Should America Be Run by … Trader Joe’s? (Update)

Summary

Freakonomics Radio: Should America Be Run by … Trader Joe’s? (Update) Release Date: March 21, 2025

In this enlightening episode of Freakonomics Radio, host Stephen Dubner delves deep into the intriguing question: Should America Be Run by Trader Joe’s? By dissecting the success of Trader Joe’s, the episode uncovers the hidden mechanisms behind the grocery chain's exceptional performance and explores whether its principles could be applied to broader societal operations.

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Introduction and Episode Context

Stephen Dubner opens the episode by revisiting a previous discussion about Trader Joe’s, acknowledging the company’s secretive nature and its surprising absence of participation in the latest episode update. He humorously notes the CEO’s reluctance to collaborate, stating:

"We like Hawaiian shirts, so we will pass." (00:38)
— Sheena Iyengar

Dubner sets the stage for an in-depth exploration of Trader Joe’s, emphasizing its unique position in the highly competitive grocery industry.

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The Trader Joe’s Phenomenon

Overview and Market Position

Trader Joe’s has cultivated a devoted following despite operating on a much smaller scale compared to giants like Kroger and Walmart. With just over 600 stores, Trader Joe’s has outpaced its competitors in sales per square foot, achieving:

"They’re at the top by a wide, wide margin. The sales per square footage estimates are unbelievable." (03:54)
— Michael Roberto

This remarkable performance is attributed to Trader Joe’s unconventional approach to the grocery business.

Business Model and Operations

Trader Joe’s distinguishes itself through a minimalist approach:

• Limited Stock Keeping Units (SKUs):
  • Typical Trader Joe’s stores carry around 3,000 SKUs, compared to the 35,000 in a standard supermarket. This curation strategy reduces decision fatigue for customers and streamlines operations.

"Trader Joe's sells around $1,750 of groceries per square foot. Kroger $800. Walmart $600." (16:01)
— Stephen Dubner

• Private Label Dominance:
  • Approximately 80% of Trader Joe’s products are private labels, allowing the company to control quality and pricing while mitigating supplier power.

Customer Experience and Employee Engagement

Trader Joe’s places a strong emphasis on customer interaction and employee satisfaction:

• High Employee Count and Training:
  • Stores employ numerous staff members who stock shelves during business hours, ensuring availability and facilitating customer engagement.

"We want employees who have sampled the product, who know the product, who can say, have you tried this wine or that cheese?" (12:39)
— Michael Roberto

• Collaborative Checkout Process:
  • Unlike typical stores that rely on self-checkout, Trader Joe’s employs multiple staff members to manage checkout lines efficiently, enhancing the purchasing experience.

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Behavioral Economics Insights

Sheena Iyengar’s Research on Choice

Professor Sheena Iyengar explores the psychology of choice and its impact on consumer behavior. Her seminal work illustrates the paradox of choice, where too many options can lead to decision paralysis and decreased satisfaction.

• JAM Study:
  • Iyengar’s experiment with jams demonstrated that while more options increased engagement, fewer options led to higher purchase rates.

"Of the people who stopped when there were 24 on display, only 3% of those coupons were redeemed, whereas... when there were six on display, 30% of the coupons were redeemed." (34:47)
— Sheena Iyengar

Application to Trader Joe’s

Trader Joe’s employs Iyengar’s findings by offering a curated selection of products, reducing the overwhelming array of choices typical in supermarkets. This strategy not only simplifies decision-making for customers but also drives higher sales conversions.

"Having just a few choices per domain is more likely to lead to action." (36:59)
— Sheena Iyengar

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Case Studies and Personal Stories

Kirk Di Surmia’s Quest

Kirk Di Surmia, a Trader Joe’s superfan from Seward, Alaska, embodies the brand’s cult-like following. Despite living over 2,000 miles from the nearest store, Di Surmia actively campaigns to bring Trader Joe’s to his hometown.

"The first thing I do when I know I'm going somewhere is get on the Internet and find where the closest Trader Joe's is." (11:21)
— Kirk Di Surmia

His efforts highlight the strong emotional connection customers have with Trader Joe’s, driven by its unique product offerings and customer-centric approach.

Mark Gardner’s Experience and Book

Mark Gardner, a former advertising executive, transitioned to working at Trader Joe’s to uncover the secrets behind its success. His firsthand experience led him to author Build a Brand Like Trader Joe’s, where he explores the company’s distinctive culture and operational strategies.

"They hire for the kind of extroverted, naturally chatty kind of person." (45:11)
— Mark Gardner

Gardner emphasizes Trader Joe’s focus on employee interaction and collaboration, contrasting it with more adversarial customer service models seen in places like the DMV.

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Challenges and Replicability

While Trader Joe’s model proves highly effective, replicating its success is fraught with challenges:

• Cultural Nuances:
  • The unique culture and employee training at Trader Joe’s are difficult to duplicate. As Michael Roberto notes:

"You can't just hire the same people they hire. You have to emulate the private label strategy, the real estate strategy, the pricing, the quirky culture." (49:51)
— Michael Roberto

• Operational Complexity:
  • The balance of high employee engagement, low SKU count, and premium customer experience requires meticulous coordination and company-wide commitment.

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Conclusions and Takeaways

The episode concludes by reflecting on Trader Joe’s as an exemplar of successful business practices that prioritize customer satisfaction, employee well-being, and operational efficiency. Dubner muses on the broader implications of these practices:

"Would you have Trader Joe's run the Department of Motor Vehicles? And maybe even I'm not serious here, except maybe I am." (48:20)
— Stephen Dubner

While acknowledging the difficulties in replicating Trader Joe’s model, the episode underscores the potential benefits of adopting similar collaborative and customer-focused strategies in various sectors.

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Notable Quotes

• Stephen Dubner (03:54):
  "They’re at the top by a wide, wide margin. The sales per square footage estimates are unbelievable."

• Michael Roberto (16:01):
  "Trader Joe's sells around $1,750 of groceries per square foot. Kroger $800. Walmart $600."

• Sheena Iyengar (34:47):
  "Of the people who stopped when there were 24 on display, only 3% of those coupons were redeemed, whereas... when there were six on display, 30% of the coupons were redeemed."

