By Nelson DeMestre | Associate Analyst at NAOS Asset Management

Becoming Trader Joe is a very interesting and worthwhile read, focusing on a team who innovated within an extremely competitive industry, used several tools to maximise their business opportunity and went to extreme lengths to find ways to gain an advantage. 

Some of the most interesting passages are below.  

Looking After Employees

“This is the most important single business decision I ever made: to pay people well”

“The quality of people recruited, and retained, so dominates the way the stores were run that I might close the discussion here”

“I want to brag about something here: in thirty years we never had a layoff of full-time employees. Seasonal swings.. were handled with overtime pay to full-time employees and by adjusting part-time hours”. 

Incentives

“The Captains had a bonus that theoretically had no limit … based on Trades Joe’s overall profit, allocated among the stores based on each store’s contribution”

“My ideal … was that Captains should have the chance to make more than executives in the office”

Small Store Format 

On Maximising the use of a small store format, they utilised the following rules:

“I looked for other categories that met the Four Tests

1. High value per cubic inch
2. High rate of consumption
3. Easily handled 
4. Something in which we could be outstanding in terms of price or assortment”

Testing this method:

“Fruit and vegetables met the first and second test but flunked the third because produce requires constant reworking. 
Fresh meat flunked the third test even more”

“People often ask me, how many stores did we have at such-and-such a time? It’s the wrong question to ask. What’s important is dollar sales. 
For example from 1980 to 1988, we increased the number of stores by 50 percent, but sales were up 340 percent”

“Sales per store, sales per square foot: those are the measures I look at. 
Trader Joe’s sales were $1,000 per square foot of total area. The supermarket average is $570, but they use “sales area” not total area” (which excludes the back room area)

Setting of Prices / Margin

“The fact that we wound up with 23 percent (gross profit) is irrelevant. What was relevant was that each SKU was a profit centre after considering all the costs of handling it”. 

Store Location Criteria

1. Demographic coherence
2. Excellent boulevard access
3. Preferably, freestanding locations
4. I was willing to pay extra for a loading dock. You’ll recapture the extra rent in labour savings and worker’s compensation premiums. 

Link to book