The Key To Trader Joe's Success Isn't Great Hummus—It's Paying People Well

Holy crap, employees are humans! And they like money!

If the economy is in peril, all companies should be reducing every cost possible, right? Especially employees—who should be grateful just to have a job, goes the thinking.

Not exactly, as Sophie Quinton reports for the Atlantic:

Many employers believe that one of the best ways to raise their profit margin is to cut labor costs. But companies like QuikTrip, the grocery-store chain Trader Joe's, and Costco Wholesale are proving that the decision to offer low wages is a choice, not an economic necessity.

Contrary to the perceived wisdom, these companies have found that valuing workers pays off with increased sales and productivity. It's an innovation via reconsideration—and one that's rather, well, considerate.

The old, dreary default is that employees are a cost to be minimized, says Zeynep Ton, an MIT scholar who researches and has written extensively on the topic. Underinvestment, she says, has consequences: Operations get problematic, sales drop, and costs again get cut. It's a kind of grumpy management style suited to wrangling iguanas, but not humans.

Instead of that, Trader Joe's and its kin see "employees as assets to be maximized," Ton says. So the cycle goes upward: You get better customer service, higher operational efficiency, and, in the end, better sales. (Trader Joe's also, for the record, has a habit of hiring interesting people.)

Does the doting make a difference?

Certainly. If someone's going all the way to the store instead of buying something online, they want a high-touch experience—consider the Uniqlo or Zara model in apparel or how Google does HR. But perhaps an Atlantic commenter puts it best:

Anyone who shops at TJ's has experience of the direct benefits to the consumer of the higher employee morale that comes with a living wage: genuine friendliness, a willingness to help, an altogether positive interaction. It makes all the difference.

And even if you're not in retail, you should invest in your talent: After all, contented cows give better milk.

The Trader Joe's Lesson: How to Pay a Living Wage and Still Make Money in Retail

Drake Baer covers leadership for Fast Company. You can follow him on Twitter.

[Image: Flickr user Kevin Dooley]

Add New Comment

4 Comments

  • Bobby Wotisky

    Love Trader Joe's for this very reason. I can have a human discussion with those who work there. 2 examples: At the beer aisle I talked to a shocked employee because of the directness of an older gentleman and encouraged him to learn from an older generation who is less PC than we are conditioned to be. He agreed that type of honesty is rare today. Also, had a discussion about how Trader Joe's needs more gluten free options and I did not get the usual, "Thats corporate's fault." type of banter I get from other stores. He listened and said they are working on it. Out of all the stores I have been to, only one seamed to have non human-centric employees and this leads me to believe this particular location needed to train their managers better.

  • Patricia Lotich

    These organizations demonstrate good management practices and it shows in their employees.  Give your employees great training, communicate what you expect from them and reward them financially for good performance and you have a recipe for a great work force that will take care of your customers.  

  • Jeff Pearl

    I shop at Trader Joes, but I don't believe this story, and I have never seen " higher employee morale". The high turnover rate of employees at Trader Joes I shop at seems to indicate employees are not happy working there. I can go there once a month for 6+ months and see a new group of managers and employees each month.

  • TraderJoesSecrets

    It's good to see this research, now a couple of years old, becoming an internet meme. I came across it when I was researching my book Build a Brand Like Trader Joe's, and it validated what I observed directly during my year on the sales floor at TJ's. I think it's important to note that in Trader Joe's case, you can look at higher wages to front-line staff as a zero-sum game; the wages are offset by Trader Joe's minimal advertising budget.