EVERY SPOKEN WORD
150 min read · 30,012 words- 0:00 – 4:56
Intro to Trader Joe's Unique Retail Strategy
- BGBen Gilbert
I decided today needed to be an all Trader Joe's day. Actually, I gotta show you. Check out my haul.
- DRDavid Rosenthal
Oh-ho!
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
Tote bag. You are stylin'. Take that to Europe.
- BGBen Gilbert
I've got some Two Buck Chuck.
- DRDavid Rosenthal
Nice.
- BGBen Gilbert
Got so many nuts.
- DRDavid Rosenthal
So many nuts.
- BGBen Gilbert
Some chocolate, some cheese. A little picnic we're gonna have here in the recording studio. All right, here I am popping this bottle of Charles Shaw, and [cork popping] we are ready to go.
- DRDavid Rosenthal
All right. [laughing] That might be the nicest wine opener that has ever been used-
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
-for Two Buck Chuck.
- BGBen Gilbert
All right, let's do it.
- SPSpeaker
Who got the truth? Is it you, is it you, is it you? Who got the truth now? Hmm. Is it you, is it you, is it you? Sit me down, say it straight. Another story on the way. Who got the truth?
- BGBen Gilbert
Welcome to the Fall 2025 season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert.
- DRDavid Rosenthal
I'm David Rosenthal.
- BGBen Gilbert
And we are your hosts. Peanut butter-filled pretzel nuggets-
- DRDavid Rosenthal
Mm.
- BGBen Gilbert
-some Hold the Cone mini ice cream cones, plantain chips, and mandarin orange chicken. These are a few of the items I picked up this week on my trip to Trader Joe's.
- DRDavid Rosenthal
Mm.
- BGBen Gilbert
You know, David, had to do a research trip. It was mandatory.
- DRDavid Rosenthal
Had to do the research trip.
- BGBen Gilbert
I don't think I've ever spent more money at Trader Joe's, 'cause I just said yes to everything.
- DRDavid Rosenthal
[laughing]
- BGBen Gilbert
It felt like I needed to have it all.
- DRDavid Rosenthal
[laughing] Ah, but you couldn't have spent that much money. That's part of the point.
- BGBen Gilbert
Listeners, America seems to have an obsession with this grocery store, Trader Joe's. It's a strange mashup of a health food store that carries interesting and quirky products inspired by traveling the South Seas, but for value-conscious shoppers, and they break every rule in grocery retailing. It's not that convenient. They don't stock all the things you need to buy each week. You can't buy online. You can't get it delivered in any way, even as the whole world turns to grocery e-commerce. Parking is reliably horrible.
- DRDavid Rosenthal
[laughing]
- BGBen Gilbert
I mean, every Trader Joe's I've ever been to. [laughing]
- DRDavid Rosenthal
Part of the strategy, Ben. It's part of the strategy.
- 4:56 – 34:47
Founding "Pronto Markets" and the 7-Eleven Threat
- BGBen Gilbert
David Rosenthal, where are we starting our story?
- DRDavid Rosenthal
Oh, man. Well, I wish that you and I had investments in this company-
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
... but unfortunately, only one person in the world does, and he's deceased, [laughing] as we will see at the end of the episode.
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
We start with Trader Joe himself, Joe Coulombe, because you can't separate Trader Joe's from Trader Joe. Joe Coulombe was born in 1930 in San Diego, California, the same hotbed of American retailing innovation that produced Sol Price, Price Club, and everything that would become Costco-
- BGBen Gilbert
Yep
- DRDavid Rosenthal
... which we so lovingly talked about on that episode a few years ago. Joe's father was an engineer at Convair, an aircraft manufacturer in Southern California in the defense industry there, and his mother was a school teacher. And perhaps inspired by his mother, Joe was a very good student. He ends up going to Stanford for his undergrad. He gets his undergrad degree in economics in 1952.... And then, somewhat unusually for the time, he stays on at Stanford for an extra two years, and he gets an MBA at the Stanford Graduate School of Business in 1954.
- BGBen Gilbert
You know, there's a lot of famous Stanford alumni. This is not one that people are walking around quoting, "You know, Joe Coulombe was a GSB alum." Like, he's not the- you know, the Phil Knights come to mind.
- DRDavid Rosenthal
Back then, not that many people were going to business school, or at least not Stanford Business School. And reflecting that, Joe goes to get a job after GSB, and the only job he can get is back in Southern California at the lowly Owl Drug Company, which is a subsidiary of the larger Rexall Drug Company, a line of regional drugstores throughout America. And this is a struggling company. [chuckles] How times have changed for new GSB grads these days in the job market. So what was Owl? Owl was a chain of three hundred drugstores up and down the West Coast. So Joe gets hired by an executive named Bud Fisher, who specifically wanted to bring in a recent MBA grad to research alternatives for turning around Owl. The company is struggling. So Joe goes off, and he scours the country and comes across a relatively new concept coming out of Texas, launched by a company called the Southland Corporation, called the Convenience Store, and Southland has just recently rebranded their stores, that they are operating very successfully in Texas in this convenience store model, to something called 7-Elevens.
- BGBen Gilbert
Ah, yes.
- DRDavid Rosenthal
The history of 7-Eleven and the Southland Corporation is fascinating and probably merits an Acquired episode of its own someday. Here is a list of crazy things about 7-Eleven. One, today, 2025, they have more stores than any other retailer in the entire world. [laughing] They are the largest retailer in the world by number of stores.
- BGBen Gilbert
Which is not the way that you should be impressed by a, a retail company, but it is impressive.
- DRDavid Rosenthal
No, their market cap is about thirty billion dollars, so, like, a small fraction of Walmart and Costco and Amazon, et cetera. Two, they invented the to-go coffee cup.
- BGBen Gilbert
Ah.
- DRDavid Rosenthal
It's wild. And also, the self-serve soda fountain. And then this is my favorite: in the '70s, the Southland Corporation franchised the 7-Eleven concept to a company in Japan, a supermarket chain there. It became so successful in Japan, and 7-Elevens in Japan are, like, so deeply part of the Japanese culture, that in the '90s, 7-Eleven Japan bought out the 7-Eleven parent and now own the company. 7-Eleven today is a publicly traded Japanese company on the Tokyo Stock Exchange, founded in Dallas, Texas, that operates the largest global retail chain in the world. [laughing] Amazing.
- BGBen Gilbert
Of course, of course!
- DRDavid Rosenthal
Incredible. But for our purposes today, back to its original instantiation as part of the Southland Corporation, how did this come to be? So Southland was founded in the 1920s as an ice company.
