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Trader Joe’s Company: Strategic Thinking Essay (Critical Writing)

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Updated: Nov 23rd, 2020

Introduction

Trader Joe’s Company founded by Joseph “Joe” Coulombe is a chain of specialty grocery stores with headquarters in Monrovia, California. As it is described by Agert and Roberto (2013), one American magazine Trader Joe’s was named the second-best supermarket in the country in 2012 and the 11th most innovative firm in the United States in 2011. To assess the company’s performance, and to provide recommendations for future strategic actions, it is important to analyze the company’s current situation.

Situation Analysis

Firstly, it is necessary to conduct a situation analysis. Situation analysis is aimed at data collection and evaluation to understand the essence of an organization, its industry, its competitors, and customers. There is a mixed variety of methods in situation analysis such as four-box business model analysis, balanced scorecard analysis, PEST analysis, Porter’s five forces analysis, key success factors for the industry, competitive advantage analysis, competitive strategy analysis, and SWOT analysis.

Four-Box Business Model Analysis

Trader Joe’s has an excellent example of a customer value proposition. Trader Joe’s stores mainly sell a limited range of food items, which the customer may not find in other supermarkets. Trader Joe’s (n.d.) states “it’s not complicated; we just focus on what matters — great food + great prices = value” (para. 4). Trader Joe’s gives its customers a sense of satisfaction because they can find something unexpected at reasonable prices.

The profit formula is used to determine the profitability of a company. It is common for all retail businesses. Profit is made when the selling price is greater than the cost price. Whereas, when the cost price is greater, it means loss. The cost price reflects both variable and fixed costs of every item.

The business model of Trader’s Joe is simple. Although the company offers less product variety, it sells products at a lower price in comparison with its competitors. Agert and Roberto (2013) claim, “because the company stocked limited varieties of each product, its buyers purchased very large quantities of each SKU at low prices” (p. 6). It enables the company to buy items directly from manufacturers, rather than working through distributors or wholesalers.

Balanced Scorecard Analysis

To understand how effectively Trader Joe’s is achieving key business objectives, it is necessary to identify key performance indicators. The most important key performance indicators in the retail business are total sales, gross profit margin, and sales per hour. According to Agert and Roberto (2013), “experts estimated that Trader Joe’s generated approximately $10 billion in annual revenue” (p. 5). The annual revenue and grocery sales of Trader Joe’s are less than the revenue and grocery sales of such chains as Whole Foods, Kroger, Safeway, and Supervalu (see Appendices A and B for more information on annual revenue and grocery sales). Net promoter score is a key performance indicator that is used to measure customer loyalty. Trader Joe’s had the highest net promoter score among four supermarket chains in 2015 (see Appendix C for more information on net promoter scores). It is impossible to investigate and analyze other financial key performance indicators because the company is privately owned, and the financial reports of Trader Joe’s are not publicized.

PEST Analysis

PEST analysis is used to reveal political, economic, social, and technological factors that influence the activity of any company. These factors have a significant impact on the activity of Trader Joe’s. Political factors refer to the effective corporate tax rate. Investigating the case and the environment in which the company has to function, it is possible to conclude that the current political factors are beneficial. The state provides support to the development of small and middle business and avoids rude interferences into the functioning of different companies. Economic factors are the unemployment rate, gross domestic product, inflation rate, and consumer sentiment. Besides, the current situation in the economy preconditions the further rise of the company and its evolution.

Trader Joes might expect significant incomes preconditioned by the stability in the economy and increased incomes of the population. People can spend money and buy different services and goods. Social factors include baby boomers, obesity rates, customer nationality, and customer brand loyalty. For this reason, the investigation shows that existing social factors might be considered advantageous. High trends peculiar to the coherent society impact the demand for the products suggested by the company and guarantee its further rise and development combined with a stable level of revenues. Finally, technological factors refer to technical aspects such as operational tools, e-commerce, and automation. The rapid development of technologies and their implementation into the major part of significant activities resulted in the increased efficiency of different processes. For this reason, the existing technological factors might be considered beneficial, and they should be explored for the companys growth.

Porter’s Five Forces Analysis

Porter’s Five Forces Analysis is used to assess potential competitive threats within an industry. The main competitors of Trader Joe’s are Kroger and Whole Food. Moreover, several other companies function in the same sphere. These facts precondition the high level of rivalry within the industry and the necessity of the acquisition of certain competitive advantages to be able to conquer the market and guarantee a further rise. In the case of Trader Joe’s, the threat of supplier power is low because the company concludes non-disclosure agreements with suppliers, and it is impossible for customers to detect suppliers. Low supplier power also means that Trader Joes can act independently, without taking into account the demands of certain partners or suppliers. This fact should be considered an obvious competitive advantage that contributes to better outcomes. The threat of substitute products is medium. It means that instead of going to Trader Joe’s, consumers can go to a farmer’s market to buy healthy food.

