Dan Bane, CEO of Trader Joe's

Citation

Abraham, S. (2002), "Dan Bane, CEO of Trader Joe's", Strategy & Leadership, Vol. 30 No. 6. https://doi.org/10.1108/sl.2002.26130fab.001

Dan Bane, CEO of Trader Joe's

Stan AbrahamStrategy & Leadership Contributing Editor Stan Abraham (stan.abraham@verizon.net) is professor of strategy and entrepreneurship at California State Polytechnic University, Pomona, president of Future By Design, a strategic-management consulting firnm, and cofounder of the Association for Strategic Planning, a professional association based in Southern California. The author conducted store visits and tasting research for this report in Santa Monica, California and the editor performed similar research in San Francisco.

Introduction

Dan Bane, CEO of the grocery chain Trader Joe's, recently was a guest speaker at an Association for Strategic Planning meeting in Los Angeles. His presentation focused on how seven core values shape the company's differentiation strategy and its daily practices. Here is the CEO's view of how values, differentiation and competitive advantage drive growth at a grocery chain that started in California and now has an enthusiastic fan club and big national ambitions.

Company background

Trader Joe's was acquired in 1979 by the Albrecht family of Germany, which owns and operates a discount food chain of 4,500 Aldi stores in Europe and parts of the central USA. In contrast, Trader Joe's loyal customers flock to its small local stores for unique foods and sundries that cannot be found in any big chain.

Trader Joe's, headquartered in Monrovia, California, had revenues of $2.4 billion in fiscal year 2002. It plans to grow by expanding from 174 stores to 800 stores at a rate of about 25 per year.

Though it has a fervently enthusiastic fan club of customers in a few big cities like San Francisco, Los Angeles, Indianapolis, and Boston, Trader Joe's is not yet well known nationally in the USA because most of its stores are in western states. In recent years, Trader Joe's has located about 50 stores in the mid-west and on the east coast in small cities like Larchmont, New York and Cambridge, Massachusetts that have a high percentage of affluent customers (see http://www.traderjoes.com/locations/index.asp).

The chain has a long tradition of hands-on top management. Its founder, Joe Coulombe, ran the company for eight more years after he sold it in 1979. At that time, he said he could not imagine expanding beyond 26 stores, that being as far as he was willing to drive to manage them and maintain quality. Coulombe began the company more as a convenience store rather than a grocery business, and recognized early on after a visit to a 7-Eleven in Texas that the only way he could compete with the large convenience-store chains was to be different. So he focused on stocking unique products and on cultivating loyal customers. He particularly enjoyed going to France and buying wines and other foods for his stores. (For an update on Coulombe's post-retirement avocation, see www.winejoe.com.) Much of the wisdom he accumulated over the years was documented and added to by subsequent buyers and now guides how the company selects products from suppliers all over the world.

Reflecting on this tradition, current CEO Dan Bane outlined the seven values that form the foundation of everything that Trader Joe's does, and the lengths to which the company goes to preserve its differentiation and competitive advantage[1].

Trader Joe's seven values

Dan Bane

Our first value is integrity, which is pervasive in all we do. We infuse integrity into the way we buy, the way we operate the stores, and the way we deal with people. Integrity for us is really golden-rulish – to treat others like you want to be treated, in all facets of the business. But the other way we like to define it is to act like your customer is looking over your shoulder all the time.

Our second value is being a product-driven company. Our strategy emphasizes price, product, access, service, and experience. While it is impossible to excel in all five areas, we try to excel in one, be very good at another, and meet customer expectations on the others. Trader Joe's focuses on being great on product. A total of 70 percent of our products are private-labeled, unique brands you cannot buy at mainstream grocery stores. Because of the product emphasis, the mix is constantly changing. But every new product that is added goes through a rigorous screening:

• •

  Does it taste good (for food/beverage items)? Requires unanimous vote of a tasting panel.

• •

  Does the product quality meet our standards?

• •

  Can we add value?

• •

  Is the product as natural as possible? (Trader Joe's buying philosophy excludes artificial colors or genetically altered foods.)

Our third value is to produce wow customer experiences. We publish some great stories every week in our bulletin celebrating the special way we treat and relate to our customers. We think retailing is all about the customer's experience, and that is really what differentiates us.

Our fourth value is that we hate bureaucracy. We give everyone a license to kill off bureaucracy as much as they can. If you come into our corporate office in Monrovia, we are all on one floor. I am the only one who seems to have an office, but it is really a conference room. Everyone else is in cubicles. The president of the company is in a cubicle, right in the middle of the buying room. That is where I was before I became CEO. There is very little bureaucracy and very few layers – a very simple organization. In fact, it is actually an inverted pyramid – the person the customer deals with is the most important person in the company to that customer, not the CEO.