- BGBen Gilbert
Oh, yes.
- DRDavid Rosenthal
This is before home refrigerators were a thing. People had ice boxes in their houses, and they had to get their ice somewhere.
- BGBen Gilbert
I've actually got the whole history on this. Can I take it?
- DRDavid Rosenthal
Yeah, go for it.
- BGBen Gilbert
All right. So listeners, this comes from Benjamin Lorr, who wrote the exceptional book, The Secret Life of Groceries, which we're gonna reference a bunch in this episode. So Southland had a chain, David, of what you're talking about, these ice docks, where people would bring their mule-drawn wagons and pick up ice in the Texas heat, pre-cars, pre-refrigerators, pre-freezers, pre-anything. So this innovation happens where, in 1927, a guy named John Jefferson Green figures out, "Hey, I don't think people wanna leave their house in the middle of the Texas heat in the summer to bring their mule and wagon over to get the ice. I think we should do it when it's a little bit cooler outside. What if we open at, like, seven AM, and we stay open late till, like, eleven PM?"
- DRDavid Rosenthal
"So our customers can come get their ice for their ice boxes when it's not gonna melt on the way home."
- BGBen Gilbert
That is exactly right. This meant, of course, that his hours are now even longer than the general stores, where people are going and getting their goods. So, as legend has it, a woman comes up to his ice dock and says, "You know, you're the only thing open right now. I really wish you stocked milk in addition to your ice."
- DRDavid Rosenthal
Makes sense. "I buy my ice for my ice box from you. Why can't I buy the things that I put in my ice box?"
- BGBen Gilbert
Exactly. And so John Jefferson Green immediately calls the folks he knows at the Southland Corporation, kind of the parent, and says, "If you give me the money, I'll source milk and eggs and bread, and I'll split the profits with you. This way, you can kind of be in another line of business. We've got this stand. We may as well do this, too." And the convenience store was born, or more effectively, the first 7-Eleven. Even though it wouldn't be fully rebranded yet, this becomes 7-Eleven.
- DRDavid Rosenthal
And this, of course, seems obvious today. Like, oh, why didn't anybody try this before? This is the heyday of the milkman-
- BGBen Gilbert
Yep
- DRDavid Rosenthal
... and the produce man and the poultry man. Yeah, these things get delivered, or you pick them up in a market in town. The modern supermarket, let alone convenience store, doesn't exist yet.
- 34:47 – 59:10
Redefining Grocery with Liquor and Tiki
- DRDavid Rosenthal
Okay, so Joe comes back from this vacation, and what does he do? Yes, he's a genius, but he also... He's got, like, a real back-against-the-wall problem.
- BGBen Gilbert
Right. He's thought through all these implications, he's forecasted the future, and he's gonna go out of business.
- DRDavid Rosenthal
He needs to make his rent this month. [laughing] So he needs to find something that he can start selling that is basically the Venn diagram intersection of high enough value that he can get real gross margin dollars out the bottom from his small handful number of stores to meet his obligations.
- BGBen Gilbert
He needs it to quickly become a good business.
- DRDavid Rosenthal
Quickly provide returns, and is protected from the 7-Eleven juggernaut that's coming.
- BGBen Gilbert
'Cause you never wanna compete with someone bigger, more established, better capitalized than you on the exact same footing that they're on. You need to do something different that they can't or won't do.
- DRDavid Rosenthal
Yep. And he lands on hard alcohol. [laughing] This is the hilarious thing about Trader Joe's. It actually starts as a hard liquor company.
- BGBen Gilbert
It's an ammo and tobacco company that gets into hard liquor. [laughing]
- DRDavid Rosenthal
Right. Right, right. [laughing] So hard liquor is actually very, very, very attractive here. It's very high value. There are a set of laws called fair trade laws that impact everything that retailers sell in this era. It's actually kind of crazy. It's a holdover from the Depression. We talked about it on the Costco episode, where it was illegal for retailers to sell goods below the minimum price set by manufacturers.
- BGBen Gilbert
Right, it's not just MSRP. It's not just a suggested retail price. It's, "You will go to jail if we catch you selling below the price that the cabal of producers of any given good set."
- DRDavid Rosenthal
Yes. Once all this stuff gets thrown out and ruled unconstitutional, et cetera, now it's suggested. Back then, it was, like, mandated. But the net of that is, if you can find a way to sell hard alcohol, because they're high dollar value, you know you're gonna get a certain amount of profit out of it.
- BGBen Gilbert
And the way this works is you need to make sure you get liquor licenses, which are hard, but if you have a liquor license, then it's like an annuity. People are definitely gonna come to your store, they're definitely gonna buy liquor, and you have a regulatorily protected profit on that liquor.
- DRDavid Rosenthal
Yes.... and that's the moat against 7-Eleven. 7-Eleven, giant Southland Corporation, they're not gonna come to California and get liquor licenses for all these stores that they're gonna open. They're an out-of-state corporation. Like, Joe can be much more nimble.
- BGBen Gilbert
Mm.
- DRDavid Rosenthal
He can invest the time and the money. These things cost a lot of money back in the day, 'cause they're basically, like you said, a guaranteed annuity, profit stream, and he can invest at a small scale, raise more debt to do this, and this is his way out.
- BGBen Gilbert
And that was basically his bet is 7-Eleven, because this is like a small little arm of their operation, they're not gonna change their sort of national business model to, in this little pocket, have liquor?
- DRDavid Rosenthal
I think that's right, and I think they did not sell hard liquor, period, at that point in time. It just wasn't part of their strategy.
- BGBen Gilbert
Okay, I see.
- DRDavid Rosenthal
And there's one other, perhaps unforeseen at the time, but ultimately incredibly strategic benefit to this decision to go all in on hard liquor, which is it's also a moat against supermarkets-
- BGBen Gilbert
Oh, yes
- DRDavid Rosenthal
... and the grocery industry. They're not gonna do hard liquor either.
- BGBen Gilbert
At least at this point in time.
- DRDavid Rosenthal
So he goes, raises more capital, [chuckles] gets the licenses.
- BGBen Gilbert
This is, like, the third tranche of debt that he's taken on now?
- DRDavid Rosenthal
Yeah. Yeah, yeah, yeah. So it works for a couple years. Pronto Markets basically transforms into a liquor store, and it buys Joe a couple of years to figure out the bigger business plan and stave off the invasion from 7-Eleven. They're still selling other stuff in the stores, but they start devoting more, and more, and more space to liquor, 'cause it's highest value per square foot. They have a regulated, protected right to sell it that their competitors don't have. I mean, there's an alternative world where Trader Joe's basically becomes Total Wine or BevMo! or something like that.
