Smart, broke shoppers built Trader Joe's
What's behind the growth of Trader Joe's? How did the quirky grocery retailer become the foodies' favorite treasure-hunt store, with more than 200 units in 19 states?
An article in the February issue of Stanford Business spills founder Joe Coulombe's secret: "He saw his customers as teachers, musicians, journalists—the overeducated and underpaid."
Coulombe, a Stanford University business school graduate, was running a chain of Pronto Market convenience stores in Southern California in 1966 when Southland started building 7-Elevens there. "The guy with the most money wins. He gets the best locations," Coulombe said. So he picked a demographic and went in search of a format that those customers would seek out no matter where it was.
He noticed a pair of converging trends: more college-educated adults and less-expensive foreign travel. He figured that better-educated people would be more inclined to jump on the brand-new Boeing 747, see the world and develop tastes for exotic foods, then want to cook and eat them back home. Coulombe researched his target customers by studying his in-laws, Stanford Professor William Steere and his wife Dorothy. At the time, Coulombe claimed, college faculty members made about as much money as journeyman grocery workers. "I saw how [Dorothy] managed on that salary to provide excellent food," he recalled. "Bill Steere taught me to drink cheap wine."
Coulombe opened the first Trader Joe's in 1967 in Pasadena, Calif. In his research, he found that the more educated a person was, the more he or she drank, so inexpensive California wines became a Trader Joe's staple. In the early 1970s, intrigued by growing health consciousness, Coulombe added granola, nuts, dried fruits, vitamins and cheese. Trader Joe's became the nation's largest retailer of brie, the magazine said.
Trader Joe's made money every year but its first, Coulombe told the magazine, and sales grew at a compound rate of 18 percent a year. It has no loss leaders; every item must turn a profit. And it thrives by serving its target market well, rather than by trying to appeal to the broad grocery-buying public.
Marketing to the overeducated and underpaid reaped another benefit: good press. "The journalists loved us," Coulombe said.
Retired since 1988, Coulombe consults with Trader Joe's owners, Karl and Theo Albrecht of the German supermarket chain Aldi, who bought TJ's in 1979. Coulombe is also on the board of Cost Plus World Markets, and he published his oenophilic musings on www.winejoe.com until last December.
Natural Foods Merchandiser volume XXVII/number 4/p. 14