Trader Joe's Case
Trader Joes
1. Is the supermarket industry attractive or not? What forces/factors appear to have the greatest impact on industry attractiveness?
Attractive Characteristics
Consumer demand shifting toward organic/natural grocery options, which creates market space for new entrants
Most current grocers are very similar and treat groceries as commodities in that they attempt to differentiate themselves on price alone. This means there is space for brave entrepreneurs who believe they can differentiate themselves through other means (i.e. Amazon trying online/home delivery groceries or Trader Joes)
Consumer shifting perception of valuing “one-stop-shop” grocers (i.e. large supermarkets and retail/grocers), to valuing small “quick” stop, and …show more content…
or specialty grocers
Opportunity to take advantage of political push for healthier foods.
Unattractive Characteristics
Traditionally operating on thin margins, increases risk for new market entrant
Extremely competitive
Majority of market competition is being squeezed to middle by dominant premium players (Whole Foods) and dominant “hard discounters” (Dollar General & Aldi)
Middle-market grocers dominated by large super markets like Wal-Mart and Target
Non-traditional grocers (discount retailers, warehouse clubs and pharmacy chains) beginning to emphasize grocery sales
Uncertain customer demands
Groceries considered a commodity and often carry identical products, so few ways to differentiate among products
Most players have similar resources and technology
Politics beginning to try to change food offerings
Factors with Greatest Impact on Attractiveness
Overall Assessment
2. How does Trader Joe's create value in its business activities? What generic strategy is it pursuing?
Value Creating Activities (Value Chain)
Supply Chain Management:
Send purchasers worldwide to find rare products customers have never tried
Since stock few items, buyers able to purchase large quantities of unique product at reduced cost
Do not charge suppliers to slot products and pays suppliers promptly, which strengthened relationship and likely created savings to be passed onto the customers.
Require vendor secrecy, which preserve customers feelings of exclusivity and uniqueness
Operations:
80% of product is private label, which allows TJ’s to provide high quality products at a lower cost (i.e. the wine)
Offer fewer, but more unique products, which provides customers with a scavenger hunt mentality
Pay employees well and offer great benefits, which ensures can hire and keep highly talented individuals
Give new employees 10 days of initial training and allow employees to sample product, which ensures employees can give customers relevant information
Employees taught to be generalists, so no one employee can disrupt operations by being absent
Restock shelves throughout day to make sure products always available for customers
Manager flexibility on planograms to fit wants/needs of local consumers
Focus on customer service
Distribution:
Use less than 15,000 sq. ft. of selling space to reduce overhead cost and pass on savings to customers.
Only sell in stores, and stores only located in cities with a highly educated population, which creates exclusivity for intellectual consumers who like to think of themselves as exclusive
Aisles are special situated, so customers can see what is on an aisle without walking down the aisle, which is important considering the cramped space
No digital check out machines, which is supposed to add to the personal face-to-face experience; though, now it appears to be an issue, so probably no longer adding value.
Rotate in/out 10-15 items every few weeks to provide customers with diverse product selection
Marketing:
Use employees rather than professional actors in radio-commercials, which saves money and engages employees in mission of company
Use employee art work for signage, which saves money and engages employees
Refrain from TV ads, which saves money and promotes customer exclusivity
Fearless Flyer provides information about new products each week
Follow-Up Services: I have been told that they will give full refund to customers dissatisfied with private label products.
Generic Strategy
I am of the opinion that Trader Joe’s pursue an Integrated Focused Cost/Focused Differentiation Strategy.
Below I have included TJ characteristics and divided them between Focused Cost Leadership and Focused Differentiation Strategies, and which taken together make up the integration strategy.
Focused Cost Leadership—in this strategy firms competes on cost to a focused market. Trader Joe’s sells a few unique discount products to a small market segment (i.e. college educated individuals make up 80% of customers). Below are examples of actions adhering to Focused Cost leadership Strategy:
Carry few unique selling units, so less space needed and lest administration costs; also allows to take advantage of bulk purchases
Takes advantage of bulk pricing to buy unique items at a discount
Use private label items to decrease cost of high quality products
Use less than 15,000 sq. ft. of selling space to reduce overhead cost and pass on savings to customers.
