Trader Joe's HBS Case Analysis 12.2016

1. Matthew W. Burr
MBC 645: Case Analysis- Trader Joe’s
Strategic Management
Introduction:
The supermarket industry has evolved throughout last half century, with market share
decreasing. Competitive strategies currently utilized, vary throughout the industry. As
competition is fierce and consumer demands continue to drive change. This case analysis will
focus on Trader Joe’s and their competitive strategy and their sustainability. The analysis will
also compare Trader Joe’s to specific industry competition and their current strategies. As we
analyze the case, we will focus on four questions. The first, a review of how firms in the
supermarket industry make money, while focusing on their unique competitive strategies. The
second, key sources of Trader Joe’s competitive advantage and how these sources support
competitive strategy. The third, choosing what not to do, illustrating Trader Joe’s approach.
The fourth, threats to Trader Joe’s competitive advantage and the sustainability of the
competitive advantage. The analysis will end with a brief conclusion summarizing key
learnings and keys for sustainability. Prior to answering the four questions, the introduction
will focus on a high-level review of the supermarket industry. The industry; “Wal-Mart,
Kroger, Safeway and Supervalu were the four largest grocers in the United
States…Supermarkets traditionally operated on very thin profit margins.”
i
Throughout the
years the industry has evolved mostly into a high end premium market or a discount market.
Most organizations have evolved into either a premium brand or discount store to maintain and
thrive in the changing industry. “Several experienced financial distress…The Great Atlantic
and Pacific Teac Company had filed for bankruptcy protection in December 2010.”
ii
However,
during the same period other organizations thrived. “In 2012 Whole Foods achieved 8.4%
same-store sales growth.”
iii
A decline in the past decade in grocery sales is significant for all
supermarket chains, “their share of grocery sales in the United States fell to 51% in 2011…a
decade earlier, supermarkets had accounted for two-thirds of all grocery sales in the nation.”
iv

Supermarkets have lost ground to large discount retailer, warehouse clubs and pharmacy
chains, as these organizations have expanded and grown grocery lines. To fully understand the
evolution of the industry, we begin by understanding how firms maintain financial viability.
1. How do firms in the supermarket industry make money? Illustrate the competitive
strategies of the main companies in the supermarket industry to help support your
answer.
Supermarkets make money through multiple channels. As discussed throughout the
introduction, the industry has for the most part consolidated into either a premium (specialized
products) or low cost (discount products). “Whole Foods Market ranked as the nation’s leading
retailer of organic natural foods…two-thirds of its sales consisted of perishable items, including
baker and prepared foods…in 2012 Whole Foods achieved 8.4% same-store sales growth.”
v

Trends and consumers’ willingness to pay a premium for the organic natural foods found at
supermarkets like Whole Foods, allows these organizations to grow profits and remain viable.

2. As shown in Appendix B, this is a focused differentiation strategy. The supermarket chain
charges a premium and consumers continue to pay the premium for these products. A low-cost
store such as Dollar General operates 10,000 locations and carry’s a variety of products. “The
average customer completed a shopping trip in roughly 10 minutes…the company reported
same-store sales growth of 4.7% in its 2012 annual report.”
vi
Dollar General focuses on a cost
leader strategy as show in Appendix B, the goal is to sell bulk product at a discounted price. All
supermarkets focus on one of five categories as shown in Appendix B. Kroger, Safeway and
Supervalu all fall into one of these four categories. Market growth includes carrying a variety of
products. Traditionally, store size and SKUs determined financial viability. “Whole Foods
locations typically carried 21,000 SKUs…Dollar General’s stores typically carried approximately
10,000 SKU’s and had 7,200 square feet…Wal-Mart had become the largest grocery
retailer…supercenters average of 185,000 square feet and over 100,000 SKU’s.”
vii
The more
product in-store, the more a customer is willing to spend. “Like Wal-Mart, Target found that
grocery sales drove store traffic, leading to increased sales on higher-margin items such as
apparel and electronics.”
viii
As the climate has changed in the industry, so too has what is being
offered. Stores must sell other products to survive this ever-changing business climate, as Wal-
Mart, Target and Dollar General have shown. Supporting functions for supermarkets include;
frequent shopper clubs and discount coupons. This provides incentives for loyalty and rewards
for continued shopping. Trader Joe’s has approached the industry differently, “the typical
Trader Joe’s store had less than 15,000 square feet…carried about 4,000 SKUs per location.”
ix

