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October 31, 2024
Trader Joe’s Discusses Painstaking Site Selection Process
On a recent episode of the “Inside Trader Joe’s” podcast, Matt Sloan, VP of marketing, discussed the slow and meticulous process the grocer undertakes in deciding where to open a new store.
“We’d like to be in neighborhoods all around the country, but it takes time,” said Sloan. “We’re not going to rush it because rushing it would result in stores that don’t live up to our expectations or quite honestly, to our customers’ expectations.”
The episode addressed a common question Trader Joe’s often gets from customers: “How do I get a Trader Joe’s in my neighborhood?”
Offering a few insights, Sloan cited population density as a critical metric in site selection. Sloan said, “We need lots of people to be customers in any of our stores. So, I’d say first and foremost, we’re looking where people are.”
An ideal spot may be an area where there are no Trader Joe’s or a more densely populated area that has other Trader Joe’s but traffic patterns present challenges for customers in the area when trying to reach other stores.
Having enough parking is also high on the list of criteria for site selection. Sloan said, “We want to make sure that we’re putting stores in places where it’s relatively easy to get in and out.”
Sloan further noted that Trader Joe’s doesn’t look to grow by acquisition and purposely seeks out distinctive real estate opportunities. He said, “We’re not interested in growth by just buying another chain and putting a different sign on the building. It wouldn’t really feel like a neighborhood Trader Joe’s. So, we’re looking at things that are opportunities for us to make that neighborhood store a great Trader Joe’s for that area.”
The calculated approach to expansion also reflects the time it takes to train employees who are often new to Trader Joe’s.
Sloan further said pleas on social media from consumers to open a location in their town “don’t have much, if any, impact” on site selection, noting that site selections are ultimately “business decisions” that take in a number of other criteria.
According to Sloan, Trader Joe’s, with more than 550 locations, is currently analyzing over 1,000 potential sites to identify the ones with the best chance for success. The grocer is opening 26 stores this year. Sloan said, “With such a deliberate process and so much time and energy behind it, none of this is casual. We’re not just flippantly opening a store location to see like maybe that works and then closing it a few years later. This is very deliberate, and for us, what’s important is that it’s controlled growth.”
Beyond access and demographics, a white paper from Accruent, a developer of contract management software for retailers, cites proximity to competitors, proximity to suppliers and logistics, and costs as other key factors in site selection for retailers.
Discussion Questions
Is Trader Joe’s approach to site selection for new stores fairly unique or pretty common compared to approaches by most other retailers?
Does it make sense for the grocer?
What obvious and less obvious advice would you have around site selection for retailers?
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Good store location is both an art and a science, especially for grocery stores which work off thin margins and need a certain density to operate successfully. I’ve seen stores in really strong centers fail simply because they are in the wrong part of the center or don’t have the proper visibility. That said, some stores are stronger magnets than others, and Trader Joe’s has very strong pulling power. That doesn’t mean it has carte blanche to open where it wishes but this, and its generally smaller store sizes, gives the chain more options.
Most retail consumers may not realize that store location and real estate investments are business decisions, not consumer-inspired decisions (such as what goes inside the store). This is true for nearly all retail store locations.
One of the most valued assets of major chain drug retailers is their real estate holdings. Trade Joe’s has significantly fewer stores than chain drug but their process of site selection is not significantly different. Locations must make money, the population must be growing and economic conditions must be ripe. Smartly done, a good real estate location will yield returns for years to come. While Trader Joes pace does seem slower, their moves are intentional and there is little concern for store-on-store cannibalization.
One piece of advice around site selection is the needed balance between growth and diversity. If a market is growing but it is growing homogenously, that is room for pause. Diverse market growth means diverse consumer preferences can drive more diverse basket sales across the box.
The customer is ALWAYS right unless it’s the wrong customer! I’ve always been a Trader Joe’s fan and just became more of one: “site selections are ultimately business decisions.”
I think the obvious advice is to have the wisdom to make business decisions that are properly aligned with an organization’s strategic objectives. The less obvious advice is to have the wisdom and courage to not let your tail wag you into thinking you’re making sound business decisions.
Measure twice, cut once: “We’re not just flippantly opening a store location to see like maybe that works and then closing it a few years later.” (Sloan said).
The two main criteria are parking and population (if we’re to judge by the order offered)?Hardly sounds unique.
