The Grocery Chain That Shouldn't Be

Trader Joe's stores are cramped, the brands private label. But cost control, simplicity, and cheerful employees spell red-hot growth.

There are no Cheerios, Cokes, or Bounty towels on the shelves. The aisles are cramped, parking lots are impossible, and clerks wander around in Hawaiian-print shirts, praising the newest cheese or chip and occasionally ringing a ship's bell at checkout.

In a grocery arena populated with airy, 50,000-square-foot stores stocked aisle after aisle with brand-name goods, Trader Joe's should have been knocked out long ago. Instead, the 200-plus-store chain from southern California is now colonizing the Northeast, shoehorning its tropically inspired outlets into older shopping centers where devoted customers stock up on gourmet-style foods, health-food supplements, and wines—all at bargain prices.

With only about 10% of the number of products found in a typical full-service supermarket, Trader Joe's doesn't aim to provide everything you need. Instead, it entices you with things you never knew you wanted, like that tub of dried figs. Shopping at a Safeway can be a chore. Shopping at Trader Joe's is somehow fun.

"When was the last time you voluntarily went to go browse in a supermarket?" asks Bill Bishop, president of Willard Bishop Consulting Ltd. "People browse in Trader Joe's." Indeed, its appeal is so contagious that Trader Joe's is adding 15 stores a year with no more promotion than a few radio spots and a newsletter. The private, German-owned chain says its sales have grown an average of 23% a year since 1990.

How does Trader Joe's do it? It relies on tightfisted cost control, a function of low-rent real estate and 2,000 private-label products. Then there's thoughtful product selection: Everything gets tasted first, either by one of 10 buyers around the globe or by employees in the Monrovia, California, offices. And it's all wrapped in an offbeat yet homey style meant to attract educated, hip consumers and employees.

Simplicity helps. By shunning major brands and broad product offerings, Trader Joe's avoids the complex supply-chain and marketing issues that dog most rivals. Instead, it targets a brie-and-chardonnay audience with private-label brands and almost no promotion, stocking only items it can sell at a bargain price and still turn a profit.

And in the stores themselves, employees are the key. They're upbeat and helpful, like the enthusing GOs at Club Med. Postings for part-time jobs list qualities more often associated with a resort counselor than a grocery clerk: "ambitious and adventurous, enjoy smiling and have a strong sense of values."

All of this is aimed at replicating the aura of a mom-and-pop store, says Mark Mallinger, director of the Malibu MBA program at Pepperdine University. He notes that, until recently, Trader Joe's resisted placing scanners at checkout, because the devices clashed with the low-tech ambience. Jerry Derloshon, a Trader Joe's regular in Laguna Niguel, California, appreciates that human touch. He never makes it out the door without being chatted up by an employee. It's part of what keeps him coming back. "I have a feeling that they don't feel bad about being where they are," Derloshon says. "They're enjoying it."

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