Can Trader Joe's keep its charm?

The chain has the potential to triple in size, but can it maintain its neighborhood-store vibe?

By Kim Peterson Aug 24, 2010 1:50PM
Credit: (© Ric Francis/AP)
Caption: Trader Joe's storeTrader Joe's seems like a quirky little store with a fun wine selection and lots of organic products, but this chain is actually a well-run, smart operation.

It's sales were about $8 billion last year, Fortune reports, the same amount as Whole Foods (WFMI). But Trader Joe's sells about $1,750 in goods per square foot, which is more than double what "Whole Paycheck" can do.

Trader Joe's has no debt, and it pays for all growth on its own. And it has something other supermarket chains desperately crave: A fierce and loyal fan following.

It's perfectly normal for a TJ's shopper to gush to friends about Candy Cane Joe-Joe's, for example. But can you imagine similar adoration for, say, Safeway (SWY) Select products?

Which brings Trader Joe's to its current predicament. The company has 344 stores and is opening just five more this year, Fortune reports. The chain could easily grow -- some analysts say it could triple in size, in fact.

But how can Trader Joe's expand without losing that funky neighborhood-store attitude? "They see themselves as a national chain of neighborhood specialty grocery stores," one professor told Fortune. "It means you want to create an image of mom and pop as you grow."

That's a difficult task. It helps that Trader Joe's is extremely tight-lipped about its operations. Executives wouldn't talk to Fortune, and they require complete confidentiality from vendors who work with them. Post continues after video:
What's behind TJ's success? Fortune thinks it's "staying a step ahead of Americans' increasingly adventurous palates with interesting new items." Every time you walk into a Trader Joe's, you're likely to find something new and unusual.

Trader Joe's also sells far fewer varieties than mainstream grocery stores. It sells 10 kinds of peanut butter, Fortune reports, where typical supermarket might have 40.

Taking selection away from customers actually makes them happier in many cases, Fortune reports. If Trader Joe's will only stock 10 kinds of peanut butter, those better be 10 darn good peanut butters. Shoppers trust the quality of Trader Joe's products enough that they'll accept a smaller selection. That, in turn, gives Trader Joe's more purchasing power.

Trader Joe's employees are generally higher-paid than others in the business, with starting salaries in the $40,000 to $60,000 range, Fortune reports. Store managers can earn six figures. Additionally, the company gives about 15% of an employee's income to a tax-deferred retirement account.

It's hard to imagine Trader Joe's holding on to that vibe as it grows. But if this company ever has an IPO, count me in. There are more details in the Fortune piece, which can be found here.

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