• Mark Gardner (45:11):
  "They hire for the kind of extroverted, naturally chatty kind of person."

---

Final Thoughts

By dissecting the operational genius of Trader Joe’s, Freakonomics Radio not only celebrates a uniquely successful grocery chain but also offers valuable insights into consumer behavior, employee engagement, and business strategy. The episode invites listeners to ponder whether the principles that make Trader Joe’s thrive could indeed be applied to reform larger societal institutions, suggesting a paradigm shift towards more collaborative and customer-centric models.

For those intrigued by the secrets of Trader Joe’s success and its potential applications beyond the grocery aisle, this episode serves as a compelling exploration of how unconventional strategies can lead to extraordinary outcomes.

Transcript

[Stephen Dubner]

Freakonomics Radio is sponsored by Audi it's not every day you get excited by a new car, but the all new Audi Q6E Tron is more than a new EV. It's a new way to experience driving. Embrace the thrill of the drive with effortless power, serious acceleration and the most advanced tech of any Audi ever. With an all new panoramic digital stage and legendary Audi performance, it's impossible not to love the all new Audi Q6E TRON. Learn more at audiusa.com Freakonomics Radio is sponsored by Capital One Banking with Capital One helps you keep more money in your wallet with no fees or minimums on checking accounts and no overdraft fees. Just ask the Capital One bank guy. It's pretty much all he talks about in a good way. He'd also tell you that this podcast is his favorite podcast. Thanks Capital One Bank Guy. What's in your wallet? Terms apply. See CapitalOne.com Bank Capital One NA Member FDIC hey there, it's Stephen Dubner and I wanted to say thanks for the overwhelming response to our most recent episode which was called 10 Myths about the U.S. tax System. Plus, there were a lot of good suggestions for follow up episodes and we will certainly keep those in mind. One of the joys of making this show is going after stories that simply seem interesting and worthwhile without any set agenda to follow. And you never know which episodes are going to strike a chord like this one did today. We have gone into the archive to play you another episode that struck a chord when it was first published. It's called Should America be Run by Trader Joe's? We have updated facts and figures as necessary. I should note that Trader Joe's did not participate in the making of this episode. Their executives don't tend to give interviews, although we did receive a Note from then CEO Dan Bain after we first published this episode in 2018. He wrote, you pose the question, should America be run by Trader Joe's? We are pretty sure such work would likely require a coat and tie. We like Hawaiian shirts, so we will pass. Thanks. Let me know what you think of this episode. You can always leave a comment on your podcast app or send us an email to radioreconomics.com as always, thanks for listening.

[Michael Roberto]

Let's play Shark Tank today. You're the investors.

[Stephen Dubner]

Shark Tank, if you don't know, is the TV show where people pitch business ideas to famous investors.

[Michael Roberto]

You might be mark Cuban or Mr. Wonderful. You're trying to decide would you invest?

[Stephen Dubner]

And that is Michael Roberto. He's A business professor at Bryant University, formerly of the Harvard Business School. There's one lecture he likes to start by giving his students this fictional Shark Tank pitch.

[Michael Roberto]

I'd like to open a new kind of grocery store. We're not going to have any branded items. It's all going to be private label. We're going to have no television advertising and no social media whatsoever. We're never going to have anything on sale. We're not going to accept coupons. We'll have no loyalty card. We won't have a circular that appears in the Sunday newspaper. We'll have no self checkout. We won't have wide aisles or big parking lots. Would you invest in my company?

[Stephen Dubner]

And of course you're supposed to think there is no way I'd invest in that company. That sounds like the stupidest company ever.

[Michael Roberto]

And of course you get a lot of consternation.

[Stephen Dubner]

That's when Roberto reveals that not only does such a grocery store already exist, but they're crushing the competition.

[Michael Roberto]

They're at the top by a wide, wide margin. The sales per square footage estimates are unbelievable. I mean, three and four times better than some of the leading players in the industry.

[Stephen Dubner]

So it sounds like customers love this place, but you might think a store like this would be brutal to work for. And yet it's ranked among the hundred best American companies to work for. So what's it called?

[Mark Gardner]

Trader Joe's.

[Sheena Iyengar]

Trader Joe's.

[Michael Roberto]

Trader Joe's.

[Kirk Di Surmia]

Trader Joe's.

[Sheena Iyengar]

Trader Joe's. I do love Trader Joe's.

[Stephen Dubner]

There's a good chance that you have never shopped at a Trader Joe's. Maybe never even heard of it. It's got just over 600 stores. The big chains like Kroger and Albertsons have well over 2,000. Walmart sells groceries in more than 4,000 of its stores. And as Michael Roberto told us, Trader Joe's doesn't advertise or do a lot of things the typical grocery store does.

[Michael Roberto]

A typical grocery store has a SKU count. SKUs stands for stock keeping unit. So it's that number of different items carried in a store. Well, typically grocery store, a supermarket might have 35,000 SKUs. Right? A tremendous selection of varieties. You go to Trader Joe's and they only have say 3,000 stock keeping units in a typical Trader Joe's.

[Stephen Dubner]

The grocery business is famous for low profit margins, lots of competition, and lately an even bigger problem. American consumers now spend more money in restaurants and bars than in grocery stores. Trader Joe's does seem to be bucking this downward trend it doesn't just have customers, it has fans.

[Kirk Di Surmia]

The first thing I do when I know I'm going somewhere is get on the Internet and find where the closest Trader Joe's is.

[Stephen Dubner]

It's never been easy to run a grocery chain, but Trader Joe's makes it look easy and weirdly fun.

[Sheena Iyengar]

I don't walk into Trader Joe's with a strong to do list. It's not a chore when I walk into Trader Joe's. It's a variety seeking exercise.

[Stephen Dubner]

So how do they do it? That's the question we'll try to answer today. A question made more difficult by the fact that Trader Joe's is a fairly secretive company.

[Michael Roberto]

I think that some of the secrecy is probably due to who owns them.