The organization carries minimal brand name merchandise, does not offer or accept coupons
and spends little on marketing. In reviewing Appendix B, Trader Joe’s is an integrated cost
leader/differentiator, they have found the blue ocean. This unique approach has provided a
niche market for Trader Joe’s to grow locations and financial viability. The common process
that all supermarkets have is strong buyer power as seen in Appendix A, the Porters Five Forces
Analysis. A strong supply chain provides leverage for any supermarket and has the potential to
determine how and if a firm makes money and remains viable. The way in which firms make
money continue to vary and are driven by consumer demands. Each organization falls into one
of the categories in Appendix B and has found success with their unique approach. Whole
Foods, Kroger, Safeway, Supervalu, Trader Joe’s, etc., serve differing market segments.
2. What are the key sources of Trader Joe’s competitive advantage? How do these
sources support its competitive strategy?
In reviewing Appendix C, the Value Chain Analysis for Trader Joe’s. Every area outlined on
the value chain account for Trader Joe’s unique competitive advantage. As the arrows indicate,
there is overlap throughout the value chain that create Trader Joe’s competitive advantage.
Beginning with support activities and firm infrastructure; the organization has seven core
values (and embraces the values) and is secretive about financial information (Aldi’s Model).
“The company did not disclose financial results, but most analysts believed that it achieved
higher returns on investment than most supermarkets in the nation.”
x
Continuing to Human
Resources; Trader Joe’s also believes in paying employees well, provides a structured

3. orientation/training process and creates a generalist not specialist approach in the work
environment. The generalist expectations are as follows; all employees will understand specific
products and processes throughout the location (subject matter experts). Trader Joe’s
approaches technology differently than competition; they do not utilize sell-checkout and did
not invest in front-end display televisions. Strategic advantages in the supply chain include;
Trader Joe’s purchases of large quantities of product, driving the price down for customers,
sourcing product globally and expect vendors to be secretive about agreed upon product prices.
Beginning with inbound logistics, that continues to create a competitive advantage, “Trader
Joe’s carried about 4,000 SKUs per location, as compared with as many as 50,000 unites for most
grocery stores. Eighty percent or more of the products in Trader Joe’s store consisted of private
label items.”
xi
Trader Joe’s also restocks shelves during the day, ensuring that products are
always on the shelf for consumers. Location’s “could be found in old strip malls in suburban
locations…typical Trader Joe’s sores had less than 15,000 square feet of selling space.”
xii
These
unique locations provide a cheaper option for rent or property purchase and opportunities to be
near the customer base. Trader Joe’s approaches marketing and sales differently when
comparing to the industry norm. “Trader Joe’s marketed primarily through its Fearless Flyer as
well as occasional radio ads, and never ran television ads…Many customers had leader about
Trader Joe’s through word of mouth.”
xiii
They do not have a customer loyalty-card program or
accept coupons. Trader Joe’s does not have a presence on social media, regardless, they
“enjoyed a cult-like following.”
xiv
They utilize word of mouth marketing, which in turn has
created a very loyal and passionate customer base. As other supermarkets spend millions of
dollars in advertising, loyalty programs and public relations, Trader Joe’s spends almost
nothing in public relations. The final primary activity in Appendix C is service. As Trader Joe’s
pays a higher rate, good benefits and utilizes a generalist not specialist approach; this employee
relations model creates a more aligned and strategic customer service experience. “Trader Joe’s
wanted its employees to become familiar with the company’s products and therefore
encouraged them to try various items throughout the store.”
xv
Many organizations forget the
tremendous impact that customer service and employee loyalty can and does have on an
organization. Trader Joe’s understands the importance of customer service and lives it through
the seven core values covered in new hire orientation and training program. The competitive
advantages as outlined in Appendix C are all significant to the success of Trader Joe’s
competitive strategy. The overlapping allows the organization to maintain and grow a unique
advantage. Keeping prices low, financial information secretive, minimal technology costs, a
global supply chain, tremendous perks for employee’s and outstanding customer service drive
Trader Joe’s competitive strategy. Trader Joe’s successfully serves a specific market and
embraces who they serve through convivence, customer service, pricing and unique offerings.
3. Porter (1996) tells “the essence of strategy is choosing what not to do”. How would
use the Trader Joe’s case to illustrate this point?
The essence of effective strategy is choosing a path (less traveled or finding a blue ocean)
unique to that of your competitors. Most organizations attempt to provide a service or product