Our fifth value is what we call Kaizen, which is, essentially, each one of us every day trying to do a little better. And that is something that has been infused into our training programs and in the way we do things. It is the attitude and approach we bring to the job every day. We really stress teamwork and working together so that the stores really do amazing things. For example, the CEO of Whole Foods was telling me one day how its teamwork had gotten its sales-per-person-hours (a measure all grocery stores use) up to 52. Well, ours is about 212, so what we do and how we do it really makes a difference.

Value number six is we do not do elaborate budgeting. Stores develop individual budget plans, based on their local marketplace and product array; the corporation does not do one big "top down" plan.

Our seventh value is treating the store as the brand. We do not think of individual products or even our private-label products as any part of the brand. We think of the store as the brand. I probably get about ten letters a day, talking about great things that happened to our customers in our stores, and the best ones get published in our bulletin. And they are really emotional letters, people talking about it being their Trader Joe's, and how it really provides a sense of community to have that brand working. Brand is really the covenant between the company and the customer, and the real key is a day-by-day consistency in meeting and satisfying needs. And every crewmember faces that challenge every day. Last year we were very surprised and proud when an article came out in Entrepreneur magazine that said the three companies that got branding right were Krispy Kreme, Nike, and us.

Differentiation as competitive advantage

Our founder, Joe Coulombe, understood that being different would be the key to success. Trader Joe's differentiation is so strong and inimitable as to constitute its core competence and competitive advantage. In fact, Trader Joe's differentiates itself along five highly related dimensions:

1. 1.

   selective products;

2. 2.

   private-labeled unique products;

3. 3.

   small, intimate feel of each store (the brand);

4. 4.

   fanatical attention to customers; and

5. 5.

   extraordinary value.

Selective products. We have a tight assortment of about 3,200 SKUs (stock-keeping units), something that very much differentiates us. We have a very small number of SKUs for a grocery store (a large supermarket would have 55,000 SKUs), and they turn over fast. We have got food and beverages, plus health and beauty, housewares, and pet sections, but we view those sundries as being complementary to our food and beverage categories.

Private-labeled unique products. What we try to do is be world-class on product – 70 percent of the items at our store are private-label items that we discovered and put our label on. That makes it a Trader Joe's item, which you cannot find anywhere else. We do not carry Coca-Cola or Pepsi or Budweiser beer or Campbell's soup because, from our perspective, they are commodities. We look for unusual items that we can buy and private label. No one else can carry these products; if our customers like them (and we make sure they will), then they have to buy them from us.

If you talk about quality, you are talking about our private label. It has got to be free of preservatives, no artificial color or flavors, and now, no genetically modified ingredients. We decided to make all of our private labels without genetically modified ingredients about six months ago. The buyer has got to believe in the item before it reaches the tasting stage, where we try to experience the product the same way the customers do. We use the cooking directions on the package, and we have a home-style kitchen in the office. So we cook it just the way our customers would. If it does not pass the test virtually unanimously, we don't buy it. So it has really got to taste good. No grocery chain ever does this kind of quality testing on its products, so it cannot give its customers the same kind of assurance (our brand) as we can.

Small, intimate feel of each store (the brand). Safeway, one of the leading western grocery chains, has stores on average of 55,000 square feet. We want to keep our stores small (about 10,000 square feet) and very intimate. If a store

gets too crowded, we open another one. We are committed to having friendly, neighborhood stores. Stores are relatively small and warm with imaginative handmade signs. There is nothing slick about our stores, on purpose. They are meant to be a unique social experience.

Fanatical attention to customers. We try to be really great at customer service. In fact, our philosophy of buying and offering products is predicated on choosing those products that customers will (and do) buy because we view the whole process from the customer's perspective. This is our way of forging a bond with our customers and getting them to come back and shop with us time and time again.

Extraordinary value. We are committed to having our Trader Joe's house brand on more products. Our buying target is a product with significant value. We believe that value comprises taste, quality, private labeling, and price.

Price for us is an interesting concept. We think price is not something that we try to achieve only when we purchase, but a result based on the way we buy, on our format (which is very efficient), and on the way we run our store (our business model). We cannot have value if we do not buy at good prices or, more accurately, at the best price. So Trader Joe's ensures that a product tastes good, meets our standards of quality, and then prices it competitively. Doesn't that spell value from the customer's point of view? I can assure you that in the normal grocery business, you will never have that kind of conversation, and you will never have that kind of profit. If we cannot find the best price, we just do not buy it. Where do we buy? We buy directly from manufacturers. We do not deal with middle people unless they add value.

Note

1 This presentation by Trader Joe's CEO, Dan Bane, was transcribed, slightly shortened and edited for clarity.