Matthew W.

Burr
MBC 645: Case Analysis- Trader Joes
Strategic Management
Introduction:
The supermarket industry has evolved throughout last half century, with market share
decreasing. Competitive strategies currently utilized, vary throughout the industry. As
competition is fierce and consumer demands continue to drive change. This case analysis will
focus on Trader Joes and their competitive strategy and their sustainability. The analysis will
also compare Trader Joes to specific industry competition and their current strategies. As we
analyze the case, we will focus on four questions. The first, a review of how firms in the
supermarket industry make money, while focusing on their unique competitive strategies. The
second, key sources of Trader Joes competitive advantage and how these sources support
competitive strategy. The third, choosing what not to do, illustrating Trader Joes approach.
The fourth, threats to Trader Joes competitive advantage and the sustainability of the
competitive advantage. The analysis will end with a brief conclusion summarizing key
learnings and keys for sustainability. Prior to answering the four questions, the introduction
will focus on a high-level review of the supermarket industry. The industry; Wal-Mart,
Kroger, Safeway and Supervalu were the four largest grocers in the United
StatesSupermarkets traditionally operated on very thin profit margins. i Throughout the
years the industry has evolved mostly into a high end premium market or a discount market.
Most organizations have evolved into either a premium brand or discount store to maintain and
thrive in the changing industry. Several experienced financial distressThe Great Atlantic
and Pacific Teac Company had filed for bankruptcy protection in December 2010.ii However,
during the same period other organizations thrived. In 2012 Whole Foods achieved 8.4%
same-store sales growth.iii A decline in the past decade in grocery sales is significant for all
supermarket chains, their share of grocery sales in the United States fell to 51% in 2011a
decade earlier, supermarkets had accounted for two-thirds of all grocery sales in the nation.iv
Supermarkets have lost ground to large discount retailer, warehouse clubs and pharmacy
chains, as these organizations have expanded and grown grocery lines. To fully understand the
evolution of the industry, we begin by understanding how firms maintain financial viability.
1. How do firms in the supermarket industry make money? Illustrate the competitive
strategies of the main companies in the supermarket industry to help support your
answer.
Supermarkets make money through multiple channels. As discussed throughout the
introduction, the industry has for the most part consolidated into either a premium (specialized
products) or low cost (discount products). Whole Foods Market ranked as the nations leading
retailer of organic natural foodstwo-thirds of its sales consisted of perishable items, including
baker and prepared foodsin 2012 Whole Foods achieved 8.4% same-store sales growth. v
Trends and consumers willingness to pay a premium for the organic natural foods found at
supermarkets like Whole Foods, allows these organizations to grow profits and remain viable.
As shown in Appendix B, this is a focused differentiation strategy. The supermarket chain
charges a premium and consumers continue to pay the premium for these products. A low-cost
store such as Dollar General operates 10,000 locations and carrys a variety of products. The
average customer completed a shopping trip in roughly 10 minutesthe company reported
same-store sales growth of 4.7% in its 2012 annual report.vi Dollar General focuses on a cost
leader strategy as show in Appendix B, the goal is to sell bulk product at a discounted price. All
supermarkets focus on one of five categories as shown in Appendix B. Kroger, Safeway and
Supervalu all fall into one of these four categories. Market growth includes carrying a variety of
products. Traditionally, store size and SKUs determined financial viability. Whole Foods
locations typically carried 21,000 SKUsDollar Generals stores typically carried approximately
10,000 SKUs and had 7,200 square feetWal-Mart had become the largest grocery
retailersupercenters average of 185,000 square feet and over 100,000 SKUs.vii The more
product in-store, the more a customer is willing to spend. Like Wal-Mart, Target found that
grocery sales drove store traffic, leading to increased sales on higher-margin items such as
apparel and electronics.viii As the climate has changed in the industry, so too has what is being
offered. Stores must sell other products to survive this ever-changing business climate, as Wal-
Mart, Target and Dollar General have shown. Supporting functions for supermarkets include;
frequent shopper clubs and discount coupons. This provides incentives for loyalty and rewards
for continued shopping. Trader Joes has approached the industry differently, the typical
Trader Joes store had less than 15,000 square feetcarried about 4,000 SKUs per location. ix
The organization carries minimal brand name merchandise, does not offer or accept coupons
and spends little on marketing. In reviewing Appendix B, Trader Joes is an integrated cost
leader/differentiator, they have found the blue ocean. This unique approach has provided a
niche market for Trader Joes to grow locations and financial viability. The common process
that all supermarkets have is strong buyer power as seen in Appendix A, the Porters Five Forces
Analysis. A strong supply chain provides leverage for any supermarket and has the potential to
determine how and if a firm makes money and remains viable. The way in which firms make
money continue to vary and are driven by consumer demands. Each organization falls into one
of the categories in Appendix B and has found success with their unique approach. Whole