[Stephen Dubner]

So we put on our Freakonomics goggles in an attempt to reverse engineer the secrets of Trader Joe's, which it turns out are incredibly freakonomical. Things like choice architecture and decision theory. Things like nudging and an embrace of experimentation. In fact, if Freakonomics were a grocery store, it might be a Trader Joe's. Or at least try to be. It's like a real life case study of behavioral economics at work. So here's the big question. If Trader Joe's is really so good, should their philosophy be applied elsewhere? Should Trader Joe's. I can't believe I'm going to say this, but should Trader Joe's be running America? This is Freakonomics Radio, the podcast that.

[Sheena Iyengar]

Explores the hidden side of everything with.

[Stephen Dubner]

Your host, Stephen Dubner. I first got interested in Trader Joe's around 15 years ago. I'd never been to one of their stores, but I had a general impression. Cheap and cheerful, relatively laid back and sort of groovy for a grocery store. Apparently a reflection of its surfy California roots. Also not aggressively health conscious, but leaning in that direction. And then I read a Wall Street Journal article about a German grocery chain called Aldi that was ramping up its US Expansion. Aldi is a super cheap, super generic grocery store. 95% of its products were house brands and it was beating even Walmart on price. The article said the Aldi chain had two branches back in Germany, separately owned by two wealthy brothers named Albrecht, and that one of those branches also owned Trader Joe's. I found this fact surprising only because when I think of German business practices, I don't think of a groovy, earthy, crunchy, California surfy vibe. But there it was. I also learned that Trader Joe's stores were much smaller than typical supermarkets, that they had their own way of doing things and that places without Trader Joe's often started petitions to bring one to their town. It was a sort of loony devotion, usually reserved for sports teams or your favorite band. What kind of grocery store has a following like that? And then when I learned that Trader Joe's outsells all other grocery stores per square foot, I really started paying attention. Then one opened up near my office here in New York. I started shopping there and for the most part, loving it. I realized it's not for everyone. In fact, part of their strategy is trying not to be for everyone. But I did want to know the secrets to their success. We reached out to the Trader Joe's headquarters in Monrovia, California, and were politely told to get lost. As we mentioned earlier, the company is known for its secrecy.

[Michael Roberto]

The two brothers who founded Aldi north and Aldi south in Germany, you know, have a record of that.

[Stephen Dubner]

Michael Roberto, again, that was kind of.

[Michael Roberto]

The family heritage of really being pretty secretive about their business operations. And really, they weren't even. You couldn't even find photos of them, like, on the Internet for years. You know, I mean, they were very secretive.

[Stephen Dubner]

It's a strange combination, a firm that prides itself on user friendliness while also keeping its distance, which means that a lot of what's known about it comes from industry analysts and other secondary sources. But let's start here. In the very beginning, there really was a Joe behind Trader Joe's. Joe Colombe. He opened the first store in 1967 in Pasadena, California. He went with a South Seas theme, beachy tchotchkas, Hawaiian shirts, calling employees captains and crew members. In 1979, Colombe sold the chain to one of the secretive Albrecht brothers. Theo. Theo Albrecht was a recluse, perhaps it was said, because he had once been kidnapped and held for ransom for 17 days in Germany. Albrecht died in 2010. But Trader Joe's remains notoriously press shy. It's also a privately held company, so no earnings calls with investment analysts, no public proclamations of any sort, really, about how it does business. And so to figure out how it works, we'll rely on a few people who've spent a lot of time thinking about Trader Joe's, including the business school professor, Michael Roberto, whom you've already met.

[Michael Roberto]

Correct.

[Stephen Dubner]

Also the Columbia Business School professor, Sheena Iyengar, whose research specialty is particularly relevant here.

[Sheena Iyengar]

So we've been studying choice. Why do we want choice? What are the things that affect how and what we choose? And what are some things we can do to improve our choice making abilities.

[Stephen Dubner]

We'll also talk to a Trader Joe's superfan.

[Kirk Di Surmia]

My name is Kirk Di Surmia. I reside in Seward, Alaska.

[Stephen Dubner]

Seward, by the way, does not have a Trader Joe's, nor does the state of Alaska. The closest store from Dussermia's house is 2,295 miles away by car in Bellingham, Washington. D'Cermia is the guy who we heard earlier say this.

[Kirk Di Surmia]

The first thing I do when I know I'm going somewhere is get on the Internet and find where the closest Trader Joe's is.

[Stephen Dubner]

And we'll hear from a spy in the house of Trader Joe's, a former advertising executive named Mark Gardner, who became obsessed with the chain.

[Mark Gardner]

And I just had this thought like, you know, what if I just went and worked there? What would I learn about this company?

[Stephen Dubner]

What Gardner learned about the company is that just about everything Trader Joe's does outside of exchanging food for money is unorthodox. For a modern grocery store. There's a lot to talk about. The products, of course, the economics of their business model, their very homemade do it yourself aesthetic, including the hand painted murals that reflect the neighborhood of every store. But let's start with one of the first things I noticed when I started shopping there. The employees. Yes, they are friendly and helpful and enthusiastic at Trader Joe's.

[Michael Roberto]

What they want is employees in the iOS who have sampled the product, who know the product, who can say, have you tried this wine or that cheese?

[Stephen Dubner]

But what really caught my eye was the sheer number of employees. There are so many of them. If you go in during a slow time, you can easily be outnumbered by employees in their TJ's T shirts and Hawaiian prints. One reason is that rather than stocking shelves overnight like most grocery stores, Trader Joe's stocks them during business hours. Why? As Mark Gardner learned when he went to work there, the priority is to maximize customer interaction.

[Mark Gardner]

So they would tell us, you're going to be looking for customers who seem like they can't find something that they want or just seem curious about something. You're going to initiate conversations with these people and that we want you to be friendly, we want you to be chatty, we want you to be empathetic. And more than anything else, we want you to do what it takes to make customers feel appreciated and wanted.

[Stephen Dubner]

So that explains why there are so many employees in the aisles, but there are also a ton of employees staffing the checkout. On one level, this makes sense. It makes the long checkout line Move fast. And the checkout, after all, is where a store takes the customer's money. Lesson number one in sales, don't make it hard for people to give you their money. But Trader Joe's also has employees directing traffic at the checkout line. One telling you which register to go to, one pulling you out of the big queue and into the final queue, and one or two holding up handmade signs marking the middle of the queue and the beginning. That's three or four employees to do the job that most stores use zero employees to do. Or maybe they use some software. But Trader Joe's seems to be aggressively low tech. No self checkout aisles, no online ordering and pickup, no customer loyalty programs. And apparently Trader Joe's gathers no significant data on customers at all. In the modern business world, this is heresy. If you shop at Whole Foods, which is owned by Amazon, you can be sure the company has an algorithmic target on your back. Trader Joe's, meanwhile, really didn't matter if.