- BGBen Gilbert
Yeah, uh, if they had just kept scaling this strategy linearly instead of completely changing tracks and going in this other direction.
- DRDavid Rosenthal
Yep. All right, so let's talk about supermarkets.
- BGBen Gilbert
Listeners, I did sort of a brief history of supermarkets in America to come up to speed on what Trader Joe's does differently and how we got here. So you go way back, all the way to pre-Civil War America, and you've got general stores. We all sort of have this loose idea of what this looks like. You got one counter. There's a bunch of goods that you can see, but it's not self-serve. You don't get to go pick up any goods yourself. The employee of the general store, or more than likely the owner, is just gonna be the person who fetches it for you and then checks you out. That is kind of the retail experience in America pre-Civil War. Then, there's this series of innovations that advanced from this to the grocery store. So the first is the box, the cardboard box.
- DRDavid Rosenthal
Mm, yeah.
- BGBen Gilbert
And specifically, pre-cut corrugated cardboard boxes happen in the 1890s. It's rigid, it's cheap, and it enables shipping at scale. So suddenly, you can have regular shipments in predictable quantities inexpensively between producer and retailer. That's puzzle piece number one. Then, you've got the flat-bottomed paper bag. That had happened a little bit before in the Civil War. They used to use cotton bags, but it's in short supply because you need cotton for the soldiers, and so necessity is the mother of invention. We get the brown paper bag. You have canning. Before this, you only had glass. It would break, it was fragile, it was expensive. Suddenly, you can use tin, and you can manufacture this at scale. You can keep goods fresh for a long period of time. It's durable, and again, it's in this easy-to-manufacture, fixed-quantity size. You then get cardstock. This enables real consumer packaged goods like cereal, cracker boxes... You know, that's still most food today.
- 59:10 – 1:17:00
Early Trader Joe's: Pioneering California Wine
- BGBen Gilbert
All right, so David, what is strategically different? What are the choices that Joe made when he opened that first Trader Joe's in Pasadena, other than, of course, putting everyone in Hawaiian shirts?
- DRDavid Rosenthal
So the first, obviously, is the target market, like we just talked about, you know, these newly educated college grads who are about to travel the world. Joe has this sorta folksy shorthand for this in the book of the overeducated and underpaid. [chuckles]
- BGBen Gilbert
Yes. It's interesting, at this point, it's not branded products, really, the way that Trader Joe's is today. It's just a convenience/grocery store that happens to target people who value authenticity, quality, sophistication, but also want affordability. It's sort of this early career, post-grad type of person, so it's near college campuses. It's near large hospitals. Interestingly, it's also near retirees-
- DRDavid Rosenthal
Yes
- BGBen Gilbert
... because retirees sort of behave similarly to younger pre-family folks.
- DRDavid Rosenthal
This is the dual pillars of Trader Joe's target customer is it's young professionals starting out and retirees.
- BGBen Gilbert
Yes. It's funny, the retirees also very value-focused and, uh, large consumers of liquor, candy, high-fiber foods, vitamins. It's a [chuckles] big profit center. A thing that they do here to sort of play into the overeducated, or I would say highly educated, underpaid, is the Victorian art with the sorta cheesy, humorous captions. They adopt this as their visual identity. It's a double win. It plays off this educated customer base, where they can make jokes. Like, if you go buy the... Is it the guacamole that they call Avocado's Number as a play on Avogadro's number-
- DRDavid Rosenthal
Yes
- BGBen Gilbert
... in, is that chemistry?
- DRDavid Rosenthal
I think so, or they used to have the Sir Isaac Newtons.
- BGBen Gilbert
Of course. But two, Victorian imagery is royalty-free. Anything before 1906 is public domain, so this is just Joe being cheap. All the packaging is just ripping off these old royalty-free images.
- DRDavid Rosenthal
That's Trader Joe's right there.
- BGBen Gilbert
It's amazing. And so he really comes up with this thing he calls the four tests.... which is one, we wanna stock goods that are high value per cubic inch.
- DRDavid Rosenthal
Yes, that starts, of course, with liquor, as we talked about.
- BGBen Gilbert
Yes. And then, of course, vitamins, and you walk into a Trader Joe's today, you can almost feel that it's stocked with things that are high value density. Even though the goods aren't expensive, the way it's all jammed into the store, it feels dense.
- DRDavid Rosenthal
Yes, and Trader Joe's today average about, call it 15,000-ish, maybe a little less square feet per store. The average supermarket is, like, 50,000 square feet, and the average Walmart is, like, 150,000 square feet.
- BGBen Gilbert
And back then, Trader Joe's was, like, 4,000 square feet. I mean, these were tiny stores, so they needed high value density in them.
- DRDavid Rosenthal
Or... I'm gonna come back to that in a minute. He wanted them to be 4,000 square feet.
- BGBen Gilbert
[laughing] Two, high rate of consumption. You want customers coming back over and over again.
- DRDavid Rosenthal
Vitamins.
- BGBen Gilbert
Three, goods that are easily handled. So much of Trader Joe's business stems out of this, that they are unwilling to start doing things that are hard to handle, that are logistically difficult, and they kinda have this ethos of, "If we can make it so people are willing to overlook the fact that we don't have some stuff that's hard to handle, then great! All the better business for us if we can keep customers coming back, and we only have to deal with easily handleable goods." And then the fourth is probably the most important: something that Trader Joe's can be outstanding in terms of price or assortment.
- DRDavid Rosenthal
Yes.
- BGBen Gilbert
This is the counter-positioning. This is how can we be different than what every other player in the market is doing?
- DRDavid Rosenthal
So this last strategic tenet is, I think, most perfectly, perhaps in Trader Joe's entire history, exemplified in the first new product category that they add beyond liquor to this official new first Trader Joe's store. You mentioned a minute ago that Joe's target square footage size for the new Trader Joe's store concept was, like, 4,000, 4,500 square feet.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
The first location on Arroyo in Pasadena, even though it's small today, was actually about twice that size. It was, like, 7,000 or 8,000 square feet. Not by design. "We wanna be in Pasadena. That's the perfect first market. I'm willing to trade off having a bigger store than I would actually like."
- BGBen Gilbert
And he was meticulous about location picking. It wasn't just, "Let's look at some census data and figure out incomes." I mean, it was the soft factors of, is there a university close? But he would just go drive up and down all the neighborhoods around it and try to figure out, "Hey, are these my customers? How easy is it to access my store if I put it on this block versus that block? Oh, if I'm on the wrong side of a divided highway, then I actually can't access all the people who have to, you know, make a left turn into traffic." It was really this sixth sense for developing, "What is my actual easy, addressable customer base from this store, who is gonna make this store their home spot?"
