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The Trader Joe’s Experience: Culture As Strategy
The success of Trader Joe’s (TJ) markets is a result of its unique business model that has
built a national chain of neighborhood grocery stores. This apparent paradox requires the
organization to be growth oriented yet perceived by shoppers as customer focused similar
to “mom and pop” operations of the past. They have accomplished this by basing their
strategy on the alignment of their unique corporate culture with a clearly defined
competitive space. The purpose of this article is to explore the relationship between
organizational culture and business strategy that has propelled TJ to extraordinary
success. The article also offers a model for readers to consider in creating within their
own organization a culture that provides a defensible competitive position that
incorporates value, rareness, inimitability, and non-substitutability.1
History/Background
Started in 1967 by Joe Coulombe, Trader Joe’s began as a convenience store but quickly
migrated to a more novel design for adventuress food and beverage shoppers. Initially, TJ
was comprised of 17 stores in the southern California area. By the early 1980s additional
food products were introduced as the number of stores grew to twenty-six. In 1988 they
expanded to northern California. The combination of innovative products along with a
service oriented culture has created a loyal customer base that continues to grow
nationally. Today, TJ has over 270 stores in 22 states with revenues exceeding $5 billion.
Coulombe sold the business in 1978 to the Albrecht family, owners of a multi-billion
dollar retail chain in the EU. However, the company remains private. The Albrecht’s are
passive investors, operating control was left in Joe’s hands who continued as CEO until
he retired in 1988. John Shields, whose background includes retail and merchandising
provided the operational know-how to expand the business, became CEO, a position he
held until 2001.
TJ offers an array of products that are distinct from those sold in traditional supermarkets.
They do not carry national brands, but rather a host of food and beverage products along
with a number of healthcare selections. Products include cheese, wine, ready to prepare
foods, frozen items, produce, ethnic choices, of which 75 percent carry the TJ label. Most
products are offered at low prices (which differentiates it from competitors such as
Whole Foods and Bristol Farms) but are considered to be of high quality, both in terms of
taste as well as health. Because their stores are generally in the 15,000 square foot range,
TJ offers about five times fewer products than conventional supermarkets and new
products are continuously brought in as others are phased out. To stimulate customer
interest TJ focuses on a constantly changing product mix which further adds to their
uniqueness. Because of the continuous rotation of distinct food and beverage products TJ
is able to create a sense of adventure that appeals to customers who look forward to new
items.
The Mission
The TJ mantra is to offer value and a dedication to quality service through warm,
friendly, committed employees along with a pledge to offer quality products . 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 TJ
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 TJ desires to establish
an intimate relationship with the customer.
Major decisions are carefully scrutinized to determine the extent to which each directly
relates to maintaining a climate that instills a neighborhood store feel. For example, for a
number of years TJ resisted incorporating scanners at their check stands. The concern
was that customers would consider the technology a move toward becoming a traditional
supermarket, and thus risk losing its image. Continuous change in their inventory mix,
however, demanded that they scan bar codes at check out. Eight years ago TJ began
experimenting with this shift in technology. Piloting the technology at a few northern
California stores, they were careful to be sure the sound of the ping during check out did
not get in the way of cashier/customer conversation. After several weeks of testing, the
organization launched the system throughout its store operations.
Another example of the determination with which TJ maintains a commitment to its
mission was the decision, over ten years ago, to construct its check-out kiosks such that
customers could push shopping carts through the line rather than having to back the cart
out of check out before exiting the store. The former model was aligned with small store,
customer oriented operations, but with increasing shoppers became unwieldy. Again, TJ
carefully assessed the impact the change would have on customers before implementing
the new model. This approach to merchandising provides the customer with an adventure
in shopping;2 that is, the TJ model attempts to make grocery shopping an exotic
experience rather than an obligatory visit to market for staples.
The success of their model is evidenced by the measure of sales/ft2. TJ believes that the
combination of its product line and customer service culture is responsible for revenues
that are triple the square foot sales of a typical supermarket.
Growth
The growth of the organization has been achieved without debt; TJ expansion is fully
self-financed. The operation remains free of union involvement, salaries, and benefits are
sufficient to ward off labor unrest. Advertising is limited, modest radio exposure and no
television or newspaper ads. TJ does not rely on publicity, coupons, or store cards. A
newsletter, the Frequent Flyer, featuring new products and store locations is mailed to
customers three times each year and during holiday periods. They do not rely on email
advertising.
Expansion is cautiously executed because the challenge associated with migrating its
unique culture requires a meticulous selection and training process. Store location is
determined by three key factors: density of population, educational level of the consumer,
and distribution efficiencies. Market research has revealed a relationship between
education and consumer choices. The more highly educated tend to travel more and,
hence, are more inclined to be attracted to the unique product lines offered by TJ.
Building the Culture
“Crew members” (the moniker for store employees) are selected, in part, because of their
expressed enthusiasm and energy. Training includes skills in communication, teamwork,
leadership and product knowledge. Crew members handle a multitude of responsibilities
including, cashier, stocker, customer interface and are evaluated on a quarterly basis.
Turnover among full-time crew is 4 percent yearly, substantially below that of traditional
supermarkets. Part-time employees comprise 70 percent of the crew members, and those
wishing to be promoted to full-time can apply for the position. The managerial structure
is relatively flat. Crew members report to the “first mate” (assistant store manager), who,
in turn, reports to the “captain” (store manager). The store atmosphere is highlighted by a
South Seas motif, crew members often wear Hawaiian shirts and banners throughout the
store to convey that theme. There is a casual ambiance; new products are identified on
chalk boards arranged in key locations.
