BOCA RATON, Fla.-The world hardly needs another grocery or convenience store, yet Trader Joe's has managed to overcome all that and become a market leader.
It's all about creativity, said Doug Rauch, former president of Trader Joe's. "Trader Joe's owes its existence to 7-Eleven. Indeed, it started out life as a 7-Eleven," Rauch related to the audience at CO-OP Financial Services THINK 2012 Conference, adding Trader Joe's founder modeled his Pronto Markets on 7-Eleven. As convenience stores sprouted and grocery stores extended their hours in response, it left Pronto Market in a competitive bind. "So how does it end up gracing the cover of Fortune Magazine and being called the hottest retailer?"
The answer, Rauch said, was to creatively build a grocery model built on an experience, rather than a transaction.
The first step, Rauch said, was asking "what do our customers want?" "In 1977, what they wanted was for grocery shopping to not be a chore," he said. That led to two innovations in grocery shopping: 1) repositioning the private label and 2) turning grocery shopping into an adventure.
Private label goods, also known as generics, are commodities. So Trader Joe's added a dose of whimsy to its private label ("Trader Jose" for Mexican foods, "Trader Giottos" for Italian, etc.), even though generics mean lower prices. "We realized that by going directly to the manufacturer and putting it in our own label meant they didn't care what we charged for it."
The chain also embraced the concept of "failing its way to success. As long as you're learning from your mistakes, it's all right to fail. That's why you have to embrace risk."
Three Important Lessons
Among the risks taken by Trader Joe's:
• "We realized we were hiring the wrong people. We were hiring people for their physical ability to move product-the person who could break down a pallet the fastest or the cashier who could check someone out the quickest. We needed to hire people who can make a connection with the customer. We stopped hiring people from within the grocery industry, because we'd have to beat that mindset out of them."
• "We were measuring the wrong things." While profitable items were displayed promptly, store managers weren't displaying the most popular products, It also opened aisles and began using creative-and more useful-signage designed by actual artists to turn shopping into an adventure.
• It moved its managers on to the floor to interact and "connect with our customers, even if it cost us a little, but then we actually saw our numbers go up."
"A culture of trust and care is the secret weapon that you have," Rauch said. "They can copy your product, but it's hard to copy your culture. When Pronto Markets became Trader Joe's, it became a customer experience company that happens to be about food."