[Mark Gardner]

It was a little old lady that was looking for one $5 bottle of wine. And if the wine shipment had just come in the back and I would go and look through 100 different cases and see if I could find the one that she wanted and get her that one bottle of wine. If I spent 15 minutes doing that and that made that customer really happy, then the managers were happy and the store was happy.

[Stephen Dubner]

So this is a riddle. Here's a company that doesn't harness big data and doesn't generally seem to embrace a lot of technology. It employs a lot of real live people and offers decent pay and benefits. But this is also a company that sells its products at low prices. One head to head comparison of grocery prices in Washington State found that Trader Joe's was 19% cheaper than the local average, 12% cheaper than Target, and 24% cheaper than Whole Foods. So how on earth can Trader Joe's, as Michael Roberto told us, take in the most revenue per square foot in the industry?

[Michael Roberto]

They're at the top by a wide, wide margin.

[Stephen Dubner]

A 2024 analysis found that Trader Joe's sells around $1,750 of groceries per square foot. Kroger $800. Walmart $600. How is this happening? We should probably start with the products that Trader Joe's sells here. Let me read some of what they say are their most popular items. Mandarin orange chicken, mushroom and black truffle flatbread, Butter chicken and basmati rice, Italian truffle cheese, Dark chocolate peanut butter cups, Spicy tempura, seaweed snacks. These are the sort of foods that light up Instagram accounts and Facebook pages that inspire fanatical devotion even among people who don't have a Trader Joe's within 2,300 miles, like Kirk di Surmia, who works as a facilities manager for the National Park Service in Alaska.

[Kirk Di Surmia]

Whenever I leave the state, I usually buy a couple hundred dollars worth of goods and I have an extra suitcase or duffel bag with me in my luggage.

[Stephen Dubner]

D. Surmia and his duffel bag have been all over.

[Kirk Di Surmia]

I've been I know to some in Portland, Oregon, Reno, Nevada, all over Southern California. There's a number of them. My wife is from Kentucky and so we've been to they have one in Louisville now as well as Indianapolis. I go to D.C. about once a year for work and I love to go to the Trader Joe's in Georgetown.

[Stephen Dubner]

What is it about Trader Joe's foods that creates such a lust? Let's put aside for a moment the question of how good their food is, especially since taste is subjective, at least to some degree. But there are a few things to say about how Trader Joe's is at least different from a typical grocery store. First, there is a sense of globetrotting adventure. The tikka masala, the carne asada, the gochujang almonds. That's why Sheena Iyengar thinks of shopping.

[Sheena Iyengar]

There as a variety seeking exercise. Let's see what kind of candy bars they have. They usually have cool candy bars. Let's see what kind of deals they might have on wines or cheeses. Are their prepared food sections kind of cool? What might they have that could add some more variety to the house?

[Stephen Dubner]

They also offer a rather unsubtle blend of healthy, or at least healthy seeming and hedonistic. Yes, you can buy kohlrabi salad and cauliflower crust pizza, but you've also got your peanut butter filled pretzels and sea salt and turbinado sugared chocolate almonds. Speaking of which, turbinado sugar also known as natural brown sugar but still sugar. Why add the turbinado? I have a few guesses. 1. To say you're just adding sugar to your already chocolate covered almonds doesn't sound very healthy, but turbinado sugar? Hmm. Intriguing. Possibly even sophisticated. Additionally, Trader Joe's seems to understand what everyone in sales understands, especially real estate agents. Adjectives are inexpensive and often useful, especially when the actual virtues are limited. A charming house is often in fact small house. Trader Joe's reportedly puts a great deal of effort into scouting, sourcing and producing food that their customers truly love, but they also pay a lot of attention to package design and descriptive salesmanship. They publish an old fashioned newsprint bulletin, the Fearless Flyer, with in depth descriptions of new products. When you walk into a Trader Joe's, there's a playful vibe, as if to say, hey, you're just buying food. Food is delicious, so enjoy yourself. There's also an artsy vibe, a writerly vibe, more so, oddly enough, than in a typical bookstore. These details, as casual as they might seem, would also appear to be strategic. In a 2011 interview with the LA Times, Joe Colomb said that when he started Trader Joe's in the 1960s, he was inspired by an article he read in Scientific American about the huge spike in Americans attending college. I felt this newly educated class of people would want something different, he recalled. And that was the genesis of Trader Joe's. Why did he choose Pasadena as the first store location? Because, he said, Pasadena is the epitome of a well educated town. Trader Joe's is for over educated and underpaid people, for all the classical musicians, museum curators and journalists, he said. This suggests that from the very beginning, Trader Joe's understood cream skimming, targeting a certain kind of customer and letting the rest slide by. As for the underpaid part of Coulomb's equation, that would appear to be outdated. An analysis by the research firm AG Data found that Trader Joe's stores today are located in counties with higher household median income than any other grocery chain, including Whole foods, and about $10,000 higher than the US median income. But, and this seems to be another key component of Trader Joe's success, they also value frugality, as Michael Roberto found. They usually set up shop in the cheaper parts of the expensive areas.

[Michael Roberto]

Frankly, in many cases they're in sort of old strip malls. So they've saved money on the real estate.

[Stephen Dubner]

The real estate firm Zillow found that homes near Trader Joe's stores appreciate more quickly than homes in the city as a whole, concluding that either Trader Joe's is really good at picking areas that are on the rise or that they are in part causing the rise. So how about a new store in Seward, Alaska? That is Kirk de Surmia's dream.

[Kirk Di Surmia]

So I started a Facebook page called Bring Trader Joe's to Alaska.

[Stephen Dubner]

This was in 2012.

[Kirk Di Surmia]

I thought, man, these guys, maybe they just don't know what they're missing yet. And if I can create this Facebook page and I can get people around the state to start liking it and sending Trader Joe's an email to say, hey, we would really love to see your store here. Then maybe Trader Joe's will actually listen to us.