4. that differs from that of the competition. Creating a memorable experience and developing a
cult like following continues to define Trader Joe’s strategy and separate this organization in a
very competitive industry. Trader Joe’s utilizes many strategies for a unique customer
experience. Store square footage is significantly smaller then competition, while locating stores
in old strip malls for the convivence of the customer. SKU’s are kept at 4,000 per location,
comparted to 50,000 for other supermarkets. “Trader Joe’s buyers scoured the globe for
interesting new products and tried not to follow trends…merchants strove to introduce 10-15
new products per week.”
xvi
The organization eliminates 10-15 products each week as well and
has minimal brand names in each location. Trader Joe’s knows the customer base very well,
“claimed that 80% of its customers had attended college.”
xvii
There is very little information
divulged to the public regarding financials and the organization spends next to nothing on
marketing. The organization has a loyal customer base and employee base. Cross-training
employees into a generalist subject matter experts, creates a unique and satisfying customer
experience. Competitors have opened facilities throughout the country, Trader Joe’s is strategic
about when and where to open locations, creating an extreme demand in a city or region. This
again provides an advantage and as proven, “David Stinson walked in first when the store
opened its doors for the first time…Stinson had camped out overnight to be first in line, having
arrived at 4:00 p.m. the pervious afternoon.”
xviii
This case is a complete example of the 1996
quote by Porter. Trader Joe’s has positioned themselves in an integrated cost
leader/differentiator category and sits in a blue ocean in a competitive industry. Trader Joe’s
has flourished and grown in a time of economic instability. “Based on surveys of employees,
Forbes and Glassdoor.com ranked Trader Joe’s on their 2013 list of the “Top 50 Companies to
Work For” in the U.S.”
xix
The organization does what competitors do not and cannot duplicate.
Trader Joe’s is extremely successful in utilizing this strategy to grow and expand operations.
4. What are the main threats to Trader Joe’s competitive advantage? Is there advantage
sustainable?
Currently, Trader Joe’s has a unique competitive advantage. However, there are threats to this
competitive advantage. Wal-Mart and other stores have experimented with smaller locations
throughout the country. “Wal-Mart announced strong comparable store sales growth at these
smaller locations, and the firm indicated that 40% of new store openings over the next year
would come in the small-format category.”
xx
Appendix D provides a SWOT analysis for Trader
Joe’s. Current threats include; increased rivalry within the industry, copying the Trader Joe’s
strategic model, lack of technology/online presence and substitute brands. “Tesco, the world’s
third-largest retailer had launched a chain of small neighborhood markets in the western United
States. The British firm appeared to borrow extensively from the Trader Joe’s concept with it’s
Fresh & Easy stores.”
xxi
Tesco was unsuccessful in the United States, that does not mean that
other industry competition will not try and imitate or copy the Trader Joe’s concept. Other
threats include new competition, local co-ops, e-commerce (Amazon) and a shift in consumer
preference. Trader Joe’s has resisted increased technology in the stores and has little presence
on social media (mostly customers). “Some experts bemoaned the absence of a company-led