Use employees rather than professional actors in radio-commercials to reduce cost
Use employee art work for signage to reduce cost
Refrain from TV ads to reduce cost
Foster close relationships with vendors to achieve better pricing
Spend less on marketing and in store technology
Only sell in stores located in cities with a highly educated …show more content…
population
Provide top-quality private label products, so customers can experience high-end quality at a discount
Chose not to invest in technology in stores, and maintain simple website
Focused Differentiation—in this strategy the firm competes for a narrow market based using its ability to offer unique value to a customer.
In this case, TJ offers unique and often rare products designed for sophisticated buyers who shop on a bargain. The goal is to create an atmosphere one would expect in the south pacific—ships, Hawaiian shirts, unique/exotic foods and a care free attitude. Below are examples of actions adhering to Focused Differentiation Strategy:
Only sell in stores, and stores only located in cities with a highly educated population, which creates exclusivity for intellectual consumers who like to think of themselves as exclusive
Send purchasers worldwide to find rare products customers have never tried
Store employees wear Hawaiian shirts
Managers are referred to as “Captain” and assistant managers are “First Mates”
Use a bell system rather than an intercom system
Rotate in/out 10-15 items every few weeks to create scarcity and bring customers into contact with more products
Provide top-quality private label products, so customers can experience high-end quality at a discount
3. What are the main threats to Trader Joe's competitive advantage? Is their advantage sustainable?
Threats
Oil prices can significantly increase cost of food products
Exchange rates with international
suppliers
Traffic increase near store locations decrease parking availability, which makes stores less convenient
Other grocers and/or consumers discover TJ’s vendors
Whole Foods tries to compete directly (i.e. smaller version of WF who can take advantage of bulk purchases of few items)
Policy to decrease student loan availability would decrease core client base (i.e. the elitist liberal arts college student…I was one so I can say that).
Advantage Sustainability
4. How would you modify Trader Joe's strategy moving forward?
1. Is the supermarket industry attractive or not? What forces/factors appear to have the greatest impact on industry attractiveness?
Attractive Characteristics
Consumer demand shifting toward organic/natural grocery options, which creates market space for new entrants
Most current grocers are very similar and treat groceries as commodities in that they attempt to differentiate themselves on price alone. This means there is space for brave entrepreneurs who believe they can differentiate themselves through other means (i.e. Amazon trying online/home delivery groceries or Trader Joes)
Consumer shifting perception of valuing “one-stop-shop” grocers (i.e. large supermarkets and retail/grocers), to valuing small “quick” stop, and …show more content…
or specialty grocers
Opportunity to take advantage of political push for healthier foods.
Unattractive Characteristics
Traditionally operating on thin margins, increases risk for new market entrant
Extremely competitive
Majority of market competition is being squeezed to middle by dominant premium players (Whole Foods) and dominant “hard discounters” (Dollar General & Aldi)
Middle-market grocers dominated by large super markets like Wal-Mart and Target
Non-traditional grocers (discount retailers, warehouse clubs and pharmacy chains) beginning to emphasize grocery sales
Uncertain customer demands
Groceries considered a commodity and often carry identical products, so few ways to differentiate among products
Most players have similar resources and technology
Politics beginning to try to change food offerings
Factors with Greatest Impact on Attractiveness
Overall Assessment
2. How does Trader Joe's create value in its business activities? What generic strategy is it pursuing?
Value Creating Activities (Value Chain)
Supply Chain Management:
Send purchasers worldwide to find rare products customers have never tried
Since stock few items, buyers able to purchase large quantities of unique product at reduced cost
Do not charge suppliers to slot products and pays suppliers promptly, which strengthened relationship and likely created savings to be passed onto the customers.
