The US food retailing industry is a cut-throat place where only a handful of super-supermarkets have survived as national institutions. Yet the success of offbeat food retailer Trader Joe’s has proved that there is room for a chain that does not follow the usual conventions of US food retailing, as David Robertson reports.
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The likes of Safeway, Kroger, Wal-Mart and Albertson’s have thousands of stores dwarfing rivals from other parts of the world. In order to compete with these behemoths, supermarkets in the US wage war with a non-stop barrage of discount coupons and loyalty incentives. Economies of scale are used to cut costs further and further, and items like bread and milk are regularly sold well below break-even just to draw consumers into stores.
Given this environment, where even a retailing colossus like K-mart can go into Chapter 11, it is surprising that a gourmet-oriented supermarket with little brand choice has become possibly the fastest growing chain in the country.
Trader Joe’s now has over 200 stores in 15 states and has generated the sort of die-hard customer loyalty that sees people buying property near a store. It is the store well-heeled Americans go to looking for Australian wines, Dutch beers, luxury dog food and gourmet “meals for one”.
But it has also attracted support for its large range of organic vegetables (that are often cheaper than the non-organic produce offered by the larger chains) and its commitment to stay GM-free.
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Given the large selection of European foods and other exotic offerings possibly the most surprising thing about Trader Joe’s is that it is not an expensive place to shop. The company says it keeps costs low precisely because it is not engaging in the type of guerrilla tactics adopted by other supermarkets.
Sourcing direct from suppliers
“How do we keep our prices so low?” it rhetorically asks. “We stick to the business we know: good food at the best prices. We buy direct from our suppliers, in large volume. We bargain hard and manage our costs carefully; we don’t pay high rents to be in the fanciest locations; we’re not open 24 hours a day; we don’t conduct couponing wars or fancy promotions.”
And according to vice president of marketing at Trader Joe’s, Pat St. John, the company also insists that every product is profitable. It has very few “brands” (many of the foods are imported or made specifically for Trader Joe’s and carry the company’s own name) and there is usually only one of each food product to choose from – it does not want to dilute an item’s profitability by having similar competitors on the shelf.
This take it or leave it attitude also applies to the large number of limited-range products the company carries – Trader Joe’s is happy to run out of a product, something other US supermarkets would consider a basic error.
Unfortunately Trader Joe’s, which started in Los Angeles as a chain of convenience stores called Pronto in 1958, is a privately held company and no details are available on sales. It also won’t comment on further expansion (although more East Coast stores seem likely). There is also no word on possible international expansion or franchising.
“It is important for products to sell very well for us in all categories,” is all St. John will say on sales.
“We think a lot of people out there are looking for more interesting food adventures than the strictly meat and veg offerings of the others. A lot of people have travelled and experienced other cultures and want to recreate that in their kitchens. We help make that possible,” she adds.
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Move to gourmet
The popularity of Trader Joe’s mirrors a shift in consumer tastes that has seen supermarkets in Europe adopt more gourmet product lines. In the US that trend is still embryonic says Mark Hamstra, retail editor of Supermarket News.
“More supermarkets are looking at gourmet products as a way of adding excitement to their stores and of making shopping trips more profitable to them and more enjoyable for consumers,” he says.
So far Trader Joe’s has stayed under the radar of the big supermarket chains and Pat St. John believes that they do not compete directly with each other: “As far as I can observe, the big supermarket chains are competing against each other and not us.”
Hamstra agrees saying: “Trader Joe’s is more of a boutique type outlet. They may be some competition on some niche items and some gourmet type items that a typical supermarket might have for sale.
“But Trader Joe’s is not a big threat to the major chains yet. People are not abandoning them in droves. But they [Trader Joe’s] are making inroads.”
Although Trader Joe’s is unlikely to be worrying executives at supermarkets like Safeway its success has proved that there is room for a chain that does not follow the usual conventions of US food retailing. And an obvious lesson from its success might be that US consumers are now ready for a gourmet revolution.
By David Robertson, just-food.com correspondent
