How Does Trader Joe's Do It?

Henry from the TrueHoop blog writes:

You know how it's always the big mystery as to how they can be organic, high-quality, and cheap? Cereal other people sell for $5 they have for $2. What gives?

I think I sort of figured it out. Regular grocery stores operate on very slim margins. Most things are let's say $3 or less--and a lot of things are less than a dollar. Many products have profits in the pennies.

Only a few products in the whole grocery store have significant markups. Well, Trader Joe's only sells those things. It doesn't sell much if any low-margin stuff like flour, eggs, regular milk, bagels, or white rice. It sells stuff like almonds, pomegranate juice, salmon, and wine. Those are $7 items that are still profitable at $5, especially if you don't have to pay the staff and overhead of a facility that is a one-stop shop. You get to have a smaller, cheaper store in which every square foot is filled with high profit items. And since you are not a one-stop shop, you don't even have to carry the same stuff all the time. If the price of lemons goes up, well the grocery store still has to carry them. But Trader Joe's can say forget it and not carry them that week. It's just a different business model, and one that lets you sell the expensive stuff cheaper.

I think he's figured out part of the Trader Joe's secret. Trader Joe's also has an extensive selection of private label products which are more profitable than the national brands.

Comments

[apropos]

I wonder what this says about all the other specialty stores though, since I can't think of one I've ever been in that hasn't been very expensive.

[Angela]

I suspect another part of the big "secret" is they don't play the name-brands game. They can't get strongarmed by certain brands about ordering, placement, or anything, because they sell everything under their own label and therefore have a lot more freedom. I am pretty sure they sell name-brand stuff under their own label (but they aren't allowed to tell who).

And yes, like Henry said, they sell what sells well and they don't worry about oven mitts and jock itch cream, etc.

[jillian]

I challenge other food bloggers to give aid to those who worked in the food industry and made New Orleans so flavorful:

New Orleans Hospitality Workers Disaster Relief Fund A fund has been established to benefit employees of the hospitality industry of the Greater New Orleans area who have experienced hardships because of the devastation caused by Hurricane Katrina. Contributions may be sent to:

New Orleans Hospitality Workers Disaster Relief Fund
Greater Houston Community Foundation
4550 Post Oak Place, Suite 100
Houston, TX 77027
Call 713-333-2200 for additional information

http://www.commanderspalace.com/new_orleans/index.php

[Janet]

Henry is a little off on his assessment of how TJ's does business. They in fact do sell flour, eggs, regular milk, bagels, and white rice, in addition to more exotic items like aronia juice and spelt tortillas. The reason they have such reasonable prices is because they buy directly from the manufacturers and cut out the middlemen. They private label about 95% of their products, which also keeps costs down. This way they don't pay slotting fees to vendors. They are quick to discontinue an item if it doesn't sell well, and they bring in new items every week. They only raise prices if their suppliers raise prices, and they lower them if the suppliers lower their prices. They don't try to gouge customers like Whole Foods does. They try to educate their customers and give them interesting products at a great value. While they don't sell all the staple items, you can get almost all of your food shopping done there.

[Joe]

Yep. Janets got it.

[Rob]

I think the real reason is they lure you in w/ the cheap prices on certain things you went in there for and make it up on impulse buys that sren't so cheap - mostly the snacks. As for me, I mainly go in there to ransack the frozen fish. But if I go there hungry, it's a sure bet I'll come home with an extra $50 worth of nut mixes, sauces, cookies...

[wade souza]

They have a couple of key strategies that help the business model. First, they find hot specialty items and have the companies do them as TJ store brands. The companies are generally thrilled cause they get manufacturing efficiencies i.e.higher profits/lower costs, no selling and marketing costs and access to distribution points that drive higher volume than the average specialty outlet, often gain shipping efficiency AND can use the distribution as a lever to get into other stores..aka TJ carries us as their private label. TJ also has contacts with contract manufacturers and can easily knockoff products and thereby get an even lower cost....I know cause they did it to me.

They also turn their volume pretty quickly which reduces carrying costs, stock items which turn fast vs. the standard grocery store and have built a very strong franchise among a broad cross-section of consumers that dont necessarily shop "gourmet" or 'health food"stores standardly BUT do shop TJ.

[suki]

How they do it? EASY.

No slot fees--which normal grocery stores charge to be on certain eye level shelves or on an end cap. ALSO, NO advertising. Haven't you noticed? No TV? No magazine? No annoying Sunday paper sale's circular. You pay more at other stores because of advertising.

Now it pays my salary, I'm an art director. AND I shopt at TJ's. :-)

[Raymond Frazier/Beacon Avenue Food Bank]

My name is Raymond Frazier. Iam the coordinator for the BEACON AVENUE FOOD BANK. Because the hurricanes and floods,all of are donations,have been very low. if it is any way possible,do you think you could help us with any type of donations?