[Stephen Dubner]

So after one of his out of town Trader Joe's shopping binges, when I.

[Kirk Di Surmia]

Come home with a suitcase full, I like to throw it on the kitchen table and take a picture of it and put it out there. Hopefully to motivate people to send that email to Trader Joe's and let them know we're out here.

[Stephen Dubner]

His Facebook page got some traction, about 1200 likes, I would say.

[Kirk Di Surmia]

Most of my friends in Seward are aware that this is something that I would like to see happen.

[Stephen Dubner]

Unless you think Dussermia is one of those guys who makes a Facebook page for everything.

[Kirk Di Surmia]

No. Some of my friends might say I'm fairly politically active, but honestly, I can't think of any other store that I might think to start a page to bring up here.

[Stephen Dubner]

Seward, Alaska does have a relatively high median household income, but the population is a problem, fewer than 3,000 people. Dussermia concedes that Anchorage, a few hours away, would be a more sensible site for the first Trader Joe's in Alaska. And he'd happily make the drive. He just really wants a Trader Joe's.

[Kirk Di Surmia]

Every time I go to a Trader Joe's in the lower 48, they always look sideways at me when I'm getting 2 to $300 worth of goods. But I tell them it's because we live in Alaska and we can't get you guys to come up here. Since I started this page in 2012 and they've never responded to a single email, it seems a little unlikely, but hopefully they're going to listen to this interview and then my percentage will go up.

[Stephen Dubner]

Coming up after the break, we'll get into the economic details of Trader Joe's success. We'll hear how they flipped the script on customer relations.

[Mark Gardner]

Just imagine if you would. What if you changed the rules? What if you guys were both on the same side?

[Stephen Dubner]

And we'll answer the question. We know you've been thinking, what does Trader Joe's have in common with Michelangelo? It's coming up right after this. Freakonomics Radio is sponsored by LinkedIn. As a small business owner, you don't have the luxury of clocking out early. So when you're hiring, you need a partner that works just as hard as you do. That hiring partner is LinkedIn jobs. They can make it easy to post your job for free, share it with your network, and get qualified candidates that you can manage all in one place. LinkedIn's new feature helps you write job descriptions and quickly reach the right candidates with detailed insights. At the end of the day, the most important thing to your small business is the quality of candidates. And with LinkedIn, you can feel confident that you are getting the best. Post your job for [e-mail] freak that's LinkedIn.com freak to post your job for free, terms and conditions apply. Freakonomics Radio is sponsored by Empower. Say you've always wanted to take a spontaneous trip to the Caribbean. By getting smart with your money, you can do things like that. With Empower, you can start making the most of your money so you can go out and live a little. So use Empower and get good at money so you can be a little bad. Join their 19 million customers [e-mail] not an Empower client, Paid or sponsored.

[Sheena Iyengar]

T.

[Stephen Dubner]

Mobile Home Internet is all about speed value. What you doing, Zach? There are so many benefits. You gotta talk fast. T Mobile Home Internet ranks number one in Customer satisfaction for Home Wireless Internet by JD Power.

[Mark Gardner]

Wow, you are good.

[Stephen Dubner]

Try singing it. T Mobile has price. Look, they won't raise your rate on Internet. Hulu and Paramount plus on there, on there. Get T Mobile Home Internet all in for just 55 bucks a month with auto pay and any postpaid voice line. Additional terms apply for J.D. power 2024 award information, visit JD Power.com awards of all the mysteries concerning the success of Trader Joe's, here's what strikes me as the most interesting one. Their stores, as we've learned, are generally quite small, roughly a third the size of a typical supermarket. Michael Roberto Again, we're all acclimated to.

[Michael Roberto]

Every other supermarket looks the same. It has 35,000 items. It has 7 million varieties of toothpaste and tomato sauce. Every other player has all those things but Trader Joe's. They only have say, 3,000 stock keeping units in a typical Trader Joe's, or 4,000 at most in one of their larger stores.

[Stephen Dubner]

Moreover, as we've learned, Trader Joe's prices are relatively low. And yet they also take in much higher revenues in stores that have more variety and more expensive items. So how? Remember, Trader Joe's doesn't sell a lot of brand name groceries. Roughly 80% of their products are private label items, also known as store brands.

[Michael Roberto]

What that means is Trader Joe's has mitigated the power that suppliers might have over them. So while they're not nearly as big as Kroger's, they can get great purchases power because they're Condensing all they're buying in tomato sauce to one vendor for a very limited number of items.

[Stephen Dubner]

And when you're selling something that you also manufacture or at least source directly, you obviously stand to make more money than if you're buying from a middleman. That said, even store branded products need to taste good. Judging from the chain's success, they do. In fact, some Trader Joe's branded items may taste identical to brand name foods. Why? Because it appears they are identical. An investigation by the food website Eater using Freedom of Information act requests found that many Trader Joe's items are in fact manufactured by the same companies that make the brand name versions of products that you can buy in many other grocery stores, usually for significantly more money. For instance, those Trader Joe's pita chips with sea salt, they appear to be exactly the same as Stacy's Simply Naked pita chips. Trader Joe's gluten free chocolate chip cookies, according to the investigation, are nearly identical in taste, packaging and ingredients to Tate's Bakeshop cookies. There's nothing wrong with this, and it's hardly unusual for brand name manufacturers to run a side business selling to private labels. But most places that sell a lot of house brands are seen as down market discounters, not upmarket superstars like Trader Joe's. So why are they different? Some of the credit must go to the clever packaging and the artful product descriptions. But to get to the real secret of Trader Joe's, what I think might be the single biggest reason for its success, you have to go back to Sheena Iyengar.

[Sheena Iyengar]

I have been at the Columbia business school since 1998 and I started to study choice way back in 1990.

[Stephen Dubner]

Iyengar's PhD is in social psychology. As an undergrad, she double majored in psychology and economics. She was born in Toronto to parents who'd immigrated from India. Her background, she believes, gave her a different perspective on decision making. When she started working in the field.

[Sheena Iyengar]

And I got very interested in the kinds of questions that we wouldn't have ordinarily asked, like, well, do all cultures see choice in the same way? We had assumed that it was innate. We had assumed that everybody saw it the same way, that it was somehow universal. And I think because I was an Asian American, I didn't see it as that obvious.

