Trader Joe’s entrepreneurial journey: how to turn your products into emotional goods.
By Mathilde B.
— Apr 23, 2019
Trader Joe’s is not for everyone. Actually, part of their strategy is not to be for everyone.
Trader Joe’s is a mystery: no ads on TV, no insane amounts invested in public relations, yet fan pages open and with them calls to open or “drop anchor” in other cities. Unlike many companies who love to tell the epic story of their meteoric rise in books – which are also selling very well – Trader Joe’s remains humble and doesn’t advertise. Strange combination therefore: a company proud of its friendliness while keeping its distances.
If a fictional pitch was made at the time saying, “We won’t have branded items, we won’t accept coupons, we won’t have a loyalty card, or inset in the Sunday newspaper, there will be no self-checkout, wide aisles or large car parks, nor social networks. So, do you still want to invest?” We are supposed to think, “What an absurd enterprise! “. And yet, this chain of stores is ranked among the top 100 US companies to work at and the sales estimates per square meter are incredibly high. We will discover why.
At the very beginning, there was really a Joe behind Trader Joe’s – Joe Coulombe. He opened the first store in 1967, in Pasadena, California, on the theme of the South Seas: beach tchotchkes, Hawaiian shirts, calling the employees “captains” or “crew members”. In 1979, Coulombe sold the channel to one of Albrecht’s Aldi brothers. Theo Albrecht died in 2010, but Trader Joe’s remains notoriously shy. It is also a private company: no appeals of results with investment analysts; no public proclamation of any kind, about how it works.
It’s likely you’ve never been to Trader Joe’s, maybe you’ve never heard of it. That’s normal, there are 450 stores in the United States. Big chains like Kroger and Albertson have more than 2,000, Walmart sells products in more than 4,000 stores. The grocery industry is known for its low profit margins, high levels of competition and, more recently, for an even bigger problem: for the first time in its history, American consumers are spending more on restaurants and bars than in grocery stores. Trader Joe’s seems to be countering this downward trend. As we said, Trader Joe’s doesn’t just have customers; it has fans. Many say, “I do not come to Trader Joe’s with a pre-established shopping list, it’s not a chore.” What kind of grocery store has such a public? Perhaps an audience as passionate as employees whose priority is to maximize customer interactions. The motto that has been given is to engage the conversation, to be talkative if necessary but especially empathic. In the aisles it’s the human first, but also at the checkout where a real maritime bell sounds when a customer needs a precise answer. Trader Joe’s is definitely low-tech: no self-service lanes, no drive, no loyalty program, and no data collection of any kind. In today’s business world it is a heresy.
Almost everything Trader Joe does, other than trading food for cash, is unorthodox for a modern grocery store. There is a lot to say: products, of course; their local and DIY aesthetics, including hand-made murals; and most importantly, the economy of their business model. Employees are paid well above the standards with $ 50,000 a year for “crew members” and $ 100,000 for “captains”, enough to make them pleasant to customers. It is also a company that sells its products at prices 32% cheaper than its direct competitors like Safeway, Target and Whole Foods but manages to capitalize $ 2,000 per square meter… Whole Foods? $1,200. Walmart? $600. We will try to evoke analysis and social psychology to answer the question: but what is their secret? They very exactly understood that they were selling emotional goods: a mix of healthy food, exotic adventure and hedonism. The Instagram accounts are colored as well as the spirits: “Here, chocolate almonds with sea salt and turbined sugar! Turbine sugar – also called natural brown sugar … But it’s still: sugar. Saying that you only add “sugar” to your almonds already coated with chocolate doesn’t seem very healthy. But “turbined sugar”? Intriguing! Maybe even … sophisticated! Trader Joe’s seems to understand what all marketing includes, especially real estate agents: adjectives are inexpensive and often useful, especially when the virtues are limited. A “charming” house is often, in fact, a small house. Trader Joe’s puts a lot of effort into identifying, sourcing and producing food that its customers love; but they also pay a lot of attention to the design of the packaging and its description. Their marketing director is called Director of Words & Phrases & Clauses.
When you enter a Trader Joe’s, the atmosphere is fun and artistic, there is a writing that takes shape, in the same vein as a bookstore: I stroll, I draw, I read the 4th cover, I repioche and I chat with the very smiling salesman in Hawaiian shirt, who also seems sincerely happy to be there. These details, as anecdotal as they may seem, seem equally strategic. In an interview with LA Times in 2011, Joe Coulombe said that when he created Trader Joe’s in the 1960s, he was inspired by an article from Scientific American on the astounding increase in the number of American students in University. “I thought this newly educated class of people would want something different,” he recalled, “and that was the genesis of Trader Joe’s.” Why would he choose Pasadena as the first store? “Because, he says, Pasadena is the epitome of a well-educated city” Trader Joe’s is meant for “over-educated and underpaid people, all classical musicians, museum curators” and, uh, to “journalists”, he said. This suggests that from the beginning, Trader Joe’s understood that we had to skim – targeting a certain type of customer and letting the rest go.
The famous Less is more.
But to understand the real success of Trader Joe’s, we must focus on the social psychology applied by the store: a limited choice. Sheena Iyengar, a professor of commerce in Columbia, has empirically studied the issue and concluded that a wider range of choices is generating more interest; on the other hand, the smaller set of choices generates more action. His demonstration – simple but powerful – has become one of the most famous studies in decision-making because it illustrates what many of us feel in a gigantic supermarket. The bottom line is that we want more choice, probably because of all the opportunities it offers us. But when it comes to making a choice, we do not want it to be too difficult, too confrontational or too restrictive.
We used to call this phenomenon “the paradox of choice” long before the FOBO phenomenon (Fear Of Better Options) spread today with the kinds of Netflix and other Deliveroo. You can imagine that a vast choice is particularly welcome in the digital world with almost unlimited content, where you can have exactly what you want in a few clicks, assuming you know what you want because this multiplication of possibilities is lived for some as scary. In the analog world – in grocery stores, for example – the size of a set of choices is important. Imagine a shelf in a typical supermarket: there are seven million varieties of toothpaste and tomato sauce. A shelf at Trader Joe’s? The selection of their private label. They don’t overwhelm you with choice, which is why you are more willing to consider every new product, like bacon jam. Finally, it is very useful to clean up the clutter and put a task as boring as shopping for a treasure hunt is a service to the public. There is no question here of awarding the Nobel Peace Prize to Trader Joe’s. Yet it seems that many interactions in today’s world are based on an ever increasing competitiveness while the collaboration between the donor and the receiver is often underestimated. There is no question either of praising a grocery chain simply because it has found a way to make its food attractive, cheap and that treat its employees and customers quite well on the way to his success. But as we spend a lot of time reporting problems, failures or mistakes, it’s nice from time to time to meet an institution, even if it’s a grocery store, that seems to work well at all levels from conception to practice, from which we can draw some lessons of humility.