- DRDavid Rosenthal
Yep. So they move in, got the Trader Joe's concept with hard liquor being the cornerstone, sort of first.
- BGBen Gilbert
Yeah, what was the second?
- DRDavid Rosenthal
Well, they gotta figure out what to do with all this extra space, and at first, they try bringing in a meat department, a meat butcher, as a concession, as a subtenant.
- 1:17:00 – 1:28:53
Embracing Health Foods
- DRDavid Rosenthal
And that leads into the next era that Joe also sort of, in goofy fashion, calls Whole Earth Harry, the health food era of Trader Joe's. So I think you could say about Joe that he was a genius at many, many things, just about every critical aspect of retailing. But I think maybe his greatest genius was identifying major demographic and cultural trends-
- BGBen Gilbert
Yes
- DRDavid Rosenthal
... that were just starting in America, and then creating the products and the merchandising to capitalize on them.
- BGBen Gilbert
It is astonishing how he had his finger on the pulse and how he was willing to either change what Trader Joe's was or adapt it and add a new layer on top to turn Trader Joe's into the next version of what it needed to be. You mentioned some attributes on Joe himself. This is a beautiful excerpt from Benjamin Lorr's book that I think is just the best description of him: "Joe is a man frequently described as a genius by other very smart men." And I should say, Benjamin Lorr, the guy writing this, very critical, very journalistic in his approach. The whole rest of the book is applying a lot of scrutiny to the grocery industry. The fact that he talks about Joe this way actually has a lot of credibility. "When asking his employees and competitors and industry observers about him, I hear the word visionary so many times it becomes worrisome. I hear he is brilliant, incredible, wise. Grown men tell me they are awestruck, chilled, giddy in his presence. Executives who worked for him, stuffed C-suite dullards of the grotesquely self-confident variety, will drop all pretense and describe wanting to wake up early in the morning to race to work because they can't wait to hear what Joe has to say. They tell me he has a photographic memory, that he can read up to twelve hundred words per minute, that he adds, multiplies, or divides lists of figures in his brain quicker than they could ever scan them, that he knows the names of all his employees, their spouses' names, and their dates of hire, and their birthdays, and their wedding anniversaries. But beyond all this awe, the steel cage memory, the gymnastic cognitive quickness, the genius of Joe that impresses me most is his ability to project this integrity and decency when he wants to. He keeps you guessing exactly where the line lies between calculating businessman and wholesome, self-taught founder in a way that allows almost everyone who meets him to underestimate his abilities, yet simultaneously afford him huge amounts of respect. It is an awesome talent, especially in a business built on negotiation, trust, and quick, decisive deals."
- DRDavid Rosenthal
... That is so awesome.
- BGBen Gilbert
I'm telling you, this whole book is just beautiful prose, but that's a great encapsulation, and when you layer on top that intelligence with that interpersonal ability, and then this thing you're talking about, David, this seemingly ability to predict the cultural future of where America is heading, and then build Trader Joe's as the product for that future, it's unbelievable.
- DRDavid Rosenthal
It's amazing.
- BGBen Gilbert
So this Whole Earth Harry era, where we wrap ourselves in a blanket of granola, and health food, and-
- DRDavid Rosenthal
[laughing] almond butter, and nuts, and dried fruits. So at the end of the '60s and into the '70s, the California hippie, counterculture, summer of love movement kind of bifurcated and went off in a whole bunch of different directions. And one of those directions was Silicon Valley, and tech, and computers, and Steve Jobs, and Nolan Bushnell, and Woz, and that becomes Apple and everything.
- BGBen Gilbert
The Haight Ashbury.
- DRDavid Rosenthal
Yeah, yeah. Another one of those directions was the organic health food movement, and for Joe and the target audience of overeducated, underpaid consumers, this, just like wine, is right in the sweet spot. You can merchandise it just like wine. You can tell the stories about what these foods are, why they're better, why they're great for your body. It's high value per cubic inch. It's more expensive than regular food. Joe has this amazing quote on this. He says, "We prepared to marry the health food store to the liquor store." [laughing]
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
"This concept obviously was founded in schizophrenia, but it occurred to me that people who really thought about what they ingested, whether they were wine connoisseurs or health food nuts, were basically on the same radar beam. Both groups were fragmented from the masses, who willingly consumed Folgers coffee, Best Foods mayonnaise, Wonder Bread, Coca-Cola, et cetera. Both groups were the kind of people who I was hoping represented a breakup of mainstream consumption in America. And so by the spring of 1971, the caterpillar, Good Time Charlie, had emerged from his chrysalis-
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
... as Whole Earth Harry, a party store come health food store." It's amazing. This is all happening, call it five to eight years before John Mackey starts Whole Foods in Austin, Texas. So this is how on the pulse Joe was, and Whole Foods would obviously become the closest substitute competitor that Trader Joe's has out there. I mean, they're still pretty far apart. But yeah, it's wild. Joe sees all the things that John would then see and create Whole Foods, and he saw them five-plus years before.
- BGBen Gilbert
Yep. It's about aligning your trade-offs. The other amazing aligned thing about this customer base that he's trying to serve and the business that he's trying to create of be this sort of anti-supermarket, with health foods, you can buy batches of food from suppliers that the big chains won't or can't, because they're just not set up to do it.
- DRDavid Rosenthal
The CPG companies are never gonna touch this stuff, at least in the '70s.
- BGBen Gilbert
There's this amazing story of someone comes to visit Trader Joe's saying, "Hey, I have a whole bunch of extra large eggs that I just can't sell to the supermarket chains. Can you help me out?"
- DRDavid Rosenthal
They only want large eggs.
- BGBen Gilbert
Yeah, and Joe says, "Sure, what's going on with them?" And he says, "Well, they only want large eggs. I'll sell you these extra large eggs that are at least twelve percent bigger, but for a lower price, 'cause I can't seem to unload them." And he's like: "Why the deal?" And the supplier says, "Well, the large supermarket chains only want continuous items, and I'm actually not sure I can regularly produce enough of these extra large eggs." The kinda disturbing part about this is it's because it's at the end of the chicken's life that they produce these extra large eggs, so it's kind of the last eggs they'll lay. "And unless I can promise a certain volume and certainty that I'll be able to supply, there's not a market for it."
- DRDavid Rosenthal
The big supermarket industry just isn't interested.