Require vendor secrecy, which preserve customers feelings of exclusivity and uniqueness
Operations:
80% of product is private label, which allows TJ’s to provide high quality products at a lower cost (i.e. the wine)
Offer fewer, but more unique products, which provides customers with a scavenger hunt mentality
Pay employees well and offer great benefits, which ensures can hire and keep highly talented individuals
Give new employees 10 days of initial training and allow employees to sample product, which ensures employees can give customers relevant information
Employees taught to be generalists, so no one employee can disrupt operations by being absent
Restock shelves throughout day to make sure products always available for customers
Manager flexibility on planograms to fit wants/needs of local consumers
Focus on customer service
Distribution:
Use less than 15,000 sq. ft. of selling space to reduce overhead cost and pass on savings to customers.
Only sell in stores, and stores only located in cities with a highly educated population, which creates exclusivity for intellectual consumers who like to think of themselves as exclusive
Aisles are special situated, so customers can see what is on an aisle without walking down the aisle, which is important considering the cramped space
No digital check out machines, which is supposed to add to the personal face-to-face experience; though, now it appears to be an issue, so probably no longer adding value.
Rotate in/out 10-15 items every few weeks to provide customers with diverse product selection
Marketing:
Use employees rather than professional actors in radio-commercials, which saves money and engages employees in mission of company
Use employee art work for signage, which saves money and engages employees
Refrain from TV ads, which saves money and promotes customer exclusivity
Fearless Flyer provides information about new products each week
Follow-Up Services: I have been told that they will give full refund to customers dissatisfied with private label products.
Generic Strategy
I am of the opinion that Trader Joe’s pursue an Integrated Focused Cost/Focused Differentiation Strategy.
Below I have included TJ characteristics and divided them between Focused Cost Leadership and Focused Differentiation Strategies, and which taken together make up the integration strategy.
Focused Cost Leadership—in this strategy firms competes on cost to a focused market. Trader Joe’s sells a few unique discount products to a small market segment (i.e. college educated individuals make up 80% of customers). Below are examples of actions adhering to Focused Cost leadership Strategy:
Carry few unique selling units, so less space needed and lest administration costs; also allows to take advantage of bulk purchases
Takes advantage of bulk pricing to buy unique items at a discount
Use private label items to decrease cost of high quality products
Use less than 15,000 sq. ft. of selling space to reduce overhead cost and pass on savings to customers.
Use employees rather than professional actors in radio-commercials to reduce cost
Use employee art work for signage to reduce cost
Refrain from TV ads to reduce cost
Foster close relationships with vendors to achieve better pricing
Spend less on marketing and in store technology
Only sell in stores located in cities with a highly educated …show more content…
population
Provide top-quality private label products, so customers can experience high-end quality at a discount
Chose not to invest in technology in stores, and maintain simple website
Focused Differentiation—in this strategy the firm competes for a narrow market based using its ability to offer unique value to a customer.
In this case, TJ offers unique and often rare products designed for sophisticated buyers who shop on a bargain. The goal is to create an atmosphere one would expect in the south pacific—ships, Hawaiian shirts, unique/exotic foods and a care free attitude. Below are examples of actions adhering to Focused Differentiation Strategy:
Only sell in stores, and stores only located in cities with a highly educated population, which creates exclusivity for intellectual consumers who like to think of themselves as exclusive
Send purchasers worldwide to find rare products customers have never tried
Store employees wear Hawaiian shirts
Managers are referred to as “Captain” and assistant managers are “First Mates”
Use a bell system rather than an intercom system
Rotate in/out 10-15 items every few weeks to create scarcity and bring customers into contact with more products
Provide top-quality private label products, so customers can experience high-end quality at a discount
3. What are the main threats to Trader Joe's competitive advantage? Is their advantage sustainable?
Threats
Oil prices can significantly increase cost of food products
Exchange rates with international
suppliers
Traffic increase near store locations decrease parking availability, which makes stores less convenient
Other grocers and/or consumers discover TJ’s vendors
Whole Foods tries to compete directly (i.e. smaller version of WF who can take advantage of bulk purchases of few items)
Policy to decrease student loan availability would decrease core client base (i.e. the elitist liberal arts college student…I was one so I can say that).
Advantage Sustainability
4. How would you modify Trader Joe's strategy moving forward?