Trader Joe’s Case Analysis
Social media is a new aspect being brought into companies. Companies are using social media as a gateway for market research. The research collected helps strategist determine the best way to produce new products, reach new target markets, and notice trends within customer purchasing patterns. Trader Joe’s currently does not have an official social media, yet fans are creating fan-based accounts. Trader Joe’s is missing out on the opportunities social media can bring value to any company. Issue #2: Secrecy with supplier could be broken.
Trader Joe’s and their suppliers agree on a mutual secrecy to keep the media out of their business but also to keep customers and competition anticipating Trader Joe’s next move. Trader Joe’s does this so the customers and the industry are surprised with what products they are offering in their stores. If secrecy were to be broken, then Trader Joe’s suppliers could move their business to other companies within the supermarket industry. Issue #3: Lacking technology to enhance shopping experience.
With the golden technology age that is occurring right now, companies are finding ways to bring technology into their businesses to enhance the customers shopping experience. The new technology has enabled companies in the supermarket industry to have price scanners in the store, self-checkout lanes, and some are beginning to use the Internet to bring the shopping experience right to the customers’ homes. These methods have shown superb results for companies with faster lines, shop-pricing products in store, but ultimately technology is bringing more value to the customers. Recommendation
In order for Trader Joe’s to solve the weak social media use issue, I recommend that Trader Joe’s promote an employee who has the skill and knowledge to take on full responsibility of social media. Being more engaged in social usage would help Trader Joe’s business and improve their, already stellar, customer satisfaction. From the SWOT Analysis (Appendix G), Trader Joe’s has an opportunity to learn more information from customers. As stated earlier, companies use social media to gather customer information. The information gathered ranges anywhere form buying patterns to simple, overall satisfaction from their shopping experience.
Customers who ‘follow’ social media accounts can electronically send a message to the account and customers can vent any feelings they have towards the company managing the account. The feelings are usually positive feelings but negative feelings are quite common. From customers’ responses, companies can learn more about customers and figure out a way to improve the problems or enhance the already established system. If Trader Joe’s were to follow this strategy, then they will see a huge increase in overall business and customer satisfaction.
Trader Joe’s keeps all business transactions with their suppliers a secret. From the Five Forces Model (Appendix C), it is stated the reason behind Trader Joe’s business a secrecy- to keep competition clueless. Another reason Trader Joe’s keeps business a secret is so Trader Joe’s can buy new products from suppliers in bulk at a cheap price. Appendix H discusses more finance issues that Trader Joe’s implements to achieve products in bulk at a cheap price. For secrecy between Trader Joe’s and suppliers to stay strong, I recommend that Trader Joe’s and its suppliers keep a close relationship.
By not keeping a close relationship, suppliers can take their products to other companies and the suppliers can charge a higher price. The suppliers still continue business with Trader Joe’s because the suppliers understand how loyal Trader Joe’s is to their company. If secrecy were to be broken, suppliers and Trader Joe’s could potentially experience a decline in sales. To avoid this decrease, Trader Joe’s and its supplier need to maintain a close relationship. It is amazing how technology has improved shopping experiences for customers. Technology has produced price scanners and self check out lanes.
These technological breakthroughs have resulted in faster wait time in lines and also less crowded lines as well. Trader Joe’s has experienced customers being unhappy with how long the wait lines are. The PESTEL Analysis (Appendix B) takes a deep dive at this breakthrough. In order to keep customer shopping experience positive, I recommend that Trader Joe’s installs self-checkout lanes to improve customer shopping experience. If they do not follow with this tactic, then Trader Joe’s customers will begin to have negative feelings about shopping there. Industry and Competitive Analysis
Appendix A: Dominant Economic Characteristics Market Size and Growth Rate: The supermarket industry contains retail outlets in various shapes and sizes. The retail stores in the industry are comprised of supermarkets, such as Wal-Mart and Kroger, and premium players such as, Whole Foods at the high end of the market, and “hard-discounters” such as Dollar General and Aldi at the low end. Whole Foods has more than 330 stores in the United States, Canada, and the United Kingdom. Whole Foods stores contain 21,000 SKUs and store sizes average roughly 38,000 square feet. As of 2012, Whole Foods achieved an 8.4% increase in same store sales growth. Dollar General operated the largest number of small discount stores in the United States, with over 10,000 locations in 40 states. Dollar General stores offer 10,000 SKUs and operate in a 7,200 square feet of selling space. From its 2012 Annual Report, Dollar General reported same store sales growth of 4. 7%. In 2011, supermarkets share of grocery sales in the United States fell to 51%; just a decade ago, supermarkets accounted for two-thirds of all grocery sales in the nation. Scope of Competitive Rivalry: Supermarkets traditionally operated on very thin profit margins.
