PART 1: Situation Analysis
The success of Trader Joe’s is the result of a business model that pairs unique products offerings with low prices. By making luxury affordable, many well-educated, budget conscious, consumers are drawn to Trader Joe’s on a regular basis. As of 2012, the company ranked 12th in overall grocery sales (7.6 billion), however 1st in grocery sales per square foot ($2,054/ft.)1. As a basis for comparison, Whole Foods ranks second at $1,257.14/ft. To date, the company’s growth strategy has involved offering a differentiated shopping experience to markets with high concentrations of college educated consumers who value a “good deal”. It is estimated that 80% of Trader Joe’s customers attended college. The company’s unique and limited product lines, low-cost merchandising capabilities, unparalleled commitment to customer service, and focus on employees has allowed Trader Joe’s to carve out a position in the market is rare, inimitable, non-substitutable, and most importantly, provides value to customers. Trader Joe’s is a national chain of neighborhood grocery stores and this works for them for many reasons. The company prides itself on creating a customer experience unmatched by others in the industry – similar to what you may receive at your local village market.2 This is a major source of their competitive advantage, however, this is not the only reason why the company has experienced so much success. The company is also deeply committed to its employees – paying them well-above industry norms. Where labor costs can be prohibitive for many companies, Trader Joe’s uses high salaries and strong benefit packages to attract and retain employees who embody the core values of the company. They are viewed as assets to the company, they are empowered to make decisions that best serve customer’s needs, and they are expected to engage with customers. All of this relates directly back to providing a truly unique customer experience. Many Trader Joe’s employees have similar backgrounds and values as stores patrons. This makes for a comfortable shopping environment and adds a tremendous amount of value to the customer experience. Since Trader Joe’s pays higher than normal wages the company is forced to control costs through other means in order to maintain their low prices. Trader Joe’s achieves this by employing their core competency in sourcing and procurement. By limiting their product lines3, they are able to purchase goods in large quantities which allows them to work directly with manufacturers and keep prices down. Additionally, they incentivize manufacturers to work with them by paying their bills in a timely manner and by not charging suppliers for space on their shelves. They maintain a lot of power in this regard, which they strategically use to their advantage from a positioning standpoint. They further leverage their relationship with manufactures by requiring suppliers to maintain secrecy regarding their relationship with the company, making their business model harder to replicate. Additionally, offering high quality products at such low prices reduces the risk that competitors will be able to offer substitutes that are of the same quality at the given price point – again adding to their competitive advantage. Their core competency in sourcing also adds to the company’s rare product offerings and inimitability in the market place. By avoiding trade shows where other major retailers are apt to buy, Trader Joe’s global sourcing strategy allows the company to locate and introduce new product offerings to their stores on a regular basis. Furthermore, 80% of Trader Joe’s products are from their private labels and simply cannot be found elsewhere. While they only offer a limited selection of fresh meat and produce, their global sourcing strategy aligns well with their extensive offerings of frozen and non-perishable items. While this serves as a differentiating strategy, it also adds to the experience...
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