Trader's Joe

Achieving Competitive Advantage

MGMT 561

“Trader Joe’s, is charm enough?”

1. Key problem statement

When Joe Coulombe conceived the idea to found his own retail store chain, he had something clear, and that was the market his company should target. Since its origins, Trader’s Joe had a clear customer segmentation, educated people, cultured urban consumers, or as stated by his founder, “Trader’s Joe was meant to satisfy the need of overeducated and underpaid people”. With that on mind, he developed a unique concept of supermarket stores distinguished by their atmosphere, environmental consciousness, foot print, product quality, customer service and competitive prices.

Over the last couple of years, Trader Joe’s has been publicly recognized for its consumer satisfaction and customer preference over other supermarkets. Trader Joe’s has ranked as the second –best supermarket in the country and each time that a store opens, long lines of customers waiting outside the premises characterize such occasions. This is a rare effect on an industry, where in 2011 in United Sates the share on grocery sales fell to 51%, due to the fact that supermarkets have lost ground over large discount retailers, warehouse clubs, pharmacy chains and the new online sales channels that now are increasing their emphasis on grocery sales.

Trader Joe’s has been identified as the supermarket with the highest sales per square foot, better positioned than its competitors, Walmart and Whole Foods. This is to be considered, since the advantage that Trader Joe’s is having is greatly based on their main principles, sizing their locations smaller than the average supermarket, offering mainly private label products, carrying a smaller and unique variety of products and laying out their stores in a unique and simple way.

The success of Trader Joe’s is greatly based on the differentiation and added value that their stores and products offer. The key challenge that Trader’s Joe is to sustain its competitive positioning on the highly competitive super market industry.

1. Relevant Theory

The focus of the case is to analyze the different factors that have allowed Trader Joe’s to be successful and profitable on a competitive industry and suggest alternatives to sustain such advantages. A successful strategy requires that a company offers unique value through lower prices or differentiated product. Therefore the theories that we are going to apply are the cost and differentiation advantages that a company can develop on a highly competitive industry, to differentiate their product or service from the competitors.

In Trader Joe’s case, the company has created a balanced blend between cost and differentiation advantage, by combining low cost products with gourmet-organic food.

Cost Advantage “You always find low prices”

In this kind of strategy the unique value is the low prices offered to the customers,  Trader Joe’s has been able to achieve that through lower input costs, the low prices that the store has been able to offer are due to the fact that 80% of the products available in the store are from their private labels. To achieve this, Trader Joe’s has been cooperatively working with suppliers, buying in large volumes to obtain lower prices, not charging suppliers to slot their products on retailers’ shelves and paying to the suppliers promptly, this actions have help them to get a preferred access to inputs since sometimes suppliers give them lower prices than the ones offered to the competitors. Also, they have eliminate steps in the value chain, since instead of acquiring their goods form a middle representation, there are negotiating directly with the manufacturers.