Trader Joe’s DNA

Heather Snow contributes an excellent analysis of the Greenpeace attack on Trader Joe’s sales of red-list fish. I’m glad to see the effort to hold TJ’s accountable to a sustainable standard.

I’d like to suggest a few reasons why Trader Joe’s is pursuing this unenlightened policy, and why what seems like a hip, green-friendly brand may have trouble responding quickly to the Greenpeace attack.

For years we’ve shopped at Aldi. Actually, when I go grocery shopping I like what $50 buys me at Aldi … while my wife prefers supermarkets. Aldi is amazingly efficient. You bring your own bags or you buy theirs —  5 cents each. You bag yourself.

ALDI has grown 8% a year since 1998

ALDI has grown 8% a year since 1998

If you want a cart you put a quarter in the lock mechanism, and get your quarter back when you return it to the cart lineup: there are no carts piling up in the parking lot, and no employees running around to regather them. Instead of 20,000 products to choose from in a regular store, or 150,000 in a Walmart supercenter, in an Aldi store there are under 1000. No brand names, no fancy advertising because they license with major distributors and buy extra capacity … but all good quality stuff, whether peanut butter, chips, pickles, or ice cream. Business Week describes the selection as “East Berlin, circa 1975”. (I don’t think it’s that bad!)  There are usually only 2 people visible working the store, and all they’re doing is ringing up the lines of people waiting to check out. But I would say the average cost at an Aldi store is about 1/3 to 1/2 the price you would pay at the supermarket.

Business Week wrote them up 5 years ago here. Turns out they are a German company spreading fast, a discount store that actually gives Walmart a serious run for their money. They avoid debt, buy small stores where real estate is cheap, keep their footprint small and their profits up, and quietly feed off the (growing) bottom of the U.S. grocery market. They’re gaining market share fast, and in a way similar to the Limited’s initial focus on the most profitable niche in clothing — women’s fashion — Aldi out-Walmarts Walmart by selling high-profit, high-traffic grocery items.

Maybe 5 years ago my wife discovered Trader Joe’s. They have little physical resemblance to Aldi except that they tend to be small stores in non-prime strip malls. They cater to an entirely different market. Instead of lines of sullen people who look like they need to pinch pennies, (the reason my wife hates to go to Aldi’s), Trader Joe’s is a festive experience. We both love what feels like a healthy respect for the environment, for quality food, for healthy choices like fresh fish, whole wheat pasta, cool nuts, chocolates, wines, fresh veggies, real cheeses, and cheerful, helpful staff. It reminded us of the food co-op we used to frequent near the Ohio State campus when we were first married.

But in the back of my mind I was always perplexed by the economics of Trader Joe’s. How could they be so much cheaper than Whole Foods or Wild Oats (which have since merged in weakness)? Not until a year or two ago did it make sense to me… when I learned that Trader Joe’s is also owned by Aldi.

Here’s what Business Week said about Trader Joe’s in 2004.

It’s a phenomenally lucrative combination, analysts say. Sales last year were an estimated $2.1 billion, or $1,132 per square foot, twice that of traditional supermarkets, according to the Food Institute, a nonprofit research group in Elmwood Park, N.J. The Monrovia (Calif.) company would not talk to BusinessWeek, but its Web site notes that while the 37-year-old chain quintupled its store count from 1990 to 2001, profits grew tenfold.

“What’s unique about Trader Joe’s is that there’s no competition,” says Willard R. Bishop Jr., who heads his own consulting firm in Barrington, Ill. TJ’s develops or imports many of its own products from sources it has developed over decades and sells more than 80% of them under the Trader Joe’s brand or a variant thereof: Trader José, Trader Ming, and Baker Josef are a few. In states where it can, it sells discount wine and liquor. The latest rage is its own Charles Shaw label of California varietals, affectionately known as Two-Buck Chuck for its $1.99 price tag in California (it’s $3.39 in Ohio stores).

At least at that time, BW reported that they paid their staff well above industry norms, and the service at TJ’s around here reflect that.

So now it all makes sense. Trader Joe’s keeps its prices down in the same way it does at Aldi stores: by doing deals with its own suppliers and establishing its own store brands. (By the way, this is the same thing that Limited Brands did to gain ground in the fashion world — not by buying the work of famous designers, but by creating their own designer brands.)

The management of Aldi/Trader Joe’s is old school and, while understanding their niche well, not a marketing driven company. The whole ethos of both brands is to provide an authentic quality product at an unbeatable price. They gain share and traffic by sustaining the lowest of low prices through their purchasing arrangements and internal efficiences — which bypass marketing altogether. There simply is no Aldi or TJ branding going on in the media at all. And they keep people coming back by offering excellent quality at amazingly low price points.

Aldi/TJs is not the kind of company that got where it is by listening to customers. Like Walmart, it grows by being the lowest price provider. Period. It is accused of having run 35,000 small stores out of business in Germany in 2006. It was accused of forcing milk prices down by 15% across Germany since 2001. While Trader Joe’s was a gift to Theo Albrecht’s sons, it shares that corporate DNA. It sets it own agenda based on its own perceptions of authentic value, and delivers that brand promise efficiently. TJ’s has probably locked up long-term deals to buy the excess production of major fishery operations around the world. The TJ’s corporate DNA is, I suspect, radically different from the brand aroma.

So like Heather and the others who are commenting on this story, I’ll be interested to see how TJ’s responds. Hopefully, they will change their fish purchase policies over time to reflect the need to be good stewards of the earth’s resources. But I wouldn’t hold my breath. The corporate culture was built by responding to blue-collar concerns, not magenta-leaning tree-huggers like me. It’ll probably take them a while to curtail their faux-green sales of red-list seafood such as orange roughy… 🙂

Footnote – The founder of Aldi, Karl Albrecht, is quite elderly but no longer involved in the management of the company. He is worth over $20 Billion, and in the top 10 richest men.  Aldi stands for Albrecht Discount.

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One Response

  1. Great post! I had forgotten about TJ’s relationship w/ Aldi – but yes, that explains a lot. Of course, while the Aldi model works for driving TJ’s profitibility, the difference is the audience. TJ’s customers may appreciate the lower price alternative to Whole Foods or the local co-op, but they are still largely the same educated, engaged, affluent customer base. Definitely an interesting one to watch over time. Thanks for the insight on TJ’s DNA!

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