[Stephen Dubner]

She wanted to explore this question with kids from different backgrounds. Her theory was that Asian American kids and white American kids might think differently about choice. Before comparing the two groups, she wanted to establish a baseline to confirm that for the white kids, choice Indeed had a positive effect. This baseline experiment turned out to be pretty interesting on its own. Here's how it worked. She brought a bunch of three year olds, one by one, into a room full of toys. Half of them were allowed to choose any toy and they could switch as they pleased. The other half would be given just one toy with no option to switch.

[Sheena Iyengar]

I started by looking at white American kids because I had to first, you know, show that I'm capable of actually replicating what prior scientists would say.

[Stephen Dubner]

What prior scientists would say, and had been saying for decades, is that choice is motivating, that having choice, or even the illusion of choice is associated with increased satisfaction and feeling more control over your life. Therefore, the kids who could choose their toy should be happier for having the options and more likely to play longer. These ideas about choice were prominent not just in psychology. They were baked into the foundation of economic thinking at the time that more choice is almost always better than less choice. But when Iyengar started her study and brought in the kids who could choose from an entire room full of toys.

[Sheena Iyengar]

The white kids would come in and they would look at all these toys and stare outside the window. And then when I would just give them Legos, they were really happy and they were playing. And I was like, wait, this goes totally against what I'm supposed to find. There's something wrong here.

[Stephen Dubner]

So Iyengar went back and examined some of those earlier studies about choice and decision making. She realized that when those researchers described giving people lots of choice, in reality that meant something like two to six options, not a roomful like she had tried. So Iyengar ran a different study, this time limiting the number of choices. And now she confirmed what her predecessors had found. But she kept thinking about what happened in that first study with the room full of toys.

[Sheena Iyengar]

Why were they staring out the window? I don't get it. I gave them really, really cool toys. I gave them all the most modern toys at the same time. I was going to this upscale grocery store.

[Stephen Dubner]

The store is called Drager's Market. It's a Northern California institution. Iyenger was at Stanford at the time.

[Sheena Iyengar]

So they had like 250 different kinds of mustards and vinegars and mayonnaises and 500 different kinds of fruits and vegetables and 100 different kinds of olive oils. And, oh my God, it was amazing. And I would go to all these little tasting sessions and try out like 10 different kinds of vinegars. And I also then thought to myself, well, how come you never buy any of those things? You taste And I then went to the store manager, and I asked him whether his model of offering people all this choice was working. Now, he said it did, and he pointed to the traffic. And this store did have a lot of traffic, but it was still an empirical question. Was it helping or was it not?

[Stephen Dubner]

So Iyengar designed an experiment at Draeger's to answer the question. She set up a tasting booth for jams, and she alternated the choice set. Sometimes the Booth would feature six different jams, and sometimes 24.

[Sheena Iyengar]

And we looked at two things. First, we looked at in which case, did more people stop to sample some jam? And we found that more people stopped when there were 24 on display. So 60% stopped when there were 24 on display versus when there were six on display. Only 40% of the people stopped. And then when people stopped, we gave everybody a Coupon, giving them $1 off if they bought a jar of jam. And in the back of the coupon was a code that told us if they saw 6 versus 24. Now, what we found was that of the people who stopped when there were 24 on display, only 3% of those coupons were redeemed, whereas of the people who stopped when there were six on display, 30% of the coupons were redeemed.

[Stephen Dubner]

Interesting. A larger choice set generates more interest. The smaller choice set generates more action. Sheena Iyengar's JAM study, very simple but very powerful, would go on to become one of the most famous studies in decision science because it illustrates what a lot of us feel when we enter, for instance, a gigantic supermarket.

[Sheena Iyengar]

With the finding illustrated, we said we want more choice, presumably because of all the opportunities it provides us. But when it comes down to making a choice, we don't want that choice to be too hard or too conflict ridden or too burdensome.

[Stephen Dubner]

Iyengar followed up her JAM study with a look at employee participation in retirement savings plans.

[Sheena Iyengar]

And essentially what we found was that the plans that offered their employees more options, you saw a real decrease in participation rates. So if you had a plan that offered people less than five options, the likelihood to participate was roughly around 75%. And by the time you got to plans that offered people around 60 options, now participation rates had dropped below 60%.

[Stephen Dubner]

This phenomenon has come to be called the paradox of choice. But Iyengar doesn't think that's quite right. It's not that more choice is always worse and that less is always better. She argues that choice is both a limiting and a powerful tool. Every context is different. You can imagine That a huge choice set is particularly welcome in the digital realm, where you can search for exactly what you want with a few keystrokes, assuming, that is, you know what you want. But in the analog world, in the world of a grocery store, for instance, the size of a choice set matters not just because of the cost of real estate and transportation, storage and labor to stock the shelves, but because of how we people make decisions. Envision a shelf in a typical supermarket.

[Michael Roberto]

It has 7 million varieties of toothpaste.

[Stephen Dubner]

And tomato sauce and a Trader Joe's shelf.

[Sheena Iyengar]

It doesn't overwhelm me. It usually gives me just a few choices per domain.

[Stephen Dubner]

And having just a few choices per domain is more likely to lead to action. Imagine yourself standing in an aisle in Trader Joe's and you come across their five seed almond bars. And your lizard brain says, well, there are no four seed almond bars or six seed almond bars. I don't even know why I need seeds in my almond bars. But sure, I think I'll get some of those. Trader Joe's understands less is more. It understands, to use a word of the moment, curation.

[Sheena Iyengar]

They don't overwhelm you with choice, which is why you're more willing to examine each novel choice.

[Stephen Dubner]

There is a story, probably not true, about Michelangelo. Someone supposedly asked him how difficult it had been to sculpt his famous David, and he said, it's easy, just chip away the stone that doesn't look like David. I am not saying Trader Joe's is quite on Michelangelo's level, but you get the idea. There is great value in clearing away the clutter, which is one reason Sheena Iyengar personally loves shopping at Trader Joe's.

[Sheena Iyengar]

It doesn't give me the boring stuff, right? It keeps me excited because I want to see what do they have and what do they have that might get me thinking about something I don't ordinarily think about. So they also maintain the mystery of novelty.

