Trader Joes

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Trader Joe's is a privately owned grocery store that sells a variety of natural and healthy food and beverage options. Their headquarters is located in Monrovia, California and they have about 350 stores in roughly 25 states. It was started by Joe Coulombe as a Los Angeles convenience store chain in 1958, and then the company was bought in 1979 by German billionaires Karl and Theo Albrecht, who founded the ALDI food chain. Trader Joe’s competes within their niche market of organic and health food grocery stores with stores like Wild Oats and Whole Foods, as well as big grocery stores such as Hannaford, Roche Bros, and Market Basket. To keep costs down, its stores have no service departments and average about 10,000-15,000 sq. ft. The company's specialty is its line of more than 2,000 private-label products (70% of sales), including beverages, soup, snacks, and frozen items. Some observers think that sales per square foot at Trader Joe's are hovering at about $1,000 -- twice the level of typical supermarkets. Sales last year were roughly $8 billion, the same size as Whole Foods and bigger than those of Bed Bath and Beyond. Their goal is to offer value and a dedication to quality service through warm, friendly, committed employees along with a pledge to offer quality products. Their mission is to “bring customers the best food and beverage values and the information to make informed buying decisions. There are more than 2,000 unique grocery items in our label, all at honest everyday low prices. We work hard at buying things right: Our buyers travel the world searching for new items and we work with a variety of suppliers who make interesting products for us, many of them exclusive to Trader Joe’s. All our private label products have their own "angle," i.e., vegetarian, Kosher, organic or just plain decadent, and all have minimally processed ingredients.” This mission requires a culture that supports loyalty and customer service through personal contact with the consumer. The commitment to the customer is captured on the Trader Joe’s website, “Our Product Guarantee: We tried it! We liked it! If you don’t, bring it back for a full refund, no questions asked.” The underlying message is that Trader Joe’s desires to establish a personal relationship with the customer.

Q1. Using Porter’s Competitive Forces model, discuss Trader Joe’s industry competitive environment. A1. Despite their unique strategy, Trader Joe’s must still compete for customers with both large grocery stores and other ‘specialty food stores,’ such as Wild Oats and Whole Foods markets. To analyze the intensity of competition for Trader Joe’s we can use Porter’s Five Forces model. These forces include the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products and services, and the intensity of rivalry among competitors in an industry. The threat of new entrants is medium for Trader Joe’s. There exists the possibility that competition in the form of a grocery store such as Whole Foods or Market Basket, a small specialty store, or a Wal-Mart or Target super store could open in the area at any time. In 2008, there were approximately 85,200 grocery stores, of which approximately 25,900 were convenience stores. The reason I would deem it medium and not high is because Trader Joe’s offers unique products that other stores do not which is one of their advantages. It also appears that they have very loyal customers who would not be swayed by the lure of lower prices offered by another store. The power of the buyer is also medium due to the variety of goods and services provided by its competitors within the industry such as Whole Foods and other grocery stores. There are typically more than one food store located in an area and this allows customers to have their choice of where they prefer to shop. However, these stores serve so many individual consumers that individual buyer...
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