However, there are several threatening tendencies which state that the stable level of incomes peculiar to the given sphere might attract new actors and increase the threat of substitute. Companies might realize the fact that unique products are more appreciated by customers and create their lines of specific goods. The threat of new entry is at the medium level too. It would be quite difficult for a new company to compete with Trader Joe’s. Yet, minding the above-mentioned facts, it is possible to admit a similar tendency towards the increased level of attention devoted to the given sphere. Trader Joes company remains unique; however, it is possible to predict the appearance of new organizations aiming at the functioning in the given sector. The threat level of buyer power is high because there are a lot of grocery stores to buy products. Additionally, the stability in the economy and increase the level of incomes of different population groups contribute to the great purchasing power of customers. This fact should be considered as advantageous as it might contribute to the further companys growth and evolution. All in all, competitive rivalry is medium. Competing with Trader Joe’s is hard due to its specialization. However, there are such giants as Whole Foods and Kroger and other threatening tendencies that should be minded.

Key Success Factors for Industry

Next, it is essential to identify the key success factors of the retail business. Key success factors vary from industry to industry. The success of grocery stores is determined by such factors as the range of choice, reasonable prices, different promotions and offers, a strong network of suppliers, and effective marketing communications. The range of choice is characterized by not only wide assortment, but also by the availability of organic food that is becoming an essential part of grocery stores. Promotions and offers are used to attract new customers and to make loyal clients buy more. Social Media is probably the most significant part of the whole marketing strategy today. The best way to establish relationships with customers is to communicate with them directly, and social media is successfully used to it. Moreover, social media can be used to advertise new offers and promotions.

Competitive Advantage Analysis

The main competency of Trader Joe’s is its ability to attract loyal customers almost without marketing and advertising. Distinctive competencies are activities a company can do to better than its competitors. Trader Joe’s company’s distinctive competencies are selling environmentally friendly products at a low price and offering the best customer service. Core capabilities are less visible than distinctive competencies. They are aimed at identifying how inputs can be turned into outputs. The most significant Trader Joe’s core capabilities are its ability to find new products and to predict future trends for specific areas based on demographics. Additionally, the companys focus on specific products that could be hardly found in a common local supermarket is another significant advantage that should be minded. The company was founded as an alternative to local grocery stores and products suggested by it were unique enough to attract customers attention. Moreover, this factor served as the main distinctive feature between Trader Joes and other companies operating in the same sphere. In this regard, it is vital to mention the companys specific nature as one of the main factors that contribute to the creation of significant competitive advantage and its exploration to attain success and conquer the market. Altogether, the above-mentioned factors precondition the creation of the companys recognizable image and its further rise. Customers will choose an organization that emphasizes its unique character and suggests unusual goods.

Competitive Strategy Analysis

Trader Joe’s is a unique chain due to its strategy. The first thing to be considered is the fact that Trader Joe’s is cheap. The chain sells high-quality products at a low price. The main competitor of the company Whole Foods is recognized as a very expensive grocery store. That is why low prices peculiar to Trader Joes attract new customers and guarantee the stable level of interest combined with the increased revenues. Customers will prefer to buy cheaper goods in case their quality meets the existing requirements and might satisfy any individual. Moreover, Trader Joe’s offers unusual products under its label. 80% of all products are Trader Joe’s brand. It means that customers cannot find and buy these goods anywhere else. This fact also results in an increased level of attention devoted to the company and its functioning by the target audience.

People appreciate unusual goods and the companys focus on the unique character of products could cultivate this interest and precondition the appearance of new customers. Trader Joe’s specializes in product innovations; it constantly changes and improves its products range. Also, Trader Joe’s pays a lot of attention to its audience. The company exactly knows what the customer specifically wants. The company takes care of the customer and its mood. For instance, the image of Trader Joe’s is a tropical-themed store. Its employees wear Hawaiian shirts as a uniform that creates an atmosphere of fun in stores. This aspect of the companys functioning should also be taken as one of the strong points of its competitive strategy. The unique approach to customers impacts the companys image and increases its popularity with the target audience. For this reason, Trader Joes attempts to give attention to its customers is another fact that contributes to the companys rise.

SWOT analysis

The SWOT analysis identifies the strengths and weaknesses of an organization, as well as external influences on it (opportunities and threats). Trader Joe’s has a variety of strengths. Firstly, Trader Joe’s is a reliable brand with a history of more than 50 years. One of the most important company’s advantages is a strong and efficient distribution network. There are more than 400 stores throughout the United States of America. Moreover, Trader Joe’s offers unique brand name products to customers. Besides, customers are very loyal to Trader Joe’s, which is an important characteristic. Finally, its focus on the unique character of products and their high quality should be considered another great advantage that contributes to the evolution of the brand and its becoming popular.

