Trader Joe’s Case Study Market Force - Management Assignment Help

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In July 2013, Market Force Information released the results of a new study in which over 6,000 Americans ranked their favorite supermarkets in a variety of categories. Trader Joe’s ranked No. 1 overall.1 Consumer Reports ranked Trader Joe’s the second-best supermarket in the country in 2012.2 One year earlier, Fast Company named Trader Joe’s the 11th most innovative firm in the U.S.3 Hundreds of people waited in line for the doors to open on March 22, 2013 at the grand opening of Trader Joe’s in Columbia, South Carolina. Local police directed traffic, and people hunted for parking at nearby businesses because they couldn’t find a spot in Trader Joe’s parking lot.4 Customers arrived at 3:00 a.m. on June 29, 2012, to line up for the opening of a new Trader Joe’s in Lexington, Kentucky.5 That same scene played out at new store openings around the country. Job seekers flooded the firm with applications when they learned of a new store. Meanwhile, retail experts marveled that the quirky grocer generated much higher sales per square foot than any of its rivals.

With all that success, Trader Joe’s had attracted imitators. Tesco, the world’s 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 Joe’s concept with its Fresh & Easy stores. In April 2013, Tesco announced that it was withdrawing from the U.S. market, hoping to find a buyer for its approximately 200 stores. The British retailer recorded a $1.8 billion loss associated with its failure in the U.S. market.6 Tesco’s troubles did not discourage other retailers from introducing smaller-footprint stores. WalMart, the world’s largest retailer, had experimented with its Neighborhood Markets concept since 1998.

These smaller grocery stores differed from traditional Wal-Mart supercenters in size and product variety. They were roughly 38,000 square feet in size and only offered grocery and pharmacy items. The Neighborhood Markets concept had evolved over the years and recently began to show promising results. In 2011 the firm launched Wal-Mart Express, a 12,000–15,000-square-foot store that the company described as a “bit of a hybrid between a food, pharmacy and convenience store.” The first 10 stores turned profitable in one year.7 In May 2013, 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. In 2013, it planned to open over 100 small-format stores. The head of WalMart’s U.S. business, Bill Simon, declared at an industry conference, “You’ll see us increasingly moving into smaller formats. They compete really well against multiple channels.” 8 Many other retailers, including Target, Kroger, Giant, Tops, and Publix, had launched smaller-format experiments as well. Meanwhile, Amazon continued to make a push into the grocery business. In June 2013, Amazon expanded its online grocery service outside of Seattle for the first time, with an entry into the Los Angeles market. Experts predicted that Amazon would introduce the service in San Francisco later in the year and as many as 20 additional cities in 2014.9 As the onslaught of new competition emerged, Trader Joe’s had to consider how it might adapt to cope with these threats.

Company History

Joe Coulombe grew up in San Diego, California during the Great Depression. After completing his MBA at Stanford in 1954, Coulombe took a job with Rexall, a North American drugstore chain. While working there, he launched a convenience store chain called Pronto Markets in 1958. Coulombe eventually acquired the small chain from Rexall and branched out on his own. He secured financing from Adohr Milk Farms. However, 7-Eleven acquired Adohr Milk Farms in 1965. The dominant player in the convenience store industry now owned Coulombe’s source of capital, which he found untenable. Coulombe shifted his strategy and founded Trader Joe’s in 1967. He explained the origins of the concept: Scientific American had a story that of all people qualified to go to college, 60% were going. I felt this newly educated—not smarter but better-educated—class of people would want something different, and that was the genesis of Trader Joe’s. All Trader Joe’s were located near centers of learning. Pasadena, where I opened the first one, was because Pasadena is the epitome of a well-educated town. I reframed this: Trader Joe’s is for overeducated and underpaid people, for all the classical musicians, museum curators, journalists—that’s why we’ve always had good press, frankly!10

The Aldi acquisition

Coulombe pursued a very deliberate growth strategy: during his 20- year tenure as CEO, he typically opened roughly one store per year. He did so without ever straying from the Southern California region. In 1979, German grocer Theo Albrecht, who owned one of Germany’s most successful grocery chains—Aldi North—became enamored with the Trader Joe’s concept, and acquired the company. Coulombe agreed to remain as CEO, a position he held until 1988. Albrecht ran a lean low-cost operation with minimal overhead. His discount grocery stores bore a strong resemblance to the Trader Joe’s business model, minus the South Seas theme and a concerted focus on cultured, urbane consumers. Aldi North sold mostly private label goods at low prices, stocked far fewer items than a typical supermarket, and maintained a fairly small footprint. It also carried a small amount of fresh fruits and vegetables. Theo’s brother, Karl, owned a sister chain, Aldi Sud, which would eventually open small-footprint discount grocery stores in the United States. As of July 2013, Aldi Sud operated over 1,000 stores across 31 states.15 Together, the two Aldi chains operated roughly 10,000 stores around the globe.16 Many experts attributed Wal-Mart’s exit from the German market in 2006 to its failure to match Aldi’s combination of merchandising prowess and operational efficiency.

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