Is there any other high-volume retail food store that has an iconic product associated with it like Trader Joe’s “Two-Buck Chuck?” If you think about it, Trader Joe’s has a quite different relationship with its product mix and its customers from most retail supermarket chains. Because of its private-label strategy, its “value” brand, its limited selection, its store layout, and it’s fun, quirky atmosphere, Trader Joe’s has created the perfect atmosphere to launch new (and occasionally radically new) food products into the mainstream market. Why is Trader Joe’s the perfect launchpad for products? Let’s explore the key factors.
The Brand/Retail Environment
When he founded Trader Joe’s in 1967, Tom Coulombe, a Stanford GSB alum, aimed to create a retail concept that would bring gourmet food to the masses by offering premium quality food and value prices. Inspired by the book Trader Horn and his own experiences trying new foods on vacation, he wanted to create a space that brought the fun and adventure of vacation to the food shopper (1). The Hawaiian shirts, thatch hut motif, blackboard signage, and friendly employees are all designed to engage the customer in a more pleasant experience and prime them to be more adventurous about their food selections. In essence, this sense of adventure is the perfect atmosphere in which to launch new products.
Private Label Implications: Control and Flexibility
From a product standpoint, everything starts with the fact that over 80% of Trader Joe’s products are private label, compared to 16% of products in the rest of the industry (2). That changes the retailer’s scope from one of channel sales and promotion to a more integrated product development process, because they have much more upstream influence and control. In addition to developing and testing their own products in the test kitchen at the company headquarters, Trader Joe’s is often approached by its suppliers who use the retailer as a channel to test new product ideas. This is largely because Trader Joe’s focuses on maintaining good relations with its suppliers and works hand-in-glove with them, even maintaining confidentiality between companies. As one food industry consultant put it, "Their suppliers simply don't talk to anyone about the company," ... They love the company. They are great to work with and pay their bills on time. They don't tell the outside world they have Trader Joe's as a customer.” (2) Because of its upstream control in product development, the company has the ability to move more quickly and more flexibly to incorporate market and customer feedback into their product offerings.
Regional Autonomy
Every store manager has control and responsibility for the product mix in his or her store, as well as the customer experience. With local autonomy, Trader Joe’s can more effectively collect customer feedback, as well as test products regionally first that may or may not end up working at a national level.
Promote Trial, Trial, Trial
Everything in a Trader Joe’s store is set up to promote trial by its customers. There is always a free sample of at least one product, and every employee working on the floor is empowered to open a new container of food to allow a customer to try it. Finally, prices are low and product sizes are small to incentivize purchase – particularly of impulse products.
Store Layout
Finally, TJ’s maintains complete control over the footprint and layout of their stores by refusing to participate in the retail coop system that rules other supermarkets. Instead, they have control over product placement, and they are able to easily move products around according to their performance. When they introduce a new product that lends itself to impulse purchase, they can easily move it to front of store and make those decisions quickly and nimbly based on sales performance rather than product spend. This allows the successful products to rise to the top more quickly.
Conclusion
“Two-Buck Chuck” is more than a catchy name. It represents a mentality of experimentation and iteration in the supermarket retail space that allows Trader Joe’s to continue to stay on the forefront of consumer tastes and work with their suppliers to develop and launch regularly successful new products into their stores.
(1) The Trader Joe’s Adventure, Len Lewis, Kaplan Publishing, 2005: http://books.google.com/books?id=BLPZ_tHDy3kC&source=gbs_navlinks_s
(2) Business Week, “Trader Joe’s Recipe for Success,” February 21, 2008: http://www.businessweek.com/print/magazine/content/08_09/b4073058455307.htm
(3) Fast Company, “Leading Listener: Trader Joe’s,” December 19, 2007: http://www.fastcompany.com/magazine/87/customer-traderjoes.html
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In class on Thursday, in talking about managing a product line, I realized that if you take a private-label strategy and have an integrated product-retail environment, it removes a lot of the incentives to proliferate product lines. Only one of the five reasons given in class that motivate more product variety apply to a company like Trader Joe's, which is why they are able to streamline their product offering:
ReplyDelete- Splintering mass market (this still applies)
- Variety-seeking consumers (TJ's gets the benefit of variety across categories and products, rather than in a specific product category)
- Competitive intensity (TJ's controls the retail environment and limits competition)
- Trade pressure (Again, they ARE the pressure here)
- Market pressure - short term gain (They are a private company)
In this context, it begins to make sense why TJ's has only 2,000 products rather than the 30,000 in a typical supermarket.