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THE UNSUPERMARKET

Trader Joe’s sells food, but you won’t find pharmacies, eyeglasses or videos

BY MAURA K. AMMENHEUSER

Let’s start with what Trader Joe’s is not. It’s not a health-food chain, though it carries organic goods. It’s not pricey, though it peddles gourmet and hard-to-find items. It’s not a catchall by any means — the store contains no deli counter, bakery, video rentals or any of the other ancillary services modern supermarkets strive to provide — though its inventory does have considerable breadth.

“We don’t do banks and eyeglasses and pharmacies,” said Trader Joe’s spokeswoman Pat St. John. “People don’t come to us for lightbulbs.”

So what is Trader Joe’s? “Thrill-seeking for the bargain gourmand,” is the way Kevin Kelley puts it. Kelley is co-founder of Shook Kelley, a branding and design firm with offices in Charlotte, N.C., and Los Angeles. “I can’t think of any other competitor out there who combines those terms.” Shook Kelley has never worked for Trader Joe’s, but the firm has studied the 40-year-old chain on behalf of competing companies for years.

Today Pasadena, Calif.-based Trader Joe’s boasts 200 stores in 17 states and a loyal following.

Trader Joe’s offers eclectic merchandise and personal service from staff whose dress is as funky as the decor.

“They have an eclectic selection of things, things you can’t find anywhere else,” said Dan Provost, a Riverside, Calif., resident and frequent Trader Joe’s shopper. On a recent visit he loaded his cart with Annie’s salad dressing, a mix of Southern greens (mustard, turnip, collards and spinach) and “great, inexpensive dog food.”

“The food is really good,” said Melinda Davies, also of Riverside. “Prices are excellent.” Beatrice Layfield, Davies’ friend, added: “It’s fresher and less expensive. It’s amazing you can buy so much food for not much money.”

Karen Lambros, a shopper who works in Riverside, stocks up on prepared salads and other foods that help her keep to her diet without boredom. “They make eating more interesting,” she said.

So then — Trader Joe’s in a nutshell: Bye-bye food rut, hello quality novelty edibles for cheap.

The chain is unique in the industry, says Michael Collins, a partner at global business consulting firm Bain & Co. Specialty grocers usually keep a single focus (ethnic goods, health food, organics, etc.), but Trader Joe’s embraces it all, at competitive prices.

“They pride themselves on being great buyers,” said Collins who suggests that this is the key to Trader Joe’s success because it yields unexpected finds, tasty samples and good deals. For example, Trader Joe’s sells a 6-ounce tube of Tom’s of Maine toothpaste for $3.19, wild-salmon filets for $7.99 a pound, a 16-ounce bag of frozen, private-label blueberries for $2.19, 9-ounce prepackaged salads for between $1.99 and $2.49, and Charles Shaw wine, exclusively through Trader Joe’s, for just $1.99 in California (hence its nickname, “two-buck chuck”).

Private-label goods account for 85 percent of Trader Joe’s non-alcoholic inventory, St. John says. The company will buy one-time-only items if it can get them at a low price, and it emphasizes packaged and frozen foods to reduce costs, according to Collins.

Employees are thoroughly versed in their products and serve a savvy clientele. St. John describes the typical Trader Joe’s customer as well educated and health-conscious. “They’re label readers and less devoted to brands” than other consumers, she says.

Despite having some highbrow inventory, the privately held company doesn’t seem to take itself too seriously. The corporate culture leans toward the irreverent, à la early Ben & Jerry’s. The Los Angeles Times describes the decor as “Beach Boys meets Captain [sic] Courageous.” Employees wear Hawaiian shirts, and the stores feature a beach theme. The recently relocated Riverside store has totem poles looming over the checkout, as well as crates and murals depicting a harbor scene.

Trader Joe’s is a somewhat unorthodox tenant, too. Given the number of its units, it’s no mom-and-pop, but it’s nowhere near saturating the United States, either. It favors “steady, incremental growth, taking advantage of unique opportunites,” Collins said. Expansion is self-funded. “They’re not going to pay for premium real estate,” he added.

Trader Joe’s likes freestanding or strip center sites, often choosing ones that are odd or difficult to fill. As a result, parking is sometimes a challenge for customers. The stores average 11,000 square feet, St. John says, far smaller than a conventional 60,000-square-foot supermarket.

“We don’t want to be in big shopping centers,” St. John said. “We would rather have a freestanding pad or be in a small center with tenants synergistic with us.” Some of its stores are near a Petco, a Ross Dress for Less, a Target or a Walgreens. Still, some shopping center managers say Trader Joe’s spices up their tenant mix, and they laud the chain’s drawing power.

“They’re a very good tenant,” said Deborah Perry, a vice president in the retail division of Colliers International, which manages Danville (Calif.) Square, a Trader Joe’s-anchored, 50,000-square-foot center. “They draw from a larger trade area than a typical grocery store.”

Colliers also has a Trader Joe’s at its 250,000-square-foot Willows Shopping Center, Concord, Calif.

Shoppers from areas without a Trader Joe’s “come up with coolers every couple of weeks and fill them up,” said David Wasserman, a principal of Starwood Wasserman, Providence, R.I. Last spring the developer opened the 136,000-square-foot Shops on South Lake Avenue, Pasadena, Calif., which has a 15,000-square-foot Trader Joe’s on the second level. That’s unusual for a grocery chain, but it works because there is exclusive parking, says Wasserman.

“They’re a destination,” he said. “We think it adds a nice punch to the shopping center.”

“We get a lot of calls from a lot of customers, lots of city councilmen, redevelopment agencies” and other groups clamoring for a Trader Joe’s, said Doug Yokomizo, the chain’s general counsel.

Customers beware - employees might offer to help, and they even smile.

Company officials declined to discuss expansion plans, except to say that distribution costs are a major factor in real estate decisions. Nor would St. John disclose sales figures, and industry experts wouldn’t hazard any guesses. The Trader Joe’s Web site boasts that sales grew 977 percent and profits 1,102 percent from 1990 to 2001, with the number of stores increasing 512 percent in that time. Sources interviewed for this article surmise that Trader Joe’s probably does much better than the razor-thin profit margins typical in the supermarket industry.

Though shoppers’ enthusiasm resembles that of a fan club, Collins warns that as a business, Trader Joe’s must proceed carefully. With more stores to come, “they’ll find all the classic challenges of larger companies,” he said, noting especially the difficulties of maintaining quality and freshness while buying in increasing quantities. Meanwhile, larger chains will continue stocking broader assortments in an attempt to differentiate themselves from each other and from Wal-Mart, Collins says, so Trader Joe’s will do better to maintain its niche than to try to compete head-on with the bigger chains.

St. John points to natural and health food stores as the competition. Local health food and wine-and-gourmet-cheese shops attract the same kinds of customers, observers say; some cite Whole Foods Market, a 145-unit, Austin, Texas-based natural foods company; and Central Market, a seven-store fresh foods chain, also based in Texas, as similar in concept to Trader Joe’s.

But Trader Joe’s may not need to worry about other operators much, says branding expert Kelley, if the company avoids mimicking the big chains. “As long as they don’t try to position themselves [as a one-stop supermarket], they’re doing great.”

Trader Joe’s customer Steve Parker, for example, also shops at Ralphs, the 460-store, upscale grocery chain in California and Southern Nevada that is a division of Cincinnati-based Kroger Co. But, he said, loading his cart with Trader Joe’s frozen veggies, “I don’t go to other places with the expectation that I’d find what I find here.”

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