- BGBen Gilbert
Trader Joe's is like: We've got the perfect consumer for you. They're value conscious. Our message to them is, "Sometimes we'll have stuff, sometimes we won't," and so if you just want to sell those to me, I'm sure I can unload them on our customers. They're gonna love the deal, and then it's actually not a big deal for me when I run out, because that's not a part of our value proposition the way it is for the big supermarkets. So this begins what Joe calls intensive buying. If we have line of sight on something that we can uniquely sell, that we're gonna get a great deal on, that we know our customers are gonna love, we should do all we can to go and suck up all the supply of that thing, so we can get the lowest per unit price for our customers.
- DRDavid Rosenthal
Yep. We'll tell the story. They'll get it.
- BGBen Gilbert
It's this storytelling. That's exactly right. It's just like selling wines. They really start to bring that into foods in this era.
- DRDavid Rosenthal
So for this Whole Earth Harry era of Trader Joe's, these health foods are the perfect vessel for all this.
- BGBen Gilbert
Yeah, they basically create a blacklist of things that over the years becomes no GMOs, no high-fructose corn syrup, no artificial flavors, no MSG, no bleached flour, no added hormones in their dairy products. It kind of blossoms into this big list of, you can just trust the foods that we are giving to you as healthy in some way. The funny thing is, today, most of what you're buying from them is processed, packaged food. It's just story told very well. And like, you know, you go to grab stuff in the freezer, it's a lot of salt. There's a lot of deep-fried stuff. You can't make giant frozen meals at this scale without being very processed, but they have this brand that they've built over fifty years of paying attention to the ingredients, of doing what they can, of looking a lot more granola [chuckles] during this 1970s era, so they are able to carry that brand with them. And they regularly update what they will and won't stock and what they let their suppliers put in. So there is sort of this funny dichotomy of it being-... a quote, unquote, "health food store."
- DRDavid Rosenthal
There have been other layers that have been added since then.
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
So it's fitting you say granola. The really strategic, critical element of adding health foods to Trader Joe's isn't just that it also fits all the same criteria that wine does, and that it's a perfect fit for the Trader Joe's target customer. All that is true. It's different than wine in one critical aspect. Wine, by nature, is branded. It's not big brands, but it's the brand of the winery and the label, and that carries a huge amount of value. Health foods, nuts, dried fruit, bran, granola, this stuff is unbranded-
- BGBen Gilbert
Yep
- 1:28:53 – 1:42:56
Differentiated Private Label Products and Fair Trade Repeal
- BGBen Gilbert
All right, so David-
- DRDavid Rosenthal
Private label, let's go!
- BGBen Gilbert
What was the very first Trader Joe's private label product? Also, it's crazy to imagine Trader Joe's without private label.
- DRDavid Rosenthal
Right?
- BGBen Gilbert
I mean, you walk in today, you look around, over eighty percent of the stuff is Trader Joe's.
- DRDavid Rosenthal
Except wine.
- BGBen Gilbert
And some other things here and there. There's RXBAR, as I noticed.
- DRDavid Rosenthal
They used to have Spindrifts for a while. I don't know if they still do.
- BGBen Gilbert
Some of their cheeses.
- DRDavid Rosenthal
Yep, but wine and spirits are the one big category left where it's mostly not private label, including Charles Shaw, as we will talk about at the end of the episode.
- BGBen Gilbert
All right, so how did they start?
- DRDavid Rosenthal
All right. The first private label product is, naturally enough for Whole Earth Harry, granola.
- BGBen Gilbert
Perfect.
- DRDavid Rosenthal
You can still buy Trader Joe's granola today. I'm sure it's not the same recipe. [laughing]
- BGBen Gilbert
And it's, like, kinda the easiest thing, right? You just take in a giant truckload of generic granola. It's not that hard to throw it into bags.
- DRDavid Rosenthal
And it's literally the product that is used as the euphemism for this whole health food category. [laughing]
- BGBen Gilbert
[laughing] Yes.
- DRDavid Rosenthal
Granola.
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
[laughing] So, uh, granola quickly leads them to private label honey, freshly squeezed orange juice, which they have in the stores for a long time. They eventually pull it out 'cause it's too operationally complex.
- BGBen Gilbert
It's such a Trader Joe's thing, right?
- DRDavid Rosenthal
Totally.
- BGBen Gilbert
Not easy to handle. Doesn't pass one of the four tests. Get it out of there.
- DRDavid Rosenthal
Vitamins, private label, bran and bran flakes, and then the big one, the wine equivalent of health foods. Their vendor, there in Southern California, that they are sourcing their bran and bran flakes from, turns out also does nuts and dried fruits. And so Joe and Trader Joe's, on a whim, because their vendor of bran also offered it, decided, like, "Hey, let's get some nuts and dried fruit in here, too."
- BGBen Gilbert
[package crinkling] All right. Now is a great time to eat some roasted and salted fancy mixed nuts branded by Trader Joe's.
- DRDavid Rosenthal
Got any dried fruit in there, too?
- BGBen Gilbert
Uh, not this package. I will say, now, when you go and grab... They're not just like commodity nuts. They have stuff that you can't get anywhere else, like weird chili lime blends-
- DRDavid Rosenthal
Mm, yep
- BGBen Gilbert
... or sesame-crusted cashews or interesting trail mixes that are not the generic thing.
- DRDavid Rosenthal
Yep. So nuts and dried fruits become the next rocket ship product category for Trader Joe's, and just like wine in the alcohol era, I mean, customers love it. Still do to this time. And this has gotta be one of the biggest product categories for Trader Joe's to this day.
- 1:42:56 – 2:07:05
Joe Coulombe Sells Trader Joe's to Aldi Nord Founder
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
So Joe decides, "All right, end of fair trade and deregulation..." I don't wanna undersell. This is a massive tidal wave that hits the industry. Retailers go out of business left and right, and Trader Joe's is not immune from this either. People think the company is gonna go under. Like, employees think the company is gonna go under-
- BGBen Gilbert
Mm
- DRDavid Rosenthal
... just like everyone else. Joe says, "Our way out is, of course, operational excellence, but really in the long run, it's we gotta differentiate and be one of one-
- BGBen Gilbert
Mm
- DRDavid Rosenthal
... in everything." So he calls this phase of the company Mack the Knife, [chuckles] which this is really obscure. It was Mack the Knife, like the song "Mack the Knife" from Threepenny Opera.
- BGBen Gilbert
That's funny, I had no idea where that came from.
- DRDavid Rosenthal
Joe writes in the book, "Friends, Mack the Knife has no competition. That's why I called it Mack the Knife!