As a result, companies shed employees in order to become more cost competitive. Product Innovation: Most companies in the supermarket industry get ideas for product innovation from customer trends. The trends allow companies in the industry to grasp what wants and needs customers are currently evoking through purchasing patterns. Economies of Scale: Large purchases, in bulk at cheap prices, from supplier enable Trader Joe’s to allow everyday low prices. Learning/ Experience Curve Effects: The different companies within the industry are creating value for the customers by following trends. Appendix B: PESTEL Analysis Political Factors:
The supermarket industry is faced with the challenge of tariffs. Tariffs are trade barriers, in which, can complicate trading for firms as they outsource their resources. As a result, the tariff can cause companies to leave that market if the cost of the resource, after the tariff is processed, is not profitably suitable for the firm to operate. Economic Conditions: The unemployment rate has an affect on the supermarket industry. If the unemployment rate is too high, then this will cause firms in the industry to cut prices in their overhead. If this continues, then firms may sell some of their chains to private equity investors.
Supervalu was faced with this same experience in January of 2013. Supervalu sold five of its grocery chains to private equity investors due to them having to release employees to maintain cost competitive in the industry. As a result, Supervalu lost half of the company size. Sociocultural Forces: The new trend of consumers wanting to live a healthy lifestyle has made a huge impact in the supermarket industry. Whole Foods, a premium company in the industry, offer products that meet the needs of this new healthy trend. Whole Foods has experienced an 8. 4% increase in same stores sales growth, as of 2012.
Technological Forces: In the recent increase in technological use by companies, companies in the supermarket industry have been able to offer customers self-checkout and price scanners. These break-through findings have reflected how consumers are waiting less in long lines. Environmental Forces: Bad weather can impact the farming industry, which will result in a impact in the supermarket industry. If farmers are unable to farm crops or other resources that companies in the industry rely on, then the companies in the supermarket industry will face a reduction in sales. Legal and Regulatory Factors:
Wage legislation has affected the supermarket industry by employees unsatisfied with the amount of pay they receive for the amount they work. This will cause an increase towards the unemployment rate, which could potentially affect companies having to cut costs. Appendix C: Five Forces Analysis Rivalry among Competing Sellers (Strong): The rivalry among competing sellers is strong because Trader Joe’s offers more differentiated product offerings among other companies in the supermarket industry. Trader Joe’s doesn’t look at trends to decide which products to sell, instead Trader Joe’s will routinely change out different products.10 to 15 new products will be replaced on the shelves with the 10 to 15 that are lacking the most in sales. The differentiated product offerings, also, creates brand loyalty set by the customers. The new products contain attributes that are more appealing or better suited to their needs. Competition from Potential New Entrants to the Industry (Moderate): Competition from potential new entrants to the industry is moderate. There is a possibility that competition in the industry such as Whole Foods premium stores or a Wal-Mart or Target super store could open in the area at any time.
Trader Joe’s offers unique products that other stores do not; this is why the competition is moderate and not high. Trader Joe’s customers are also very loyal and would not consider trying a different grocery store even if Trader Joe’s was in a price war with other companies competing in the industry. Competition from Producers of Substitute Products (Moderate): Competition from producers of substitute products is moderate. One can be in any city in America and easily find a grocery store. Throughout different regions in America customers can choose if they want to shop at a high-end grocery store or at a low-end.
High-end grocery stores’ products have better performance features, such as taste, than do low-end grocery stores. What gives Trader Joe’s an advantage over other grocery stores is the customers experience while shopping at Trader Joe’s. If asked from a customer, employees are trained to show a customer where a certain product is in the store instead of pointing them to a aisle. This customer shopping satisfaction has created strong customer loyalty. Supplier Bargaining Power (Weak): Supplier bargaining power is weak. Trader Joe’s and its suppliers keep their business with each other a secret.
