Whole Foods should buy Trader Joe's

While it's at it, the retailer could learn a lot from Starbucks about using technology to drive sales.

By TheStreet Staff Jan 10, 2013 2:18PM

Shopping cart copyright Claus Christensen, PhotographerBy Rocco Pendolathestreet logo

 

I'm watching Howard Schultz build an empire at Starbucks (SBUX). Outside of Apple (AAPL) and Amazon.com (AMZN), there's not another company doing what Starbucks does, as well as it does.

 

Starbucks is a tech company in a retail coffeehouse's clothing. You might be tempted to compare it to a retailer like Whole Foods Market (WFM), but Starbucks really is a superior company for the long-term.

 

On most days, I have nothing even remotely negative to say about Whole Foods from consumer and investor perspectives. I love the company and really like the stock. However, when I conduct a rigorous comparison of Starbucks and Whole Foods, I start to see the latter's flaws.


 Starbucks doesn't win out because of scale and size -- it wins because it's cutting edge.

 

Thanks to a colleague, I got my hands on a Starbucks Steel Gift Card. This is the premium Starbucks card, loaded with $400 and retailing for $450 in a limited quantity of 5,000. The cards sold out in minutes. And now they're popping up on eBay for prices as high as $700 or $800.

 

Why is this relevant? It's relevant because the Starbucks iPhone app I downloaded a few months ago has made me a loyal customer. I hit Starbucks at least once a day now, sometimes twice. The app got me in the door. Combined with friendly baristas and a solid drink, it keeps me coming back. Talk about driving engagement. That's exactly what the app does. It's exactly what Starbucks intended it to do. It's brilliant.

  

Whole Foods needs to do something like this. The standard Whole Foods customer, at least in my neck of the woods, is the typical Starbucks customer. They're tech-savvy, iPhone-toting yuppies who already have or are starting to have guppies. Playing with an app in a grocery store is the ultimate diversion from the everyday monotony of life.

 

There's no excuse not to have a shopping app. Safeway (SWY) has a pretty solid one, Whole Foods does not.

 

Whole Foods doesn't just needs technology -- it should be more aggressive about growth. I think it should buy Trader Joe's, and here's why.

 

If you live in a place without a Whole Foods or Trader Joe's, you want one or both. If you live in a place that has both you probably shop at both. I go in waves, but ultimately I split my time almost evenly between the two stores.

 

Trader Joe's has more than 350 stores, highly concentrated in California but scattered across the nation and growing fast. Trader Joe's stores tend to be much smaller than Whole Foods stores. In the last couple of years, as Whole Foods has focused more on its "generic" Everyday 365 line, the price gap between the two has narrowed. While Whole Foods still sells items at a considerable premium to Trader Joe's, it's no longer Whole Paycheck. You can still drop absurd amounts of money on cheese and salami, but you have more choices than ever before at various price points.

 

If Whole Foods bought Trader Joe's, it could turn its stores into one-stop-shops for Everyday 365 products and Trader Joe's-branded items. Make it the Whole Foods Market corner store with a small produce section and an expanded beer section. A handful could be turned into full-fledged Whole Foods stores, or used to test concepts.

 

I may sound like I'm dreaming. Either way, Whole Foods needs to do more to stay competitive long-term. It owns a lifestyle consumer today -- but that could change in a flash.

 

I understand that messing with the Trader Joe's concept would upset a lot of people, but even the diehards would get over it. They all shop at Whole Foods anyway (even if they say they don't) and they're the same people who claim to hate Starbucks while sipping a grande, extra-hot, double, skinny, no-foam latte with a shot of peppermint.


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21Comments
Jan 10, 2013 4:22PM
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Trader Joe's ought to buy Whole Foods.
Jan 10, 2013 4:01PM
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Hopefully, this will never happen.  Whole foods is larger, more expensive, and a bit misleading as to it's organic produce.  Others may not agree, but, that's my personal, subjective view, based upon taste, cost, and their ads.  Trader Joe's, in our town, is easier to shop, has convenient frozen food aisles, and offers products that either can't be found, or are difficult to find, in other stores. When I was a wine drinker, Trader Joe consistently offered wines, at ridiculously low prices, that were much superior to more expensive brands,  What Starbucks has to offer, may tease the stock hunter, but, despite the claim, not all Trader Joe shoppers use Starbucks.  Some consider it an expensive waste, a way to keep Advertisers occupied, and a complete puzzle as to it's popularity.  We have enough too-large organizations.  Keeping markets separate, like Trader Joe and Whole Foods, offers some competition for improving products and matching prices.  Even Sprouts offers quality products, that rival or surpass either Trader Joe, or Whole foods.  Keep stock bottom-liners out of the food business; good nutrition is already too difficult to find.
Jan 10, 2013 8:25PM
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You gotta be kidding?

Trader Joes is the best there is.  Only 3 miles from my house.

They treat their customers like real customers, and have excellent foods and great bargain prices, especially when you need them too.

btw: Never shopped at Whole Foods.  The nearest is at least 12 miles away. ..... but there is another Trader Joes within 6 miles.