You would be helping so many families,that are in need. Ithank you very much for your time..Raymond Frazier/Beacon Ave.Food Bank

[courtney]

can anyone tell me why there are NO trader joe's stores in the state of florida? i just moved here from st. louis, mo where i had my choice of 3 TJs within a few miles of each other and now i'm in TJs withdrawal. what's the deal why they're not in my new neighborhood, city, or state!! i live in miami, which is just about the southernmost point, so i'm sure transportation is an issue, but the whole state is suffering!! and, yes, i have written and begged them to come down this way, but i received a generic automated response. boo.

[Meg]

Does anyone know where Trader Joe's gets their organic milk? I heard Horizon will private label milk. Horizon is currently ignoring organic standards, so I want to make sure that I am not buying Horizon milk under TJ's name. Horizon is currently private labeled at Von's Organic brand, Costco and a few others, so it's tricky to find out these things. Thanks!

[adjsk]

Horizon cannot "ignore" organic standards. USDA will not allow it. Where do you get such info?

[Meg]

Google it..Horizon is muddy at best w/ organic practices:

http://www.organicconsumers.org/organic/corrupt060323.cfm

http://walmartwatch.com/blog/archives/more_concerns_about_wal_mart_and_organics/

http://www.prweb.com/releases/2006/3/prweb361925.htm

[mimi]

For the last 3 years I have done at least 60% of my grocery shopping at Trader Joes, and I have been a huge fan. I was always amazed by the low prices, equating it to the fact that a lot of items are sold under their private label. WELL, after recently eating some dried peaches and feeling a little sick to my stomach, I realized they were a product of CHINA, and a popular item that China has had trouble exporting safely. I then looked at my frozen broccoli from Trader Joe's, WOW, that's from China too! Lots of things at Trader Joes are sold in pretty packaging, but obviously bought at the lowest cost possible. I know Trader Joes recently put out a press release stating that after Jan. 2008, they will no longer sell single ingredient products from China, but will still continue to carry Chinese Products that contain multiple ingredients. After the recent Chinese exported Gluten scare & all these dangerous toy recalls, I have opted to spend a little more $$ and take my shopping elsewhere.

[Sweetiepie]

Very interesting topic. I love Trader Joe's, so thanks for enlightening me.

[annie sewell]

Hi,
I am wanting to open my own trader joes style grocery store where I live. Who would I contact to private label things for me? Also, how does one go about buying directly from the manufacturer? Im so curious. Why hasn't anyone else done this?

[MD]

OH SAY IT ISN'T SO!!!

Just learned from Trader Joes HQ that their management has chosen NOT to carry their famous, fabulous, fully-baked, frozen pumpkin pie anymore! Aficianados of this delicious pie know it's as close to home-made as you can get - rich, creamy & delicious! Last year, it was so popular, they ran out after Thanksgiving & couldn't keep it in stock through the holidays.

So even though this pie is INFINITELY better than any of the 'fresh' pumpkin pies they've ever offered (I know ... I've tried them all) TJ management has chosen to discontinue them & offer only fresh pies this year.

I would love to find out the name of the vendor who supplied this delicious pie to them. I KNOW there's a market out there for these frozen pies ... as evidenced by stories I've heard from store employees of customers calling to ask them to hold 4 to 6 pies at a time until they could get to the store to buy them. There has got to be other retailers who would appreciate this vendor's high quality & reasonably priced pies. Does anyone know how to find out who TJ's vendors are - especially this pumpkin pie vendor? (Google is no help.)

[Ken]

Got sick from some recently eaten trader joes foor.Taste on some of the things there really not too good.Mixed feelings about them.A lot of style but I'm concerned about the substance.

[Kathleen]

Trader Joe's frozen Pumpkin and Apple Pies have been a part of our Christmas, Thanksgiving, and Easter meals for a few years now. They "were" made without artificial ingredients and were delicious! I am so disappointed to learn that TJ's is not carrying them anymore (as apparently they do with other popular items).

I called our somewhat local health food store (12 miles away) and have learned that they carry "Wholly Wholesome" pies. They look great and hope they will be comparable. For anyone interested I found their website: http://whollywholesome.com/products/pies.php

I went to the Trader Joe's site and shared my disappointment with their decision. After thinking about it a little more, I am going to contact them again to let them know that they will no longer be a part of my major holiday food shopping. If I need to go to another town for my pies, I can always get my rolls, cheese, and many other items there also.

[Adam]

I am trying to find out who TJs buys their private label veggies from. Specifically, I am interested in the canned butternut squash puree. Does anyone know who the grower or processor might be?

Cheers!

[Nuthatch]

Here is a post on Trader Joe's coffee:
http://www.coffeehabitat.com/2009/02/trader-joes-cof.html

[noodle]

sounds right, except trader joe's is not an organic grocery store, they just carry some organic products.

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[Vimax]

TJ additionally has contacts with arrangement manufacturers and can calmly knockoff articles and thereby get an alike lower cost

[ugg store]

One of these days is none of these days.