← Making It with Jon Davids
Making It with Jon Davids
155 - “This Store Makes More Than Walmart, Whole Foods, or Costco” | Trader Joe’s Secret Strategy
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Jon Davids
This guy had a crummy store, so he made some changes and last year that store made $19 billion. Of course, it's not just one store anymore. There's 500 of them and it's called Trader Joe's. The founder is Joe Coulomb. This company started with one location in Pasadena, California and is now a cultural icon. Everybody loves Trader Joe's. I know I do. And there's a lot to learn from this business. We're going to get into it today. I'm going to tell you all about it and everything you can learn from how they do what they do. My name is Jon Davids. Welcome to the podcast Making it with Jon Davids. Wherever you're listening, Apple, Spotify, YouTube, make sure to follow, subscribe, leave a comment, leave a review and of course you can get my best stuff to your inbox@john davids.com now let's get to the show. You're listening to Making it with Jon Davidson. So the story of Trader Joe starts all the way back in 1967. This guy Joe had a convenience store, but business was really tough and he was really getting pummeled by 7 11. That was the giant back in the day. Still the giant today and very hard to take on a giant like that head on. It really, really sucks. And Joe knows that he's got to make some changes. So he dreams up a concept for a new store geared to the college educated, well traveled crowd. These people are bored with the current options. They don't love the food options. They don't love the culture of the typical 1960s, 1970s grocery store. They want something new, they want something fun. So he comes up with a fun brand playing on the popular tiki culture. And he calls that brand Trader Joe's. So Joe opens his first shop in Pasadena, California, selling interesting products at low prices. Right away, this place is different. The decor is laid back, the products are exotic. It's kind of like a treasure hunt tailor made for foodies. Now, when he first started, I think the store actually sold beverages, alcohol, liquor. That's kind of where it first began. And then pretty soon they're selling bananas, hummus, peanut butter, very high quality at very low prices. If you want the good stuff, you can get it here. But Joe doesn't just want to sell the stuff, he actually wants to make it too. So fast forward and here's where we kind of get into the modern day Trader Joe's. A few years in, Trader Joe's introduces its private label. And that was a very good Move. Because today the company makes 80% of everything you see on the shelves. Walk down the aisles, you'll see chili and lime roll, tortilla chips, chicken soup, dumplings, everything but the bagel seasoning, and a lot more. This stuff is iconic, and it's all stamped with that famous brand signature. This isn't your typical house brand. People go wild for it, and you better get it while you can, because if you don't get it, it'll sell out fast and it might never come back. They kind of have a reputation for discontinuing items, even popular items, seasonal items. They're there one day, they're not there the next day. And that kind of goes to the next point about how much retail savvy is involved in Trader Joe's. You see, behind the quirky irreverence you'll find at Trader Joe's, these people are not screwing around. Get this, stores carry only 4,000 items, and that's compared with 50,000 items at a typical grocer. If it's not a top seller, it is not staying on the shelf. Sales at the Average Trader Joe's, $2,130 per square foot. For context, that's almost double Costco, which is about 12 $24, and way ahead of Whole Foods at about $1,000 a square foot. $2,130 per square foot. That is valuable, valuable real estate. And like I said, products are discontinued constantly, creating urgency, scarcity, and stockpiling amongst shoppers. Or maybe that's just me, but when I see something, I grab it. Because next time I go, it might not be there. Trader Joe's doesn't just have customers, it has fanatics. Google it, right? You'll find blogs, forums, fan pages. I actually found an Instagram page that has over a million followers just talking about what it is they sell at Trader Joe's. The finds, the treasure hunt for foodies, like I said. And marketers should pay close attention to this. If you own a business, if you're responsible for driving sales in that business, you got to understand something. When you see people self organizing to evangelize a brand on their own, it's the height of a customer community. And that's probably the most valuable thing you can have in any business. The most valuable asset you can have on your balance sheet is a customer community that is fanatic about your brand. That's better than any advertising or any marketing you could possibly buy. So I posted this story on LinkedIn a few days ago. It was read by, well, over 130,000 people. About a thousand. Over a thousand people engaged with it. Hundreds of comments. I want to get into the comments section and talk about what some of you had to say. So this guy, Tom Goodwin, I like Tom, he's big on LinkedIn. So here's his comment. So Tom says, I think you're missing how well the store appears to treat staff. The store's success seems to be good products times limited range, times great prices. But the real kicker is the staff seem genuinely happy to be there. That's 100% true. And I would add on that Costco is kind of the same. Costco is known for treating their people very well. There are a lot of companies out there that aren't particularly known for treating their people well. Walmart, Amazon. I'm not saying they treat their people badly, but certainly they're not known for like being the greatest award winning employers. Trader Joe's is definitely up there in terms of just people seem happy to work there, they're ecstatic to work there. They love being part of the community, part of the culture. I totally agree. Treat your people well. That is definitely one of the secrets of their success. A lot of people in the comments, also Canadians and people from Mexico saying when, whenever they go to the US they want Trader Joe's. I don't know why TJ hasn't expanded to Canada or internationally. I mean, I kind of have some suspicions. It's owned by Aldi, which is a German grocer. I'll talk more about that in a second. But a lot of Canadians in the comments just absolutely want Trader Joe's in their neighborhoods. Maybe one day, not today. Marketing executives, business owners, if you are running a company and looking for a fresh perspective on how to grow that company, take a look at Influicity. That's my marketing agency where we