Foods, Kroger, Safeway, Supervalu, Trader Joes, etc., serve differing market segments.
2. What are the key sources of Trader Joes competitive advantage? How do these
sources support its competitive strategy?
In reviewing Appendix C, the Value Chain Analysis for Trader Joes. Every area outlined on
the value chain account for Trader Joes unique competitive advantage. As the arrows indicate,
there is overlap throughout the value chain that create Trader Joes competitive advantage.
Beginning with support activities and firm infrastructure; the organization has seven core
values (and embraces the values) and is secretive about financial information (Aldis Model).
The company did not disclose financial results, but most analysts believed that it achieved
higher returns on investment than most supermarkets in the nation.x Continuing to Human
Resources; Trader Joes also believes in paying employees well, provides a structured
orientation/training process and creates a generalist not specialist approach in the work
environment. The generalist expectations are as follows; all employees will understand specific
products and processes throughout the location (subject matter experts). Trader Joes
approaches technology differently than competition; they do not utilize sell-checkout and did
not invest in front-end display televisions. Strategic advantages in the supply chain include;
Trader Joes purchases of large quantities of product, driving the price down for customers,
sourcing product globally and expect vendors to be secretive about agreed upon product prices.
Beginning with inbound logistics, that continues to create a competitive advantage, Trader
Joes carried about 4,000 SKUs per location, as compared with as many as 50,000 unites for most
grocery stores. Eighty percent or more of the products in Trader Joes store consisted of private
label items.xi Trader Joes also restocks shelves during the day, ensuring that products are
always on the shelf for consumers. Locations could be found in old strip malls in suburban
locationstypical Trader Joes sores had less than 15,000 square feet of selling space.xii These
unique locations provide a cheaper option for rent or property purchase and opportunities to be
near the customer base. Trader Joes approaches marketing and sales differently when
comparing to the industry norm. Trader Joes marketed primarily through its Fearless Flyer as
well as occasional radio ads, and never ran television adsMany customers had leader about
Trader Joes through word of mouth.xiii They do not have a customer loyalty-card program or
accept coupons. Trader Joes does not have a presence on social media, regardless, they
enjoyed a cult-like following.xiv They utilize word of mouth marketing, which in turn has
created a very loyal and passionate customer base. As other supermarkets spend millions of
dollars in advertising, loyalty programs and public relations, Trader Joes spends almost
nothing in public relations. The final primary activity in Appendix C is service. As Trader Joes
pays a higher rate, good benefits and utilizes a generalist not specialist approach; this employee
relations model creates a more aligned and strategic customer service experience. Trader Joes
wanted its employees to become familiar with the companys products and therefore
encouraged them to try various items throughout the store.xv Many organizations forget the
tremendous impact that customer service and employee loyalty can and does have on an
organization. Trader Joes understands the importance of customer service and lives it through
the seven core values covered in new hire orientation and training program. The competitive
advantages as outlined in Appendix C are all significant to the success of Trader Joes
competitive strategy. The overlapping allows the organization to maintain and grow a unique
advantage. Keeping prices low, financial information secretive, minimal technology costs, a
global supply chain, tremendous perks for employees and outstanding customer service drive
Trader Joes competitive strategy. Trader Joes successfully serves a specific market and
embraces who they serve through convivence, customer service, pricing and unique offerings.
3. Porter (1996) tells the essence of strategy is choosing what not to do. How would
use the Trader Joes case to illustrate this point?
The essence of effective strategy is choosing a path (less traveled or finding a blue ocean)
unique to that of your competitors. Most organizations attempt to provide a service or product
that differs from that of the competition. Creating a memorable experience and developing a
cult like following continues to define Trader Joes strategy and separate this organization in a
very competitive industry. Trader Joes utilizes many strategies for a unique customer
experience. Store square footage is significantly smaller then competition, while locating stores
in old strip malls for the convivence of the customer. SKUs are kept at 4,000 per location,
comparted to 50,000 for other supermarkets. Trader Joes buyers scoured the globe for
interesting new products and tried not to follow trendsmerchants strove to introduce 10-15
new products per week.xvi The organization eliminates 10-15 products each week as well and
has minimal brand names in each location. Trader Joes knows the customer base very well,
claimed that 80% of its customers had attended college. xvii There is very little information
divulged to the public regarding financials and the organization spends next to nothing on
marketing. The organization has a loyal customer base and employee base. Cross-training
employees into a generalist subject matter experts, creates a unique and satisfying customer
experience. Competitors have opened facilities throughout the country, Trader Joes is strategic