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
"My years at Pronto Markets convinced me that where there is no competition today, there will be tomorrow. You must assume that competitors will open all around you. The answer is to design a store that has no competition. After 1978," after the end of fair trade, "I paid no heed to nearby supermarkets, liquor stores, health food stores, or anything else."... the whole strategy becomes double down on private label, double down on differentiation, become one of one.
- BGBen Gilbert
Become one of one. I love it. Obviously, I love it because this is how you and I think about Acquired. Trader Joe's is a very looking in a mirror of the type of business we hope to build, and so I think all of this is preaching to the choir. How can you be more niche but serve the shit out of your niche? How can you provide an incredible amount of value to your core customer base, and not care about anybody outside your customer target? How can you be N of one? How can you provide only the most unique thing? I can't decide if these are just the best principles to run a business, or if these are just the ones that happen to appeal to us almost as an act of vanity. [laughing] It's probably not the best way to run a scale business, but it's an amazing way to dominate a niche.
- DRDavid Rosenthal
Well, yes, I think that's true, and if you can somehow find a scale business that you can run with these properties-
- BGBen Gilbert
It's amazing
- DRDavid Rosenthal
... That's when you get the Apples, the Costcos, the Trader Joe's.
- BGBen Gilbert
Right. Having no competition is a nice, [chuckles]
- DRDavid Rosenthal
It's a nice thing. So heading into this Mack the Knife era, Joe institutes a rule that I assume is still in effect at Trader Joe's to this day, which is that, "Okay, everybody, obviously, private label, that's the strategy. That's for the future here," but Trader Joe's will never introduce any private label product just for the sake-
- BGBen Gilbert
Mm
- DRDavid Rosenthal
... of having a private label product in that category.
- BGBen Gilbert
Which is the opposite of most of these generic- like, you go to Walmart, the Great Value brand is a crappier version of the exact same branded product, but it's priced less, so-
- DRDavid Rosenthal
Exactly. Trader Joe's private label products must be differentiated on some dimension, and that doesn't necessarily have to be the item itself, like we talked about with Wolfgang Puck pizza, et cetera. It could be the packaging, it could be the price, it could be the merchandising, but you must have a differentiating factor. And yeah, Ben, like you said, this is the polar opposite of the private label strategy at all the big supermarkets. For them, it's like, same product.
- BGBen Gilbert
Are Amazon Basics batteries differentiated? No, they're just cheaper.
- DRDavid Rosenthal
Yes.
- BGBen Gilbert
Also, it's kind of interesting that Walmart has Great Value, Target has Good & Gather, Amazon has Basics, Costco has Kirkland Signature, Trader Joe's has Trader Joe's. How come nobody else's house brand is just the name of the retailer? I think actually it exposes that Trader Joe's is all in.
- DRDavid Rosenthal
Yeah.
- BGBen Gilbert
Whereas these other brands sort of wanna play both sides, "We've got a house brand, but we also work great with third parties," Trader Joe's is like, "The Trader Joe's experience is walking into our store that is called Trader Joe's, and buying our products that are called Trader Joe's, and everything around it is just wrapped in a big Trader Joe's blanket, and you couldn't possibly decouple the two." And I don't think other retailers feel that way.
- DRDavid Rosenthal
Yes, this is all to the point of it's doing a totally different job at the other retailers. The other retailers want to use the house brand brand name to signal to customers, "This is the same product at a cheaper price."
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
Trader Joe's wants to signal to customers with all of their products, "This is an N of one product."
- BGBen Gilbert
Yep, and it's almost always true. These pretzels I'm eating with the peanut butter inside, I'm pretty sure there's a Costco equivalent of these, but a lot of the things are truly unique.
- DRDavid Rosenthal
Yeah. Well, we'll get into after Joe's era, how Trader Joe's changes a bit as it scales.
- 2:07:05 – 2:24:26
Scaling a Regional Chain to National Grocery Phenomenon
- BGBen Gilbert
All right, David, the big expansion.
- DRDavid Rosenthal
So what happens after the sale? Well, the immediate answer, of course, as we said, is nothing. [chuckles] Joe sticks around as CEO for the next ten years, running the private label strategy, and it works great in Southern California [chuckles] as you were saying, Ben. So here's the thing about Joe: He really is like Sol Price. He was this incredible entrepreneur, absolute genius, came up with all of this truly innovative, orthogonal, genius strategies that nobody else in the industry was pursuing. Sol Price did the same thing at Costco, but Sol Price isn't the one who really built Costco. Jim Sinegal built Costco, the scale Costco we know today. It's the same thing for Joe. He built Trader Joe's, but he really didn't have any interest in scaling it and taking it outside of Southern California. I kinda think, reading between the lines of some of the things some of his successors said about him and some of the stuff in his obituaries and press, I think he just really didn't wanna travel. I think he wanted to be close to his family. I think he wanted all the stores within a day's drive to and from, from his house. So when he retires in 1988, again, ten years after he sold the company-... They're only just shy of 30 total stores. They had just expanded to Northern California. The first northern California store was in San Rafael, my wife's hometown in Marin. Great little town. I think for Joe, that's sort of what his ambition was, was to build one of the greatest retailers of all time.
- BGBen Gilbert
Regional chain.
- DRDavid Rosenthal
But he was indifferent whether it was regional or national.
- BGBen Gilbert
It's so interesting how some of the entrepreneurs we study have this empire builder strain to them, where they're never satisfied. They have to build the biggest thing in the world and build something of consequence to the world, and if there's an opportunity to do that, they must go seize it. It's impossible to not spend their time, effort, life doing that, and Joe just wasn't one of those people.
- DRDavid Rosenthal
The Mark Zuckerbergs.
- BGBen Gilbert
I think he kind of looked at it and thought, "Well, to what end? What is the point of building something giant? I'm the shareholder. I like this business."
- DRDavid Rosenthal
I have this great life. I've very positively impacted all the people who work for me, all of our customers who shop for us. I've helped birth the wine industry in California and America.
- BGBen Gilbert
This is a thing I can obsessively polish. I do like constantly making it better and making it more resilient and all these things, but bigger wasn't necessarily the goal.
- DRDavid Rosenthal
Yeah. I can totally relate to it, but national expansion clearly is what should happen next here with the business.
- BGBen Gilbert
Yes.
- DRDavid Rosenthal
So in 1987, as Joe's getting ready to retire, he hires an old friend from Stanford, from his GSB days, a guy named John Shields, to come in as president and COO under him for a year and then be the anointed successor to take over. John, after GSB, had gone and worked at Macy's and then at Mervyn's, the huge retailer that got acquired by Target. So John knew retail, knew national expansion and operations, and most importantly, Joe had known him for a long time, going all the way back to Stanford, and trusted him. So on January first, 1989, John takes over as CEO from Joe, second CEO in Trader Joe's history.