The reason behind this is that it keeps the media out of transactions made between Trader Joe’s and the supplier. With the media not present in buyer and supplier transactions, competition is clueless in their decision making because they have no idea what Trader Joe’s is doing or what products they’re about to release. Customer Bargaining Power (Weak): Customer bargaining power is weak. Customers at Trader Joe’s are very loyal to the brand. Regular customers at Trader Joe’s always come back to view the new products that Trader Joe’s has to offer and the customers are not price sensitive.
Appendix D: Drivers of Change Trader Joe’s is operating in the supermarket industry. This industry is very cost competitive and competition amongst companies within the industry are starting to witness a gap between premium brand grocery stores and low-end grocery stores. Premium brand grocery stores consist of Whole Foods, while low-end grocery stores consist of companies like Dollar General and Aldi. These two different types of stores offer various products at various prices. For example, Whole Foods concentrates in the organic and naturally grown market of the industry and have higher prices on their productsbecause the quality of the food you are purchasing for is much higher than Aldi’s prices and quality. The difference in products and prices is the reason for the grocery store gap. Companies caught up in the middle of the gap are strategically trying to get themselves out of the gap. Some companies can’t make it out of the gap because switching to the new products would be very costly for their company. Appendix E: Current Strategy Trader Joe’s has expanded relatively close to 400 stores nationwide in 37 different states. Trader Joe’s mission statement is emphasized around seven core values.
The seven core values are: integrity; product driven company; create WOM customer experience everyday; no bureaucracy; national chain of neighborhood grocery stores; KAIZEN! ; the store is their brand. A strategy that has worked effectively for Trader Joe’s is the secrecy within the company. Trader Joe’s doesn’t let the media know about their business with its suppliers. Secrecy is also desired by the suppliers; because the suppliers are providing Trader Joe’s a much lower cost version of their branded product, which might be selling at higher prices at Whole Foods or other retailers.
The secrecy strategy has kept customers patiently waiting, wondering what Trader Joe’s will offer next. The customers enjoy the wait because they are thrilled to see what new products Trader Joe’s will release. When the new products are open for sale there is a huge demand for them. Appendix F: Competitor Analysis Competitor Identification, Description & Strategy: Below is a table identifying Trader Joe’s competitor, a description about the competitor and what strategy the competitor implements. Competitor Description Strategy Wal-Mart Large discount retailer
Everyday low prices Dollar General Low-end grocery store Simple necessities (toilet paper, laundry detergent, paper towels, etc. ) Whole Foods High-end grocery store Organic and natural foods Key Success Factors: 1. Strong network of suppliers 2. Everyday low prices 3. Superior customer and employee satisfaction 4. Wages over minimum rate Weighted Competitor Strength Analysis: The table below is an analysis of Trader Joe’s KSFs weighted against Trader Joe’s competitors. Trader Joe’s Wal-Mart KSFs Importance Score Weight Score Weight Supplier Network
Trader Joe’s three biggest advantages are its customer loyalty, customer service, and everyday low prices. Weaknesses: The stores that Trader Joe’s own are very small compared to other stores within the industry. Another weakness is that Trader Joe’s has a very limited product selection. Trader Joe’s is constantly testing new products. When Trader Joe’s finds 10 to 15 new products, Trader Joe’s has to take the last 10 to 15 lacking in sales and replace them with the new products. Opportunities: Trader Joe’s has an opportunity to use more social media sites.
Trader Joe’s doesn’t have any having official Trader Joe’s social media sites, besides the fans websites made by fans. Trader Joe’s is sitting in a good position because everyone nowadays has above par skills with social media. Trader Joe’s can promote from within an employee who has the knowledge and skill to operate Trader Joe’s social media outlets. Threats: The biggest threat Trader Joe’s faces if a big grocery chain, like Wal-Mart or Target for example, were to discover Trader Joe’s suppliers and enter market with same strategy that Trader Joe’s currently uses.
This could potentially ruin Trader Joe’s business. Appendix H: Financial Analysis Trader Joe’s purchases each brand new item in large amounts. By doing so, Trader Joe’s is able to save money because they are buying new products in bulk. Once the purchase is made, Trader Joe’s pays its suppliers immediately rather than trying to stretch out its account payable for as many days as possible. With success in the financial realm of their company, Trader Joe’s has been able to have 400 stores nationwide and earn revenues larger than $10 billion in the past year.