The first author of this article had the opportunity to study the TJ organizational culture.3
The purpose was to assess the extent to which the espoused culture as described by
management did, indeed, match the in-use culture,4 that is, the climate as expressed by
employees. The study was carried out in the greater Los Angeles area. Using the
“Integrated Culture Framework” created by Mallinger and Rossy5 surveys and interviews
were collected from crew members, first mates, and captains in five stores. The data
revealed that for the most part, the espoused and in-use cultures were aligned.
Specifically, as predicted, the ability to influence, the commitment to teamwork, and an
elevated level of achievement orientation was reported. Crew members indicated that
they felt empowered to make decisions, were collaborative in their relationship with
others, and were motivated to high levels of performance. These characteristics were
demonstrated in the extent to which they were enthusiastic, hard working, outgoing, team
and customer oriented.
An unexpected finding, however, was the extent to which they were uncomfortable with
ambiguity. Given the stated mission of the organization along with the relatively flat
organizational design, it was thought that crew members would be encouraged to take
1 Jay Barney, "Special Theory Forum The Resource-Based Model of the Firm: Origins, Implications, and
Prospects," Journal of Management, (1991) 17: 97-98.
2 Len Lewis, The Trader Joe's Adventure: A Unique Approach to Business into a Retail and Cultural
Phenomenon, Dearborn Trade Publication, 2005.
3 Editor insert
4 Chris Argyris, "Teaching Smart People How to Learn," Harvard Business Review, (1991) 14.
5 Editor insert
risks and tolerant of uncertainty. However, the relatively thin profit margins associated
with the retail grocery business, along with a structured set of customer policies, requires
a commitment to the Trader Joe’s way of doing business, following rules and regulations
is emphasized.
In general, the data suggests that, for the most part, the in-use culture is consistent with
culture espoused by management and, more critically, with the values of its unique
customer base. John Shields, the former CEO, in a conversation with the authors, stated
that he would address crew members at the opening of each new store to talk about TJ
values and would tell them that if they were not having fun at the end of 30 days to please
resign.
Implications for Practice: Competitive Space and Defensible Strategy
To be successful over the long term such a strategy has to be defensible. Jay Barney6 in
describing his resource-based view of the firm identifies four requirements for
defensibility: value (in the eyes of the customer), rareness, inimitability, and non-
substitutability. In today’s global marketplace with its rapid flow of information, these
conditions are increasingly difficult to achieve through the traditional four P’s of
marketing—product, place, price, and promotion. What TJ has done is to erect barriers
around its competitive space with a unique fifth P—“culture.” While other retailers have
developed internal organization cultures that are unique and support their products,
service, and internal management philosophy (e.g. Whole Food’s “highest quality”, “least
processed”, naturally preserved”, “self-managed teams” and Bristol Farm’s “finest
assortment”, “freshness”, “assortment”) the TJ culture is one in which customers are
integral to creating the shopping experience. By delivering a shopping experience that is
“innovative”, “unique” and “interesting” and products that are “hard-to-find”, “great
tasting” from “around the world” they have been able to differentiate themselves from
their closest competitors.
How they accomplish this is also markedly different from their most obvious
competitors, Whole Foods (WF) and Bristol Farms (BF). For their customers TJ
provides value not primarily through the quality of its products, as with WF and BF, but
rather through their distinct shopping experience. Shopping becomes an adventure that
takes them into a store whose characteristics are often in opposition to those of traditional
markets: casual, low price, high service with a constantly changing and somewhat
unpredictable product mix. Their culture, because it involves the customers in an ongoing
sense of discovery and adventure, is both unique and difficult to copy. And because it is
aligned to their specific target market rather than broad differentiation built around
quality and service, it is more difficult to replicate by those companies that are serving a
more expansive competitive space. Finally, at least at this point in time, there are no
substitutes for the combination of attributes provided by the TJ culture and customer
experience, because at TJ customers become part of the culture rather than experiencing
it.
6 Barney.
7 Tim Gaynor, “Tesco Aims for 100 U.S. Stores by February,” Reuters, Yahoo! News, April 25, 2007.
What Trader Joe’s Success Can Teach Us
As competition in every industry intensifies, being good (or even great) at executing your
strategy will no longer be good enough. This is even truer for retailers and service
providers that cannot erect patent or other barriers to competition. What Trader Joe’s
teaches us is that a unique organization culture that is carefully aligned, at once, with
both its own competitive business strategy and with the values of the customers, can
provide an effective defense against incipient competitors. Such a strong and targeted
organization culture takes time to develop and provides customers with a valuable and
difficult to copy experience. It is always more complicated for competitors to imitate who
you are than what you do. As with Trader Joe’s, you want to make your identity and not
just your products your major competitive advantage.
Challenges Facing Trader Joe’s
As TJ continues its growth a number of concerns emerge. Probably most notable is the
extent to which they can continue to successfully export their Crew Member culture to
other, more geographically dispersed locations. To mitigate this risk, the organization
brings in a cadre of experienced crew members to embed the culture in new locations.
The organization may also be limited in its ability to find rental properties at reasonable
prices in areas that fit its current customer base. At present their success has minimized
this threat because of negotiating strength.
While at present TJ has no plans for international expansion, the pressure to expand
domestically may at some time reach an end point. TJ management, however, believes
there are sufficient markets that will offer store sites for years to come. Finally, until
recently TJ has not experienced any significant direct competition. This advantage,
however, may be about to end. Tesco, the UK $90 billion grocery and general
merchandise chain announced plans to open one-hundred, 10,000 square foot stores that
will offer products similar to those available at TJ. Openings in February 2008 are
planned for Los Angeles, San Diego, Las Vegas and Phoenix (7) and may present the
first real threat to TJ markets and could be the initial test of the sustainability of its
competitive advantage.
Additional Resources
Edgar H. Schein, The Corporate Culture Survival Guide, Jossey-Bass Publishers, 1999