about when and where to open locations, creating an extreme demand in a city or region. This
again provides an advantage and as proven, David Stinson walked in first when the store
opened its doors for the first timeStinson had camped out overnight to be first in line, having
arrived at 4:00 p.m. the pervious afternoon.xviii This case is a complete example of the 1996
quote by Porter. Trader Joes has positioned themselves in an integrated cost
leader/differentiator category and sits in a blue ocean in a competitive industry. Trader Joes
has flourished and grown in a time of economic instability. Based on surveys of employees,
Forbes and Glassdoor.com ranked Trader Joes on their 2013 list of the Top 50 Companies to
Work For in the U.S.xix The organization does what competitors do not and cannot duplicate.
Trader Joes is extremely successful in utilizing this strategy to grow and expand operations.
4. What are the main threats to Trader Joes competitive advantage? Is there advantage
sustainable?
Currently, Trader Joes has a unique competitive advantage. However, there are threats to this
competitive advantage. Wal-Mart and other stores have experimented with smaller locations
throughout the country. Wal-Mart announced strong comparable store sales growth at these
smaller locations, and the firm indicated that 40% of new store openings over the next year
would come in the small-format category.xx Appendix D provides a SWOT analysis for Trader
Joes. Current threats include; increased rivalry within the industry, copying the Trader Joes
strategic model, lack of technology/online presence and substitute brands. Tesco, the worlds
third-largest retailer had launched a chain of small neighborhood markets in the western United
States. The British firm appeared to borrow extensively from the Trader Joes concept with its
Fresh & Easy stores.xxi Tesco was unsuccessful in the United States, that does not mean that
other industry competition will not try and imitate or copy the Trader Joes concept. Other
threats include new competition, local co-ops, e-commerce (Amazon) and a shift in consumer
preference. Trader Joes has resisted increased technology in the stores and has little presence
on social media (mostly customers). Some experts bemoaned the absence of a company-led
social media strategymarketing experts concur that not having an authoritative voice in social
media is a weakness.xxii This has the potential of becoming a threat to Trader Joes competitive
advantage, as e-commerce and social media use expands globally. The threat of substitute and
brand name products is also a concern for Trader Joes and the current competitive advantage.
Brand loyalty is significant, Trader Joes does not stock a significant amount of name brand
products in stores and this could become a strategic threat in the future. An additional threat is
corporate growth. Kowitt cited other ex-crewmembers who worried about growing
bureaucracy at the company as it implemented new process and proceduresrecent changes
had led to increased competition among employees seeking advancement. xxiii Opportunities
include; continued nationwide growth, social media marketing, e-commerce presence and
potential international growth. At the current time, Trader Joes competitive advantage is
sustainable and not threatened, they are in a blue ocean alone. As we learned through the Tesco
example, imitating Trader Joes is a challenge and it led to the failure of their venture in the
United States. Copying every intricate detail of a privately held company is almost impossible.
Trader Joes has developed a brand through customer loyalty and word of mouth advertising.
This would be complex to duplicate, as it took decades to establish. The organization has
developed longstanding and powerful relationships with their suppliers, employees and unique
customer base. Trader Joes is strategic in regards to the locations of new stores and the number
of stores which are opened per year. This creates a demand that cannot be matched by a Wal-
Mart, Kroger, Safeway, Aldi or Supervalu. The final and most important part of Trader Joes
sustainability and competitive advantage is the organizational culture. The culture created
internally at Trader Joes is impossible to copy or imitate. Some observers marveled at how
happy the crewmembers always seemedcrewmembers often chose to hang out together after
work.xxiv Creating a culture of happy, loyal and hardworking employees is a challenge for
most organizations. Trader Joes has developed a culture that is unique in the supermarket
industry and has proven to be a cornerstone of the organizations continued success. However,
as the corporation grows, sustaining this culture will become challenging and can become a
threat. Currently, the competitive advantage is sustainable in a very competitive industry.
Conclusion:
The case analysis has provided examples of the unique advantages Trader Joes currently has in
a competitive industry. The successful strategy is to do what others are not doing, finding a
blue ocean. Since the organizations founding almost 50 years ago, Trader Joes has developed a
cult like following, as they continue to grow and open stores nationwide. Trader Joes serves to
a specific group of customers. The group continues to remain loyal. The Five Forces, Value
Chain Analysis and SWOT Analysis; provide insight into the supermarket industry, Trader
Joes competitive advantage and current opportunities and threats that could help or harm
Trader Joes competitive sustainability in the future. Like any organization, as the corporation
grows, culture evolves. Currently, Trader Joes has a culture unmatched by the competition.
The case analysis provides valuable insight into creating and maintain a unique and sustainable
competitive advantage in a very competitive, shrinking and ever evolving industry.
References