Tons of respect to TJ’s management team in being super methodical about site selection. It’s important to align well with the customer base in close proximity. But it’s maybe more important to take for parking study analysis, supply chain access, loading docks, building/other tenant occupancy scenarios, and the dynamic flow of traffic and pedestrians. This extra work mitigates the risk you’re not closing stores down five years later and being on the hook for $millions in lease expenses. It’s worth it.
It is obvious to me that Trader Joe’s puts the right amount of “painstaking” time, with ample diligence, to select the right location for its stores, and it appears that it’s location teams have a good batting average.
However, one method for store-selection does not work for all. The right locations for Trader Joe’s are not the same as it might be for Albertsons, Schnucks, Wegman’s, or, ironically, Aldi.
Trader Joes doesn’t acquire or merge with other retailer’s stores because TJ’s has a very unique business model, and not any or all locations would work, as they might for other retail chains.
Trader Joe’s says it needs to be in areas with certain populations, but they also know that demographics and average income levels need to be right. Trader Joe’s works best for above average incomes, and above.
Trader Joe’s is not a place where consumers can do a hundred percent of their shopping. Thus, being close to traditional retail chains is a unique advantage for Trader Joe’s. It’s almost like Trader Joe’s doesn’t compete directly with Kroger or Publix nearby.
I am not sure that all of Trader Joe’s criteria for choosing locations is all that different than other grocery chains, but I like that they have stringent rules about where they open.
I particularly like that Trader Joe’s looks to create and/or serve neighborhoods. Our local store is located at the end of a town center. It’s definitely not a neighborhood location, but inside it sure feels like one.
Full disclosure, site selection is a space where I’ve been working for 15 years.
I love Trader Joe’s, but they have a long tradition of being slow and methodical, as we’ve talked about here before. Their approach to digital commerce, for example they just don’t do it. It appears that slow and methodical seem to apply to their growth strategies as well. TJ’s has left a lot of business on the table, but I can’t argue with their success as a brand. And clearly, they do an excellent job at site selection, but it appears to be all manual and would be very difficult to scale if they were to decide to go into growth mode. I was supprised to read they only have 500ish stores. Their presence, when I drive around the country, would have led me to believe many many more than that.
Most companies today use location technology to score new locations and make quick and confident decisions about where to put a new store. Twenty-six stores a year is pretty slow growth, to be fair. More aggressive retailers who are interested in accelerating growth need to consider neighborhood demographics for sure. They also need to look at competitive pressure, population growth patterns, and how the new store fits into their logistics and supply chain networks, with the addition of new and massive datasets like human movement data and digital commerce (Admittedly, not a concern for Trader Joe’s).
Retailers looking to expand and grow need to be prepared to make their site decisions quickly. They need to assess proposals from realtors and agents who work with commercial space, they need to consume field data from their own teams, and they need to know here in the market to focus their efforts best to find great new spots. Technology can help curate proposed locations and sharpen their ability to find the right store in the right place to meet their bigger strategic plans. And, while they’re at it, they need to find new places for fulfillment centers and logistics hubs to really be able to support their growth.
Location can and should be a competitive advantage and Trader Joe’s is activating this tactic correctly. Add to that the upbeat, happy culture and you have just described a winner in the grocery segment.
Good for Traders Joe to avoid the over expansion bug just to boost short term revenue. Opening a store is a commitment in terms of real estate and people, and many chains have been hurt by overcommitment of store leases “build it and they will come” mentality. Having a strong fan base is one thing, opening stores in poor location will kill your bottom line fast when the economy slows
Trader Joe’s site selection approach seems to be consistent with their overall business approach, careful and intentional. It would also seem that they don’t lack new site opportunity and have few head-on competitors who are close to delivering the Trader Joe’s value proposition. It’s hard to criticize as it seems to be working for them, and it’s turned me into a Trader Joe’s fan. Full disclosure, there is one 5 minutes from our home. If someone from Trader Joe’s reads this, please bring back the chocolate-covered ginger!
TJs’ have a formula that works. When it veers away (i.e. Wine Shopt in NYC or the misplaced West Covina, CA store), it is forced to close. As a frequent TJ customer, I am amazed at the neighborhood feel. Wall murals capture local landmarks and, somehow, you always run into 1/2 your friend group shopping on a random Tuesday afternoon. To Neil’s point, the “pull” or brand loyalty is broad and creates a sense of familiarity regardless of location. Beyond the traditional franchise location checklist, TJ excels at the in-store experience and word-of-mouth-marketing. I’d love to hear an episode on that from the CHRO.