[Stephen Dubner]

For me, novelty is also a powerful tool in sales, and this too, Trader Joe's understands it, is famous for constantly introducing new products, experimenting with them, really. Which means old products have to go. Maybe they'll come back, maybe they won't. This strategy would appear to be risky.

[Michael Roberto]

Normally, in a typical grocery store, if the item that you typically bought isn't there, you're really pissed, right? You're mad.

[Stephen Dubner]

Michael Roberto again.

[Michael Roberto]

At Trader Joe's, customers have come to understand that that's part of the trade off. You might see your peach mango salsa disappear, but there'll be something new to try that you can offer at your next cocktail party and wow people with Iyengar notes.

[Stephen Dubner]

This strategy also gives every trip to Trader Joe's a sense of a treasure hunt, but that our appetite for novelty is domain specific.

[Sheena Iyengar]

I deliberately go into that venue, that.

[Stephen Dubner]

Venue being Trader Joe's, because I want.

[Sheena Iyengar]

To learn about some choices. I'm trying to update my brain on choices, but when I go into my coffee shop in the morning, I do not engage in any act of updating. I don't want to know. I walk into my coffee shop every morning, I don't even say anything. They just bring me out exactly what they bring me every other day and it's made exactly the same and I have no interest in engaging in any kind of variety seeking.

[Stephen Dubner]

After the break, Does Trader Joe's have anything to teach governments about how to run their operations? I'm Stephen Dubner, this is Freakonomics Radio and we will be right back. Freakonomics Radio is sponsored by Mint Mobile. Do you like your money? Traditional big wireless carriers also like your money. If you're tired of crazy high wireless bills and bogus fees, Mint Mobile might be right for you with plans as low as 15 bucks a month. Say bye bye to your overpriced wireless plan's jaw dropping monthly bills and unexpected overages. Mint Mobile is here to rescue you with premium wireless plans starting at 15 bucks a month. All plans come with high speed data and unlimited talk and text delivered on the nation's largest 5G network. If you like your money, Mint Mobile is for you. Shop [e-mail] freak that's mintmobile.com freak Upfront payment of $45 for 3 month 5 gigabyte plan required equivalent to $15 a month. New customer offer for first 3 months only, then full price plan options available, taxes and fees extra. See Mint Mobile for details. Freakonomics Radio is sponsored by Canva and a future filled with exciting presentations. Wow the CR with Canva Presentations. No design experience needed, just start with a stunning template and drag and drop graphics from Canva's massive media library. With AI inside your slides you can animate text in a click or generate slides and text in seconds with a prompt. You will love the presentations you can easily design with Canva. Your clients and coworkers will too. Love your work with canva [e-mail] Carl's Jr. S new snack stash was made.

[Kirk Di Surmia]

For Munchy Madness, a totally loaded mix.

[Stephen Dubner]

And match any three side steel just 5.99. Get onion rings, waffle fries And Jalapeno Popper Bites. Natural Cut Fries. Fried zucchini. And why not another fried zucchini? Get any three sides in your snack stash? Just 5.999 only at Carl's Jr. Munch. Responsibly available for a limited time at participating restaurants. Tax not included. Price may vary. Not valid with any other offer, discount or combo. For most retailers, advertising is an important part of how they do business. Not so for Trader Joe's.

[Mark Gardner]

I discovered Trader Joe's totally by accident.

[Stephen Dubner]

That's Mark Gardner again, the former advertising executive who wound up working at Trader Joe's. He was living in California at the time.

[Mark Gardner]

I thought it was a local store. It had a kind of a surf theme. And I didn't know any better because they don't do any advertising. I only was exposed to it because it happened to be in my neighborhood.

[Stephen Dubner]

Then Gardner moved to Kansas City.

[Mark Gardner]

Yes, and that's when I really learned about Trader Joe's as a company, because there was no Trader Joe's. But there were these rumors, oh, but we're gonna get a Trader Joe's. And there was so much excitement. There's a Facebook page called Bring Trader Joe's to Kansas city that has 5,000 friends.

[Stephen Dubner]

As a former advertising guy, Gardner was impressed.

[Mark Gardner]

I think the number one thing that struck me about Trader Joe's is that they almost don't advertise at all. They don't market. They have a pretty good website now, but for. They had a rudimentary website. They had almost no social media presence. They had almost no kind of public relations. So they didn't do a whole bunch of the things that I had spent my entire working life thinking, well, you know, these are the things that you do when you build a brand. So that was really striking to me. And I just had this thought, like, you know, what if I went and worked there? What would I learn about this company?

[Stephen Dubner]

Gardner learned enough about the company by working there that he wrote a book about it called Build a Brand Like Trader Joe's. How did Trader Joe's respond?

[Mark Gardner]

Well, as you know, they're a very, very secretive company. So they responded exactly the way I expected, which was with utter silence.

[Stephen Dubner]

What initially impressed Gardner was how Trader Joe's had grown so much without spending all the money that most firms spend on marketing, advertising, and so on. But what impressed him once he got inside working as a crew member for $12 an hour, was the company's culture. Well, before the new Kansas City store had opened on the first or second day of Training. A Trader Joe's executive came in to meet with the roughly 50 new hires, including Gardner. The proceedings began with that standard, horrifying request to say your name and tell a story about yourself.

[Mark Gardner]

And I am not kidding you. 50 hands went up. It was like all these people were like, pick me. I want to be the first. I want to start. I want to tell you my story. And I looked around at that group of hands going up, and mine was up, too, you know, because I love talking about myself, but most people don't. At least not to a group of strangers. And I thought, wow, this is not an ordinary group of people. And what I realized pretty quickly is, oh, my God, this is what they hire for. They hire for this kind of extroverted, naturally chatty kind of person.

[Stephen Dubner]

As the training progressed, these guys really.

[Mark Gardner]

Weren'T too worried about teaching me how to operate a grocery store. Right? I mean, there was some discussion about, you know, keeping the cold things cold and how important that is. And there was a little bit of discussion about this is how a cash register works, about, you know, when you're bagging groceries. This is. This is how you do it. There was some discussion of process, but actually there was a lot of discussion of Trader Joe's values. There was a tremendous amount of discussion about how are you going to be with the customers?

