be there, man! Which then makes impulse a huge factor. I always spend more than I plan to there simply because I’m hanging out longer.
Trader Joe’s has decoupled their private label from (or rather never coupled it with) branded products. Its private label is one of its most powerful instruments for projecting its brand. The quality of the products has not only made them, but the store, a destination for many people. The private label plays directly to the “committed” regular customer base that the chain has developed. In fact, their use of private label is a textbook case on how to deploy private label in development of the store as a brand. The chain’s mantra is quality-quality-quality, and it’s working.
When Trader Joe’s chooses a product, the quality is high and the prices are reasonable. Consumers have learned to trust their decisions. Give the consumers consistently high quality and reasonable prices and they keep coming back.
Trader Joe’s consistently offers consumers good products at fair prices. They do this in an atmosphere that continually reinforces their brand image.
Since its inception, Trader Joe’s has carefully nurtured their brand image, from their Fearless Flyer newsletter to the attitude of their employees, everything about the company is on message.
Their private label products reinforce this message. From top to bottom, Trader Joe’s succeeds like few other retailers.
As a frequent TJ shopper, the answer is easy–good tasting products at good prices. Their prepared meals are easy to fix and almost always taste good. Their prices are very good too. Because so many of their products taste good, there’s little hesitation in trying something new.
The Trader Joe’s private label agenda works because its brand is not perceived by high-spending consumers as being “generic” or ironically, “private label.” The brand is perceived as being exclusive to Trade Joe’s.
I agree that TJ’s private label strength begins with quality and price, but I think it’s also due to their track record of innovation, with products that simply don’t have a major brand counterpart. I know that it’s those things that drive our visits to TJ’s.