- BGBen Gilbert
It's crazy, this is 36 years ago. The modern Trader Joe's is all formed after the sale.
- DRDavid Rosenthal
After this. Joe lays down the strategy-
- BGBen Gilbert
Yes
- DRDavid Rosenthal
... and all of the execution happens after, with some tweaks along the way, as we'll talk about. John does as expected, you know, what he was hired to do, basically. He does national expansion, so he takes Trader Joe's from, I think, as best as I can tell, I think it was 27 stores to 175 over the next twelve, thirteen years that he's CEO.
- BGBen Gilbert
And importantly, he made the jump across the country.
- DRDavid Rosenthal
Yes.
- BGBen Gilbert
Let's hop all the way to the East Coast. So they decided to start in Boston and build out a set of stores in the 500-mile corridor from Boston to DC. At this point, you should be able to go, "I know why they did that." It is the most dense population of universities in America all along that corridor.
- DRDavid Rosenthal
And it's kind of crazy. Dan Bane, who would take over as the third CEO of Trader Joe's in 2001, he did a podcast just recently, and he actually talked about it. He's like, "Yeah, I probably wouldn't have made that decision [chuckles] if I were CEO at the time."
- BGBen Gilbert
Really?
- DRDavid Rosenthal
You're taking a regional Southern California company, where all the culture, all the DNA, all the learning, it's all there, and you're saying-
- BGBen Gilbert
The Northeast seems like a good place.
- DRDavid Rosenthal
Yeah, yeah. So that's really the strategy for the '90s and the John Shields era. It's all about taking the strategy, the retail concept that Joe built, and just scaling it up across the country.
- BGBen Gilbert
That, and fully realizing the private label plan. That took a decade, decades, to shift everything that they were selling to Trader Joe's branded.
- DRDavid Rosenthal
So the third Trader Joe's CEO, Dan Bane, comes into the company in 1998, first as president of the West Coast operations, and he previously had been the CFO of a grocery wholesale business, and, like John Shields, knew Joe and Trader Joe's intimately over a long period of time because his wife was the company's auditor for, like, 20 years, [chuckles] like, tax auditor [chuckles] and accountant. So what Dan really does is create the Trader Joe's that we all know today, and it's the same core strategy that Joe had developed, especially with the focus on private label, the value to customers, the same target audience, but Dan expands it to all categories of grocery. So here's the thing. When Dan started at the company in the late '90s, we've alluded to this a little bit throughout the episode, Trader Joe's was actually a pretty different store than it is today. The average Trader Joe's customer came in once per month, and Dan says in a podcast interview about when he started, "At the time, we weren't really a grocery store. We were that store that sold wine, cheese, and nuts. We were sort of a party store."
- BGBen Gilbert
And this is about the late '90s?
- DRDavid Rosenthal
Yeah, party as in, like, when you are throwing a party, you go to Trader Joe's.
- BGBen Gilbert
Hmm.
- DRDavid Rosenthal
So Dan comes in, and he says, "Hey, there's actually a pretty obvious opportunity for us here to really grow same-store sales, and it's... People love us. We're such a great fit for our target customer base. We just need to give them the right product assortment to keep coming back more often. We need to be more of a grocery store and less of a party store." And this is quite different than Joe's strategy. So Joe actually writes in his autobiography, "We made no effort to have a complete assortment, no sugar, no salt, no flour, et cetera, unless we could be outstanding in it and make a sufficient number of dollars from it." Obviously, that is very different than Trader Joe's today.
- 2:24:26 – 2:41:06
The Two Buck Chuck Story
- DRDavid Rosenthal
[laughing]
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
Not a private label product, interestingly enough.
- BGBen Gilbert
So interesting. For the volume that they do, it's unbelievable.
- DRDavid Rosenthal
But is an exclusive product. So the story is wild, but first, I'm going to open my bottle of Charles Shaw here-
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
... that I've been saving the whole episode.
- BGBen Gilbert
So I got a Sauvignon Blanc. I assumed the red blend would be the cheapest. Amazingly, all the Charles Shaw are the same price, and at Seattle Trader Joe's, it was $3.99, which, come on, it's supposed to be Two Buck Chuck, but inflation kills you.
- DRDavid Rosenthal
Been a lot of inflation since 2002, Ben.
- BGBen Gilbert
I'm curious what you are opening.
- DRDavid Rosenthal
I am opening a, uh, California Cab, 2023.
- BGBen Gilbert
Nice.
- DRDavid Rosenthal
Beautiful label with a, uh, beautiful looking gazebo here in the image. Established 1979. Really? Gosh, there must be a story behind all this.
- BGBen Gilbert
Why is there a gazebo? This whole thing looks very generic to me.
- DRDavid Rosenthal
Amazingly, it is not.
- BGBen Gilbert
Really?
- DRDavid Rosenthal
That is part of what makes the story so incredible.
- BGBen Gilbert
Who is Charles Shaw?
- DRDavid Rosenthal
So as I pour my cab here. [wine sloshing]
- BGBen Gilbert
Cheers!
- DRDavid Rosenthal
Cheers, by the way, [glasses clinking] to 10 years of Acquired.
- BGBen Gilbert
To 10 years of Acquired.
- DRDavid Rosenthal
What better way to celebrate 10 years of Acquired than with a glass of Two Buck Chuck as we are recording-
- BGBen Gilbert
[laughing]
- DRDavid Rosenthal
... an episode on Trader Joe's? So there is a real Charles Shaw, and Charles Shaw founded a winery in Napa in 1974, right at the very beginning of the Bottle Shock era, the come up of Napa, changing wine in America. And Charles, and the eponymous Charles Shaw winery and label, was a high-end winemaker right there-
- BGBen Gilbert
Hmm
- DRDavid Rosenthal
... with Heitz and Freemark and all the others. He was, like, a real player in the Napa ecosystem. This is wild. And that was all through the '70s and the '80s.
- BGBen Gilbert
Well, I mean, he's still the biggest player in the Napa ecosystem-
- DRDavid Rosenthal
[laughing]
- BGBen Gilbert
... by volume. [chuckles]
- 2:41:06 – 3:05:06
Why TJ's Works: High Sales Per Square Foot and Unique Employee Model
- BGBen Gilbert
All right, David, should I catch us up to the business today?
- DRDavid Rosenthal
Six hundred stores.