[Stephen Dubner]

And then once the store opened, no.

[Mark Gardner]

Matter how crazy the store was, no matter how much pressure there was to do something else, if you were doing something for a customer, that trumped everything.

[Stephen Dubner]

Seeing how Trader Joe's encouraged its employees to interact with customers, to partner up with them, didn't just make sense to Gardner. It inspired him to wonder why this theoretically obvious approach is, in fact, quite rare. Consider, he says, a standard trip to the Department of Motor Vehicles.

[Mark Gardner]

But what happens when you go to the dmv? Well, what happens is you stand on one side of a counter, and then there's your opponent on the other side of the counter. And it's as if you're in sort of a game or a sport where you're trying to get your license plate or a driver's license, and they're going to say, oh, yeah, but you don't have an up to date inspection certificate for your cars, so get out of here. Right? It's like a volleyball game practically, and it's you against them. Now, what if you change the rules? And what if you said, you guys are both on the same side, your goal is to get them that driver's license or that license plate that they need. And so instead of just saying like, you don't have the right inspection, what if you told them, look, this is what's wrong with the certificate that you've got. It's either out of date or it's from the wrong state or whatever. And this is where you would go to get the inspection that you need, right? And let me look at all your other things while I've got you here. And if there's anything else you need, I'll tell you what you need so that the next time you come, it's going to be a slam dunk for you. What if that was. What if it wasn't adversarial? What if you guys were both on the same side?

[Stephen Dubner]

What if you guys were both on the same side? It's a good question, don't you think? Look, I'm not saying Mark Gardner's example is necessarily fair to the dmv, nor am I saying that Trader Joe's should win the Nobel Peace Prize. But it does strike me that a lot of interactions in the modern world are set up to be more competitive than they need be, and that the benefits of collaboration are often undervalued. I think back to an interview we did with Microsoft CEO Satya Nadella, who's been reversing Microsoft's long standing policy of treating tech rivals like Google and Apple as pure rivals and instead sometimes partnering with them. Nothing can be taken for granted and there's no such thing as a perpetual motion machine. What you have to do is be good at being able to refresh yourself at the crucial times. So if you had the choice, would you have Trader Joe's run the Department of Motor Vehicles? And maybe even I'm not serious here, except maybe I am. Would you have them run America? Or at least would you try to export some of their collaborative, frugal, don't take yourself so seriously methodologies? Michael Roberto, the business school professor who's analyzed Trader Joe's, warns, it's not so easy that it wouldn't even be easy for another grocery store to replicate the Trader Joe's experience.

[Michael Roberto]

To do what they do, you can't just hire the same people they hire. You have to emulate the private label strategy, the real estate strategy, the pricing, the quirky culture. And it's often the soft things, not just the kind of people you hire, but the way you train them and the culture you create. I mean, we can build a store that looks like a Trader Joe's, but when we have people walk in, can they have the same experience. Well, that's very hard to replicate.

[Stephen Dubner]

Fair enough. And again, I don't mean to heap undue praise on a grocery chain just because they found a way to make their appealing food cheap and treat people pretty well along the way. But I will say this. We spend a lot of time on this show and in modern society at large, pointing out problems and failures and sundry idiocys. It's nice once in a while to come across an institution, even if it's just a grocery store that seems to work well for several constituencies on several dimensions, and to see what can be learned from it. If you have an idea for a future episode about something else that's working well and what we can learn from it, let us know, would you? We'[e-mail] meanwhile, coming up next time on the show, this is my example of sludge.

[Sheena Iyengar]

Sludge.

[Stephen Dubner]

Sludge. Sludge, sludge, sludge, sludge, sludge, sludge, sludge. The sludge was impenetrable. You may not know it by that name, but you certainly know what sludge is. It's the subscription that's easy to sign up for and impossible to cancel. It's the list of doctors your insurance company gives you, which seems to include zero doctors who will actually take an appointment. It's the government form that takes two hours to fill out. It's not that somebody designed them to make fools of people. This was just incompetence. But is sludge really just incompetence? Is it unintentional?

[Michael Roberto]

No, not unintentional.

[Stephen Dubner]

You're not going to read page 97.

[Michael Roberto]

In the booklet about this is what.

[Stephen Dubner]

We do for prior authorization. Sludge is everywhere and it's time to fight back. That's next time on the show. Until then, take care of yourself and if you can, someone else too. Freakonomics Radio is produced by Stitcher and Renbud Radio. You can find our entire archive on any podcast app. [e-mail] where we publish transcripts and show notes. This episode was produced by Alvin Melith, with an update by Augusta Chapman. The Freakonomics Radio Network staff includes Alina Coleman, Dalvin Abuaji, Eleanor Osborne, Ellen Frankman, Elsa Hernandez, Gabriel Roth, Greg Rippon, Jasmine Klinger, Jeremy Johnston, John Schnarz, Morgan Levy, Neal Carruth, Sarah Lilly, Teo Jacobs, and Zach Lipinski. Our theme song is Mr. Fortune by the Hitchhikers and our composer is Luis Guerra. As always, thank you for listening.

[Mark Gardner]

Yeah, sorry, I just actually thinking about the Trader Joe's parking lot sent me into a brief temporary coma.

[Stephen Dubner]

There. The Freakonomics Radio network.

[Sheena Iyengar]

The hidden side of everything.

[Stephen Dubner]

Stitcher.

[Sheena Iyengar]

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[Stephen Dubner]

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[Sheena Iyengar]

Giving your litter box 30 days of odor control.

[Stephen Dubner]

Step it up to Freshstep with the new Heavy Duty litter three times claim based on fecal malodor versus the leading regular clumping litter. Strongest litter ever is based on odor control. Febreze is used under license from the Procter and Gamble company or its affiliates. Uh oh the lie. Cookie. You can get a new box of cookies in as fast as an hour with Walmart Express delivery. Are you my guilty self conscience? No. I'm the voice offering you promo code Express for free delivery on your first order.

[Sheena Iyengar]

Hey, who ate my cookies?

[Stephen Dubner]

You mean these cookies? Order now. Welcome to your Walmart promotion. Valid for first express delivery. Order $50 minimum subject to availability restrictions apply.