5. social media strategy…marketing experts concur that not having an authoritative voice in social
media is a weakness.”
xxii
This has the potential of becoming a threat to Trader Joe’s competitive
advantage, as e-commerce and social media use expands globally. The threat of substitute and
brand name products is also a concern for Trader Joe’s and the current competitive advantage.
Brand loyalty is significant, Trader Joe’s does not stock a significant amount of name brand
products in stores and this could become a strategic threat in the future. An additional threat is
corporate growth. “Kowitt cited other ex-crewmembers who worried about growing
bureaucracy at the company as it implemented new process and procedures…recent changes
had led to increased competition among employees seeking advancement.”
xxiii
Opportunities
include; continued nationwide growth, social media marketing, e-commerce presence and
potential international growth. At the current time, Trader Joe’s competitive advantage is
sustainable and not threatened, they are in a blue ocean alone. As we learned through the Tesco
example, imitating Trader Joe’s is a challenge and it led to the failure of their venture in the
United States. Copying every intricate detail of a privately held company is almost impossible.
Trader Joe’s has developed a brand through customer loyalty and word of mouth advertising.
This would be complex to duplicate, as it took decades to establish. The organization has
developed longstanding and powerful relationships with their suppliers, employees and unique
customer base. Trader Joe’s is strategic in regards to the locations of new stores and the number
of stores which are opened per year. This creates a demand that cannot be matched by a Wal-
Mart, Kroger, Safeway, Aldi or Supervalu. The final and most important part of Trader Joe’s
sustainability and competitive advantage is the organizational culture. The culture created
internally at Trader Joe’s is impossible to copy or imitate. “Some observers marveled at how
happy the crewmembers always seemed…crewmembers often chose to hang out together after
work.”
xxiv
Creating a culture of happy, loyal and hardworking employees is a challenge for
most organizations. Trader Joe’s has developed a culture that is unique in the supermarket
industry and has proven to be a cornerstone of the organizations continued success. However,
as the corporation grows, sustaining this culture will become challenging and can become a
threat. Currently, the competitive advantage is sustainable in a very competitive industry.
Conclusion:
The case analysis has provided examples of the unique advantages Trader Joe’s currently has in
a competitive industry. The successful strategy is to do what others are not doing, finding a
blue ocean. Since the organizations founding almost 50 years ago, Trader Joe’s has developed a
cult like following, as they continue to grow and open stores nationwide. Trader Joe’s serves to
a specific group of customers. The group continues to remain loyal. The Five Forces, Value
Chain Analysis and SWOT Analysis; provide insight into the supermarket industry, Trader
Joe’s competitive advantage and current opportunities and threats that could help or harm
Trader Joe’s competitive sustainability in the future. Like any organization, as the corporation
grows, culture evolves. Currently, Trader Joe’s has a culture unmatched by the competition.
The case analysis provides valuable insight into creating and maintain a unique and sustainable
competitive advantage in a very competitive, shrinking and ever evolving industry.

6. References
i
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
ii
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
iii
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
iv
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
v
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
vi
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
vii
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
viii
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
ix
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
x
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
xi
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
xii
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
xiii
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
xiv
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
xv
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
xvi
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
xvii
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
xviii
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
xix
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
xx
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
xxi
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
xxii
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
xxiii
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.
xxiv
Ager, D., & Roberto, M. (2014). Trader Joe’s. HBS No. 9-714-419. Boston, MA: Harvard Business School
Publishing.

7. Appendix A

Porter’s Five Forces: Supermarket Industry

8. Appendix B

Five Business Level Strategies

9. Appendix C

Trader Joe’s Value Chain Analysis

Firm Infrastructure
Human Resource Management
Technology Development
Procurement
Inbound
Logistics
Daily Restocking
Less SKU’s
Operations
Small Stores
Less SKU’s
Private Labels
Strip Mall Locations
Small Parking Lots
Limited Locations
Outbound
Logistics
Store Locations
Marketing
& Sales
No Sales
No Coupons
Fearless Flyer
No TV
Minimal Radio
Word of Mouth
Marketing
Service
Generalist not
specialists
Knowledgeable
Workforce
Products
Support Activities
Primary Activities
Values, Aldi’s Model: No Public Relations
New Hire Orientation, Generalist Not
Specialists, High Pay for Employees
Purchase Large Quantities, Global Purchasing,
Unique Products, Vendor Relationships
No TV’s, No Self-Checkout

10. Appendix D

Trader Joe’s SWOT Analysis

TRADER JOE’S SWOT ANALYSIS
STRENGTHS (+)
• Brand Credibility-Aldi’s
•Customer Loyalty
•Strong Distribution Channels
•Employee Training and
Generalist Approach
WEAKNESSES (–)
•Geographic Coverage: Not
Located in Every State
•No Advertising and Minimal
Marketing
•Not Accepting Coupons
•No Private Labels
OPPORTUNITIES (+)
•Private Labels
•Nationwide Locations
•Online and Marketing Presence
•Case Did Not Mention
International Growth
THREATS (–)
•Growing Competition within
the Industry
•Competition Copying Trader
Joe’s Model
•Lack of Technology
•Substitute Products
S
O
W
T
Integrated Cost
Leader/Differentiator