HOW TRADER JOE’S DOES IT
It’s smaller than Whole Foods but earns twice as much revenue per square foot. It offers less
than 10% the number of different products, instead booking on its customers wanting fewer
choices. It harkens back to simpler times while simultaneously staying on the cutting edge of
development and social trends. It’s Trader Joe’s and it’s likely coming to your neighborhood
sometime soon.
When asked for their “secret” they give a curious look. There is no secret to offering customers
high quality items at low prices while being served by employees well compensated and cared
for by their employer.
On its shelves, 80% of its items bear its name. Trader Joe’s has eliminated the profits of the
middle man by controlling its own production and distribution. Instead of another company
making the product, then selling it to a distributor who sells to a larger distributor who brokers a
deal with a grocer for the highest amount possible, Trader Joe’s produces much of its own
inventory and ships directly to its stores. Gone are the middle men and their profits, meaning
lower prices for consumers for the high quality goods it wants.
Here’s how.
A chip company produces a bag of chips for $1.49. That includes the costs for the chips, bags,
employee salaries, taxes, health care, rent payments, electric bills, water bills, advertising costs,
etc. They sell the chips to a distributor at a margin of 17%, meaning the distributor pays $1.74
per bag. That distributor sells it to a larger distributor with contracts with Wal Mart, Giant
Eagle, etc. at a 19% margin, or $2.07 per bag. Wal Mart and Giant Eagle sell that bag of chips
at a profit of 20%, or $2.48. The customer pays 40% more than the cost for the bag of chips.
At Trader Joe’s, a 20% profit without the middle men means a comparable bag of chips will
cost $1.79, saving the customer $0.69 per bag. Trader Joe’s doesn’t have to pay for the profits
of the companies beneath them the way Giant Eagle and Wal Mart do. That allows them to sell
high quality items for a cheaper price than does its competitors. Simply stated…it’s working!
United States Steel
Trader Joe’s
The primary difference between the two is _______________________
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The primary similarity between the two is ________________________
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