Jan 10, 2013 8:24PM
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Rocco Pendola is a nut. Using a phone app to buy food??  Drinking Starbucks coffee at all???  Pretty lame on both counts. Why would someone spend $450 for a gift card with only $400 available? Lame again....
Jan 10, 2013 10:21PM
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This author goes to Starbucks more than once a day?   Lazy.   Get a coffee maker for home and save a couple thousand bucks a year.
Jan 10, 2013 10:16PM
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Trader Joe's is PRIVATELY OWNED.  The author talks like WFM can just run to the NYSE and bid on all the shares.  lol.,
Jan 10, 2013 11:44PM
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Obviously I am not in the same yuppie class as the writer. I do shop more than once a week at my local Trader Joe's and appreciate the value and selection they offer for such limited space. As for Whole foods I have 3 in my area including one that has a brew pub yet I find them over priced for what they offer and rarely shop there preferring  to support local organic co-ops that might not have as nice produce but certainly better prices.  I do like Starbucks and admire the business but more than once a week is my limit. I don't own stock in any of these as I prefer to give my business to another well run company Costco who I do own stock in.
Jan 10, 2013 8:06PM
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Congrats to Aldi's for doing so well with Trader Joe's.

Jan 11, 2013 8:34AM
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Trader Joe's is part of the Aldi corporation, so I don't see TJ's wanting or needing to sell to Whole Foods.  TJ's is the Aldi version of Whole Foods.  Like Aldi, a majority of TJ's products are sold exclusively at TJ's and at a substantial discount to the Whole Food equivalent.   What you are suggesting would reduce competition in that market place and in the end would be bad for consumers.  While people may choose to go to Starbucks for extraneous reasons, grocery shopping is a different matter.  I prefer choice, even if it means having to visit two different stores.
Jan 11, 2013 2:53AM
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What planet are you ? Comparing Whole Foods with a company that puts out such an inferior product as Starbucks coffee is ridiculous. Trader Joe's is just fine. The German owners will not sell.
Jan 11, 2013 7:11PM
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I love and shop at Trader Joe's. I DON'T go, ever, to Whole Foods. I don't have an iPhone, either.
Jan 10, 2013 5:37PM
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Trader Joes is owned by the same trust that owns Albi Nord supermarkets which is not the same as the one that owns Albi Sud (which owns the US Albi supermarkets). A merger of the two Albi groups and continued Albi expansion would seem to me to be much more likely than the group selling a profitable subsiduary.

Of course, everything has a price but if Whole Foods wants to acquire technology and marketing skills, there are probably cheaper ways to obtain them.

Jan 11, 2013 11:56AM
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Shopping experiences, are in the eye or pocketbook of the Beholder...

We all go different places for different reasons...

 

Convenience and or Location.(distance)

The quality of merchandise.

The service received and people working there.

Cleanliness in the business

Special sales, discounts or coupons.

To purchase specific items.

Places with wide selections.

And prices in General........I really doubt that very many shop only one or two places.?

Jan 10, 2013 7:10PM
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Anybody so in love with Starbucks has to be a Nut Job ! Really what are you still in High School ? And ..... You can keep Trader Joes and Whole Foods. A waste of money in my humble opinion !
Jan 10, 2013 10:22PM
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They all ought to stop putting so many damn ingredients in the foods. Plus, the enhancement of flavor of foods is why so many folks are politely classified as obese these days. If we eat foods the way we find them in nature more, we don't overeat them nearly as much. There should not be one single product on the shelves that just says XXXX oil. Unless it says virgin, extra virgin or cold-pressed, etc. the oils' beneficial properties have been decimated and have been made into annoying hurtful properties. Salt is way overused, this is a bad way to enhance flavor in foods. Some say you could get by with as little as 10 mg per day! If you've been ill with some of the many maladies people sometimes get as they get older or party too much, these ingredients and other additives are again, sorry to say, very subtly, killing us. Then again, it's impossible to keep track of every little bit of nutrition common sense and some don't really have the time. I think those stores are great. I liked the pumpkin flavored coffee from the fall season Trader Joe's had. That was really nice. Whole Foods is a little pricey for me, but the produce is number one and the produce is my main food. I'm glad that someone besides SAFEWAY and other mainstream markets took an interest in our nutrition actually. There seems to have been a group that was headed in the wrong direction and not facing up to reality.
Jan 11, 2013 2:50AM
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Don't know Trader Joes, have heard of it, But do go to Aldis about every 3 months for heavy stocks of staples...Pet foods and loss leaders at Wally World and Hometown for meats and everything else..

 

It pays to be a smart shopper..

And we have all others inc WHFDS available.

Jan 10, 2013 10:29PM
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We live in Kirkland, WA.  We have a Costco, QFC, Fred Meyer, Metropolitan Market (local upscale chain), Whole Foods, PCC ( NW organic chain), Safeway, Albertson, Uwajamiya (Asian supermarket), United Grocers (restaurant-orientated) , Total Wine, Bev-Mo, within 15 minute drive.  Wal-Mart is 20 minutes away.

 

Anyway, we shop as needed 

Jan 10, 2013 10:19PM
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I like Trader Joes, but their selection is nonexistent.   Hope they don't sell.   Their prices are reasonable, but most everything they sell is generic/ their own brand  just like their sister store Aldi's.
Jan 11, 2013 10:53AM
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Trader Joe's that they just opened here in Plano, TX is a joke,  HIGH prices, low quality, total lack of selection.      Market Street across the street beats them hands down.
Jan 11, 2013 1:25PM
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I have been to both Whote Foods and Trader Joes.  Why are people paying these ridiculous prices because "well, it is organic".   There is no scientific evidence to show that anything "organic" is more nutricious or that you live longer than non organic.  It is simply a marketing scam for the nitwits.   Organic is suppose to mean carbon based, at least what I learned in chemisty, and here it is suppose to mean something that was grown with horse manure.   Sorry but until some scientific evidence is presented this expensive nonsense is better for your health, I will shop for the prices. 
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