work with brands across influencer marketing, podcasts, social media, AI content, paid ads, and so much more. But don't take my word for it. Go to Influicity. Check out our case studies from all the amazing clients we've worked with over the last decade. That's inf lui c I t y influicity.com and I'll see you there. So like I said, this company, Aldi Aldi Nord, a German multinational discount supermarket chain, acquired Trader Joe's in 1979 and they wanted to establish a beachhead in the US so Trader Joe's was already at about 20 locations at that time. So they didn't do anything to change the brand. It's funny, they didn't buy the company and rename it Aldi. They kept it as Trader Joe's and they scaled it from 20 locations to about 500 locations. So a lot of people also in the comments were saying, hey, wait a second, like Joe Coulomb, the founder didn't do any of this. He just started the company and he sold it when it was past 20 locations. A couple things. First of all, I do put a lot of weight in the heritage of the founder. The founder is the one that comes into the business and gives it a heart and gives it a soul. I know I got a lot of founders tuning in. Now. I'm not suggesting the founder needs to be there forever, and I'm certainly not suggesting the founder even needs to be involved in day to day activities. In fact, if you're a really good founder, you find people that are way better than you at everything they do and you empower them and you give them autonomy, you let them succeed. But the heart and soul, the DNA, the personality of the brand needs to come from somewhere. And it comes from the founder. Typically comes from the founder. And from there you can grow and scale. So yes, is all the strategic initiatives, is all the success everything that we see today at Trader Joe's? Could it have been what it is if it wasn't acquired and if Joe was still running it? Listen, I have no idea. I don't have a crystal ball. But what I can tell you is that the heart and soul of this company is absolutely not something that you could just build if you were a German multinational coming in to the United States. Very good idea to buy this company. Let them grow and let them do fantastic work. A couple more things that really stand out about this story. Let's go all the way back to the beginning. Remember when I started, I said that Joe was running a store already, he was running a convenience store, but he was getting pummeled by 7 11. Think about what it takes to actually change and pivot your concept. Especially this is back in the 1960s, wasn't like an Internet business. You can just write a few lines of code and change what you're selling. This involves changing your real estate, changing your footprint, changing your product selection, changing your brand, changing your signage. But if you're in a business that is just not working, pushing through without making any changes is often not the way to go. Yes, you need to be persistent. Yes, you need to give your idea time. And yes, you need to be there day in, day out, pushing forward. But don't be afraid to pivot if you're getting pummeled by a competitor or if your customers are saying, we just don't really want what you're selling. Reevaluate, listen and make changes. Don't just do the same thing over and over again, thinking that it'll magically change, because typically it won't, and you'll wind up being in a deadbeat business. Can you imagine if Joe just decided to stay the course and be in the convenience store business? We wouldn't have Trader Joe's today, and that would really suck. Another really cool lesson from this business is the idea of scarcity and urgency. So Scarcity is number one. 4000 products. At the typical Trader Joe's, where the grocers typically have 50,000 products. Walmart probably has a lot more than that. Why do they keep the selection so finite? And why do they get rid of products constantly? Because they want to maximize real estate, they want to maximize sales per square footage. And let's go to the urgency side of the equation. You create urgency because you signal to people, if you want this, it might not be here next time. Walmart doesn't really do that. Costco does that quite a bit. They have their staples. But when you see something you really want that's not there all the time, you better grab it, because it might not be there again. Some businesses do this out of necessity because you go into the store and you just happen to see what the buyers were able to get their hands on. TJ Maxx does this. TJX does this. This is their business model. They're buying things off the gray market. So literally, they can't tell you if what you want will be there tomorrow. But you can also manufacture this in your business. If you know that something is really hot for a period of time, you can make it seasonal, you can make it limited time only. You can limit the quantity that you produce, and you can create scarcity and urgency in your business, which does create Loya. I highly recommend it. And the last thing that I just love about Trader Joe's is the fearless ability to be different. Just being different, not following with the crowd, not doing what everybody else is doing. In fact, I remember a few years ago. This is really interesting that it's just popping into my mind now. A few years ago, there was a whole uproar about the fact. I think they called it cultural appropriation. Because Trader Joe's, they have their own products, their own house brands, and they'll oftentimes, if it's a Japanese product, or if it's a Mexican inspired product, or if it's a product inspired by Australia or China or whatever Middle east, they will make the branding reminiscent and reflective of that culture. And people thought for some reason this was really offensive. I mean, we know why. Back in 2019, 2020, this was a big thing. People thought, that's cultural appropriation. It's inappropriate. And you know what Trader Joe's did in response? Absolutely nothing. They said, this is what we do. This is who we are. This is what we stand for. And you know what? We're okay with that. And they were not afraid to be themselves, even in the face of an uproar. And you know what? Their sales did not go down. They went up. You look at the lineups outside Trader Joe's, I was one of those guys in those lines. At certain times during the pandemic when they had to limit the number of people in the store, man, people did not back away from Trader Joe's, even through controversy. They said, you know what? This place is different. And I like it, and I like Trader Joe's. Let me know what you guys think. Let me know in the comments. Of course, you could always get me at johndavis. Com. Talk to you guys next time.