- BGBen Gilbert
Six hundred stores. Well, it's worth saying Trader Joe's has become a little less differentiated today, as you said. The stores are bigger, and actually, some of this is a quote from Joe before he passed away to Benjamin Lorr as he's writing this book. He says, "The stores are bigger, the SKU count is higher than in the old days." You really can't do the limited batches of amazing deals anymore because, you know, they really are at scale. It's not like they're just gonna be like, "Oh, great! You got this one pile of obscure nuts that we just need to unload in the next couple weeks? Great, no problem. We'll take that." They really do need to be able to distribute at scale. They try to keep that ethos with the sort of seasonal stuff. Like right now, I'm enjoying the mini Hold the Cones that are the holiday-themed, but this is very planned and seasonal. It's harder to find suppliers that can manufacture at this scale, so they're constrained to a certain set of suppliers they can work with. But clearly, it's still working, [chuckles] and it's working better than ever. So perhaps the lesson is, you can't be too precious. Once you establish your differentiation, there are ways to take advantage of your scale, but still keep the soul of what made you different, even though you're not living it to the extreme the way that you had to when you were younger. So by revenue, David, you found this. There are lots of incorrect sources around the internet estimating their revenue. You found a podcast with Dan Bane where he throws out a significantly higher revenue figure than the rest of the internet thinks.
- DRDavid Rosenthal
Yes, so he says on this podcast that when he retired in twenty twenty-three, they were doing north of twenty billion a year in revenue, and they had just hit one billion when he joined the company in the late nineties. The estimates that had been going around the internet, and are still out there, if you search, are what? More like sixteen, seventeen. We know in twenty twenty-three it was over twenty.
- BGBen Gilbert
Yes. How did you find that podcast?
- DRDavid Rosenthal
A lot of Googling. We'll link to it in our sources. It's a really obscure leadership podcast that Dan randomly went on in January of this year, in twenty twenty-five.
- BGBen Gilbert
So north of twenty billion in revenue two years ago, so we can kind of extrapolate when we get to growth rate, where that is today. Earnings, we truly have no idea, other than knowing that every year, they've generated more absolute dollars of profit than the previous year. On growth, since selling to the Albrecht family, they've grown stores at about ten percent each year, and over the last twenty years or so, they've grown revenue at a little over eleven percent per year. So that puts us in the twenty-four, twenty-five billion of revenue this year, ballpark.
- DRDavid Rosenthal
Yep.
- BGBen Gilbert
Again, way higher than I saw anywhere reported on the rest of the internet.
- DRDavid Rosenthal
Yep. The really interesting stat, though, is sales per square foot.
- BGBen Gilbert
So the sales per square foot is estimated to be over two thousand dollars today. That is the single highest sales per foot of any grocery store and twice its nearest competitor in Whole Foods.
- DRDavid Rosenthal
Yeah.
- BGBen Gilbert
It's over four X the industry average. Even Costco, who we extolled on the Costco episode, is twelve hundred a foot.
- DRDavid Rosenthal
Yeah. Costcos have really big stores.
- BGBen Gilbert
Trader Joe's has really small stores that are densely, densely packed with high-revenue items.
- DRDavid Rosenthal
I mean, this is really incredible. They are twice as good by this metric, which is really, like, the key metric in the retail industry.
- BGBen Gilbert
It's efficiency.... I mean, it doesn't include everything in your overhead, but, you know, rent is a giant part of your costs, so your efficiency on your rent is effectively the sales per foot. If you look at margins, people estimate their gross margins are in the low to mid twenty percent, which again, we should underscore, all this brilliant business strategy, customers are getting a great deal. Their gross margins are only low to mid twenty percent. Most of the grocery industry is in the kinda twenty-seven, twenty-eight, twenty-nine, thirty percent. But Trader Joe's just doesn't need as much margin since they have lower overhead and lower operating costs compared to those bigger stores. In terms of geography, where they are, they're in forty-three states. They now have six hundred and eight stores. They have seventy thousand employees, and a hundred percent of their captains, this is the store manager, were promoted from the first mate role or the mate role, which is effectively the number two, and eighty percent of those came from crew members. So it is a seventy-thousand-person organization, most of which is promoted internally, which is amazing.
- DRDavid Rosenthal
And as best as I could tell, I don't know about you, I think headquarters' staff, like, corporate staff, is still pretty tiny.
- BGBen Gilbert
I think that, uh, that at least is a goal. I think that's a value of theirs, is to do that. You know, they get all kinds of great benefits and stuff. For grocery store workers, they get fifteen percent put into a retirement plan, they have healthcare benefits, dental, all that stuff. But the real kicker, they get a twenty percent discount at Trader Joe's.
- DRDavid Rosenthal
[laughing]
- BGBen Gilbert
Which no one gets, 'cause they never have any sort of discounts.
- DRDavid Rosenthal
The one way to get a sale at Trader Joe's is to work at Trader Joe's. [laughing]
- BGBen Gilbert
Yes. [laughing] But it is crazy, like, this whole thing about the employees is a belief that if you pay more, you can get better people who will retain longer, that lower your new employee training costs, that lower your overhead. Each employee will be more productive, be able to do higher quality work, and most importantly, they'll be happy employees that are there to delight customers.
- DRDavid Rosenthal
Yes, and as I was talking about earlier, this plays into the social aspect and the extroversion, and that's really important for the customer base. I do really genuinely believe that's true. The biggest thing here, though, is turnover. So grocery store employee turnover-
- BGBen Gilbert
It's gotta be, like, fifty-plus percent per year
- DRDavid Rosenthal
... is some of the highest in the entire labor market. I think it might be, like, sixty-five, maybe even seventy percent. Trader Joe's is one-tenth of that compared to industry average.
- BGBen Gilbert
Yep.
- DRDavid Rosenthal
I mean, that means that for your average grocery store, you are turning over your entire store workforce every year and a half. The answer of how you run a business like that is, you don't actually run the business. You are a real estate company, and you hire the brands to go do everything.
- BGBen Gilbert
Yep, and you make money from the brands. Trader Joe's has this philosophy of, "We only make money one way, and that's when someone checks out an item and pays money to us. We don't make money from our suppliers." Whereas those other grocery stores, they actually make a lot of money from the suppliers. They make a lot of money in slotting fees and in advertising, and it sets up a bad incentive where you are happy to put stuff on your shelves that doesn't sell, as long as they're gonna pay you a lot in slotting fees and in advertising.
- DRDavid Rosenthal
'Cause you're not really making your profits from selling the goods.
Episode duration: 3:28:20
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