In 2012, Consumer Reports, a well-respected American magazine that provides consumers with unbiased reports on products, services, and other consumer-related issues, ranked the grocery store Trader Joe’s as the second-best supermarket in the United States of America. This was quite a feat considering recognizable names such as Wal-Mart, Kroger, Safeway, and Supervalu were ranked as the top four largest grocers at the time. This means that for Trader Joe’s, a grocery store chain that has stores that often measure less than 10,000 square feet per store, there was substantial competition in the supermarket marketplace. Trader Joe’s competitors create fierce rivalry. These large chain stores have great bargaining power due to their brand name recognition and established modes of operation. They same grocery stores also pose as significant threats as substitutes for the consumer. A consumer might just go to their local grocery store no matter what the brand name is or they might prefer a different store other than Trader Joes; this is the buyer’s bargaining power in the supermarket industry. Finally, just as Trader Joe’s was once a new grocery store in the marketplace, they must now face the threat of new entrants such as CVS or Walgreen’s, two pharmacy chains that have increased their focus on selling groceries to consumers. In 2012, according to Progressive Grocer’s “The Super 50,” Trader Joe’s ranked twelfth in total grocery sales, raking in $7.6 billion. However, the company accomplished this feat with only 3.7 million square feet of selling area. This is in comparison to the number one overall ranked grocer Wal-Mart ($118.7 billion in sales and 195.5 million square feet), number two ranked Kroger ($61.1 billion in sales and 104.0 million square feet), and eleventh ranked Whole Foods, a grocery store chain that is arguably the most similar store to Trader Joe’s on the list, which recorded $8.8 billion in total grocery sales in 7.0 million square feet of selling area. Clearly, this is a lot of competition in the supermarket industry, which makes it very difficult to make money.
The case study reports that Trader Joe’s was facing a number of competitive threats in the marketplace. The powerhouse Wal-Mart was opening Wal-Mart Express stores (12,000-15,000 square feet) that rivaled the size of Trader Joe’s. “Many other retailers, including Target, Kroger, Giant, Tops, and Publix, had launched smaller-format experiments as well” (Ager, 2014). Further, and perhaps most notably, ever-diversified Amazon was exploring its options in the grocery market. “In June 2013, Amazon expanded its online grocery service outside of Seattle for the first time, with an entry into the Los Angeles market. Experts predicted that Amazon would introduce the service in San Francisco later in the year and as many as 20 additional cities in 2014” (Agers). As there were many options, which correlates to higher bargaining power for the consumer, threat of new entrants (Amazon, CVS, Walgreens), and threat of substitutes (Whole Foods, Target, Publix, etc.). Trader Joe’s needed to identify its corporate strategy in order to compete and make money in the supermarket industry.
Trader Joe’s attacked the supermarket industry with a customer-first attitude. This meant no question refunds and exchanges, no televisions in the stores so customers could engage in conversation with Trader Joe’s employees, and forgoing public relations agencies to instead just offering customers great products at low prices. As a result, Trader Joe’s, despite only carrying 4,000 stock-keeping units (SKUs) per location, compared to the 50,000 SKU industry standard, was estimated to generate $10 billion in annual revenue in 2013. Trader Joe’s, therefore, showed $10 billion in revenue in 2013 as compared to its $7.6 billion in total sales in 2012. Clearly, Trader Joe’s showed the ability to skillfully handle competition in the marketplace while establishing a unique customer experience.
- Ager, D. L. (2014). Trader Joe’s. Harvard Business School,1-17.