However, there are some weaknesses too. Shops are small with only 4000 stock-keeping units. For instance, Whole Foods company carries 21000 stock-keeping units. Agert and Roberto (2013) emphasize that the average square footage of Trader Joe’s store selling area is only 10000-15000 square feet, while the typical supermarket has approximately 50000 feet. The comparatively small sizes of shops prevent the company from evolving, and the fast expansion as the introduction of new products might become rather complicated. This fact could be considered a significant weakness that should be taken into account when investigating the companys functioning and suggested a certain solution. With the widespread use of social media platforms, Trader Joe’s is not involved in it. Although the company has accounts on such social networks as Facebook and Tweeter, it is not as active as Whole Foods that has almost 2 million followers on Instagram. What is more, Trader Joe’s do not invest in technology within the stores. For example, there are no self-checkout lanes and flat-screen TVs at the checkout counter in the stores. Also, the growth and expansion of the company are slower in comparison with its competitors.

The main opportunity for Trader Joe’s is the fact that the demand for healthy organic food is growing faster. It is proved by the fact that according to the United States Department of Agriculture (n.d.), in 2014 the sales volume of environmentally friendly food was more than twice as high as it was in 2005. Furthermore, considering the existing trends towards the healthy lifestyle, Trader Joes might explore another opportunity and become a popular supplier of healthy and unique products to people who want to alter the mood of their lives and follow the popular trend. For this reason, the company could be described as promising as there are numerous opportunities for its rise and becoming an important part of the customers culture.

The main external threats are tough competition and the shortage of suppliers. Moreover, environmental factors influence Trader Joe’s company’s activity. For example, they can cause product shortage due to different, unpredictable natural hazards such as drought and storms that can destroy the crop.

Key Issues Statement

As can be seen from the situation analysis, Trader Joe’s has some problem areas. The main problem that the company is facing today is competition. Several financial indicators of such chains as Whole Foods and Kroger are ahead of Trader Joe’s. Also, Trader Joe’s sells a limited number of items. Whereas, Kroger offers a mixed variety of services and goods under one roof. What is more, the company is not very effective in the of use social media tools, which are crucial nowadays because the customer is an active Internet user.

Strategic Recommendations and Rationale

To avoid possible difficulties that may occur in the problem areas given above, some new long and short term strategies can be considered to implement. Firstly, it is important to pay attention to increasing competition in the food retail business. To outperform the competitors and increase income, it is important to expand the business internationally. Humanity lives in the time of globalization that means the transformation of the world into a single space. There are a lot of successful examples of American based companies that have already entered the global market. Although there are some risks related to it, international business is a good opportunity to increase sales and profit. Further, today’s customers want and expect an endless range of items, so Trader Joe’s is recommended to consider the assortment expansion strategy. Trader Joe’s specializes in organic food. However, it would be the right decision to focus not only on food but also on eco-friendly clothing and housewares made from recycled materials. This strategy would enable us to attract new customers and increase sales and income. Apart from this, short terms actions such as social media marketing strategy should be taken into account too. Being active on Twitter, Facebook, and Instagram would increase brand awareness and decrease marketing costs that, to a large extent, would help the company to stay competitive.

Conclusion

To sum up, Trader Joe’s, the company with a history of more than 50 years, is one of the leading supermarket chains in the United States of America. A thorough situation analysis was conducted to find out the essence of the organization, its industry, its competitors, and customers. The analysis showed that the performance of the company directly depends on external and internal environments. Despite the obvious Trader Joe’s strengthens and advantages such as customer loyalty, efficient distribution network, and high-quality products at a low price, there are two main problem areas: competition and limited assortment. To prevent future problems, Trader Joe’s company is recommended to expand the business globally and implement assortment expansion and social media marketing strategies.

References

Ager, D. L., & Roberto, M. A. (2013). Harvard Business School. Web.

Satmetrix. (2015). Web.

Trader Joe’s. (n.d.).Our story. Web.

United States Department of Agriculture. (n.d.). Web.

Appendix A

Annual Revenue Information for Ager and Roberto (2013)’s article

Annual Revenue Information for Ager and Roberto (2013)’s article

Appendix B

Grocery Sales Information for Ager and Roberto (2013)’s article

Company Grocery Sales (billions of USD)
Trader Joe’s 7,6
Whole Foods 8,8
Kroger 61,1
Safeway 35,5
Supervalu 28,2

Appendix C

Net Promoter Scores Information for Satmetrix (2015)’s article

Net Promoter Scores Information for Satmetrix (2015)’s article.
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