Trader Joe's: a Strategic Analysis Essay Example

Trader Joe’s is a niche grocery store chain that was ranked the number one favorite supermarket in the U.S. in 2013. Throughout the years, many big-name retailers attempted to imitate Trader Joe’s’ business strategy of small neighborhood markets, but none were as successful as Trader Joe’s. They utilize a unique business strategy that took decades to perfect that focuses on an integrated cost leadership and differentiation strategy. This means that Trader Joe’s seeks to produce products at a low cost that also have some differentiated features that customers value. The grocery retailer’s strategy also includes many elements of a focused differentiation strategy due to their narrow target market. 

From the very beginning, Trader Joe’s targeted a specific, narrow market of sophisticated customers looking for different products not typically found in supermarkets for a good bargain. This specific strategy resembles the focused differentiation strategy. Instead of selling familiar brands such as Coca-Cola or Cheerios, Trader Joe’s commits to selling unique and interesting products that their customers have not yet experienced. This also includes making 80 percent of the products sold in their stores their own private label items, in comparison to other grocery store retailers that only sell 20 percent. Their commitment to this strategy includes introducing 10-15 new products each week. To decide which products to replace each week, the buyers will cut products that don’t meet sales goals, and also some products are replaced because it was seasonal. On top of constantly adding new products, Trader Joe’s also chooses to carry significantly less inventory than other grocery stores. These may seem like disadvantages to Trader Joe’s and their profits. However, since they end up purchasing larger quantities at a time than other grocery retailers, they’re able to buy at lower prices directly from the manufacturer instead of the distributor or wholesaler. This enables the firm to sell products at competitive prices. Even more, most grocery retailers are less likely to skip loyalty programs and coupons because the profits from them may be too great to pass up. Trader Joe’s, however, chooses not to have loyalty programs and coupons, arguing that their prices are so low, they feel like a sale all the time.

By using the integrated cost leadership and differentiation strategy, Trader Joe’s is able to utilize their core competencies to earn above-average returns. While much different than other grocery stores, their most notable advantage among them is Trader Joe's impeccable customer service. When asked for help locating an item, instead of directing a customer to an aisle, a Trader Joe’s employee will always walk with them to the product’s location. Additionally, instead of making announcements over the speakers, Trader Joe’s adopted a bell system to communicate with their coworkers so they don’t interrupt a customer’s shopping experience. The grocery retailer encourages and empowers their employees to do whatever it takes to make the customer happy. In fact, during training, they ensure to emphasize the company’s core values and the importance of them just as much, if not more, than the actual process training. Trader Joe’s valuable customer service also stems from the fact that Trader Joe’s employees are compensated fairly and are valued by their employer. More specifically, Trader Joe’s pays their employees at competitive wages and salaries, as well as provides them with really valuable benefits that would not be typically paid at a rival grocery store. While this seems costly to the company, it leads to customer loyalty because customers see how friendly and happy Trader Joe’s employees are compared to other grocery store employees. Trader Joe’s is successful with this strategy due to the fact that despite that Trader Joe's does not use social media, accept or offer coupons, or utilize other marketing strategies, a portion of their customers have been described as “cult-like” with their commitment to the grocery retailer. The customer loyalty that Trader Joe’s cultivates and the consistent, unique products they deliver are some of the main drivers toward above-average returns for the company.