Executive Summary of Trader Joe
Trade Joe is one of the most popular grocery stores in the United States. The retail chain was started by Joe Coulombe 43 years ago, and it has since grown from the 1 store that was in California to 344 units that are in 25 states and Washington, D.C (Kowitt 90). Currently, it is owned by Theo Albrecht family that purchased the company in 1979 (Kowitt 92). Although it currently has an impressive performance, the business is faced with numerous internal and external threats that may undermine its long term objectives.
Strategic Issues
One of Trader Joe’s business models is in the establishment of small stores that have few varieties of carefully selected items. In addition, 80% of the stores’ inventories have the company’s brand. As a result, each store makes sales of about $1,750 per square foot, which is more than double what Whole Foods’ sells (Kowitt 90). In an effort to entice its suppliers, the business has no debt and funds all its growth from its own profits. Besides making purchases on a cash basis, its small variety of items ensures that it has a high stock turnover, which enables it to regularly buy huge quantities of new stock (Kowitt 94). Consequently, most of Trader Joe’s suppliers are always willing to give it huge quantity discounts which in turn enable it to sell its products at lower prices than competitors. In order to minimize its distribution cost, purchases are transported directly from the manufacturer to a retail store. Although this method has been effective in the past, it exposes the business to serious logistical challenges that may occur during the delivery of ordered items.
The strategy of only selling carefully curated items fails to satisfy the needs of most shoppers. In addition, people in different states have their unique preferences and cultures. Therefore, the limited collection of items sold by Trader Joe may fail to satisfy the diverse tastes of people in the 25 states where its stores are located (Rachapila and Janasiriisak 82). Consequently, the business may face competition from new entrants. The second strategy of selling its products at low prices is not unique and can be easily duplicated. Firstly, new companies may copy its business model and easily get huge trade discounts from suppliers. Moreover, established enterprises such as Walmart can easily get such discounts from their suppliers (Tehrani and Rahmani 82). The third strategy of getting supplies directly from manufacturers is not sustainable in a large retail store because of logistical inconveniences that may occur.
In order to deal with the problem of having a limited variety of items in its shelves, Trader Joe should diversify its products depending on the region of its stores. People in each state have unique tastes and cultures. Therefore, the company should customize and brand its products to the desires of customers in each region, which will ensure that all its stores continue to enjoy a lot of sales in future (Indiatsy et al. 80). Unfortunately, this strategy is expensive since the company must carry out a market research of the purchasing trend of each state. In addition, Trader Joe may be forced to order small volumes of products for each market which may result in it not enjoying quantity discounts.
Although the strategy of selling items at a low price is important in enabling a business to get new customers it is not sustainable because it results in low-profit margin for each sold item, and it can be easily duplicated by competitors (Rachapila and Janasiriisak 81). Consequently, Trader Joe should introduce more sustainable incentives to attract customers, such as awarding its buyers with loyalty points for each item they purchase. In addition, the company should increase its marketing efforts, such as advertising and branding. This method can result in additional overhead costs; however, it can result in more profits for the business in the long term.
Lastly, Trader Joe should change its distribution method in order to reduce its business exposure to logistical problems that its suppliers may face. Direct distribution from a manufacturer to a retail store is risky since inevitable circumstances such as bad weather may result in delays in the arrival of ordered items (Tehrani and Rahmani 84). Therefore, the company should construct warehouses near its major retail stores where it can have adequate reserves of its fast moving items. The main limitation of this method is that it will result in more expenses for the business due to additional holding costs.
Works Cited
Indiatsy, Christopher, et al. “The Application of Porter’s Five Forces Model on Organization Performance: A Case of Cooperative Bank of Kenya Ltd.” European Journal of Business and Management, vol. 6, no. 16, 2014, pp. 75-87.
Kowitt, Beth. “Inside Trade Joe’s. America’s Hottest Retailer is Also Notoriously Hush-Hush. Fortune Uncovers the Secrets of its Success.” Fortune, 6 Sept. 2010, pp. 88-96.
Rachapila, Tanakorn, and Sittah, Janasiriisak. “Using Porter’s Five Forces Model for Analysing the Competitive Environment of Thailand’s Sweet Corn Industry.” International Journal of Business and Social Research, vol. 3, no. 3, 2013, pp. 174-185.
Tehrani, Mohammad, and Faezah, Rahmani. “Evaluation Strategy Michael Porter’s Five Forces Model of the Competitive Environment on the Dairy Industry (Case Study: Amoll Haraz Dvshh Dairy Company).” American Journal of Engineering (AJER), vol. 3, no. 4, 2014, pp. 80-86.