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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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Ager, D., & Roberto, M. (2014). Trader Joes. HBS No. 9-714-419. Boston, MA: Harvard Business School
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 Appendix A

Porters Five Forces: Supermarket Industry

 Appendix B

Five Business Level Strategies

 Appendix C

Trader Joes Value Chain Analysis

Firm Infrastructure Values, Aldis Model: No Public Relations

Support Activities

New Hire Orientation, Generalist Not

Human Resource Management Specialists, High Pay for Employees
Technology Development No TVs, No Self-Checkout

Purchase Large Quantities, Global Purchasing,

Procurement Unique Products, Vendor Relationships
Inbound Operations Outbound Marketing Service
Logistics Small Stores Logistics & Sales Generalist not
Less SKUs No Sales specialists
Daily Restocking Private Labels Store Locations No Coupons Knowledgeable
Less SKUs Strip Mall Locations Fearless Flyer Workforce
Small Parking Lots No TV Products
Limited Locations Minimal Radio
Word of Mouth
Marketing

Primary Activities
 Appendix D

Trader Joes SWOT Analysis

STRENGTHS (+) WEAKNESSES ()

S W Brand Credibility- Aldis

Customer Loyalty
Strong Distribution Channels
Employee Training and
Generalist Approach
Geographic Coverage: Not
Located in Every State
No Advertising and Minimal
Marketing
Not Accepting Coupons

O T
No Private Labels

OPPORTUNITIES (+) THREATS ()

Growing Competition within

Integrated Cost Private Labels
the Industry
Leader/Differentiator Nationwide Locations
Competition Copying Trader
Online and Marketing Presence
Joes Model
Case Did Not Mention
Lack of Technology
International Growth
Substitute Products

TRADER JOES SWOT ANALYSIS