Trader Joe’s: The Vacation-Themed Grocery Store That Took Over Niche Foods

Trader Joe’s isn’t like other grocery stores. From their famous orange chicken, soup dumplings, and white cheddar popcorn, one of America’s favorite grocery stores offers customers a taste of luxury at crazy cheap prices.

Today, Trader Joe’s is one of the largest grocery store chains in the U.S., with a 1.5% market share in the crazy competitive grocery industry. But it all began with a few convenience stores and Joe’s dream.

In 1958, Joe Colulombe was a struggling father with two crying children at home. He worked for a pharmacy company that wanted to open a few convenience stores. Unfortunately, the firm quickly realized it didn’t stand a chance against rival 7/11 and jumped ship.

But Colulombe knew that this was his chance. He “sold our little house in which we had an equity of $7,000. I borrowed $2,000 from my grandmother and $5,000 from my father” and purchased the chain, calling it Pronto Markets.

Colulombe found the ten years that followed exhausting. He couldn’t keep up with 7/11 and knew he needed to shift gears.

But to what? Unlikely inspiration came in the form of eggs. Colulombe met a farmer nearby who offered him a deal on extra-large eggs, uncommon in most grocery stores then.

Instantly, Colulombe found his new value proposition: cheap, unique items. But after ten years in the industry, Colulombe knew that cool items weren’t enough to set him apart. He needed something else—a theme.

Tiki culture was all the rage in the 60s, and while on vacation in the Caribbean, Colulombe had an ‘aha’ moment: What about a tourist-themed grocery store?

The store’s name was a nod to Trader Vic’s, a tiki-themed restaurant in Beverly Hills. Colulombe knew that the restaurant was ridiculously expensive, so he named his store Trader Joe’s as a clever nod to the restaurant.

Unique items and themes led Colulombe to his target customer. He realized that “The demographics were changing in the United States because of the GI Bill of Rights, which was the largest experiment in mass higher education in the history of the human race. And I thought that these people would want something different.”

Today, the grocery store still caters to what Colulombe called “overeducated and underpaid people, [to] all the classical musicians, museum curators, journalists.”

In 1967, Trader Joe’s was born. Colulombe opened the first location in Pasadena to target his educated customers “because Pasadena is the epitome of a well-educated town.”  

The firm’s early goals were twofold: sell cool, discount products, and treat everyone well. So, Colulombe launched the Trader Joe’s Label in 1972, putting fun names on low-cost, locally sourced food items. Even today, the firm finds food at its source to keep costs low, cutting off distribution companies entirely.

Cheap wine became essential to keeping Coulombe’s customers happy. He says, “In 1967, nobody was interested in wine, let alone Californian wines. We were the first to give shelf space to what became known as boutique Californian wineries.” Trader Joe’s did an exclusive deal with Charles Shaw wine, known as “Two Buck Chuck.”

Colulombe’s genius lies in his people philosophy. His “standard was simple: the average full-time employee in the stores would make the median family income for California. Back then, it was about $7,000; as I write this, it’s around $40,000….[As] average family income soared ahead, we stuck with our standard, which paid off.”

In 1979, Colulombe sold the company to Aldi and stepped down as CEO in 1987 to spend more time with his family. New leadership saw an opportunity to expand to the East Coast, and throughout the 90s, the number of Trader Joe’s locations increased by ten.

Today, the firm is worth $16 billion, with $13 billion in annual revenue (2023). The firm has nearly 600 stores, much less than giants like Walmart and Kroger, but has the highest sales per square foot of any grocery firm in the U.S.

Trader Joe’s biggest competitors are Whole Foods, Costco, Target, and Amazon. Despite stiff competition, the firm stays true to its original value proposition: sell attractive, low-cost options and treat people well.

Here’s what we can learn from Trader Joe’s about store hiring, adventure, and differentiation.

Lessons

Strategic store design boosts sales. Trader Joe’s stores are a thing of beauty: They stock about 4,000 items, a tenth of the number stocked by their competitors. Because they stock so few items, Trader Joe’s locations are smaller while feeling well-stocked and busy. A small store size allows the firm to occupy less space, pay less in its leases, and open locations with less overhead than other grocery brands. Customers note this: Less time trying to find where things are allows them to focus on their shopping lists. Trader Joe’s customers are young, educated, and on the go—they don’t have time to try to find items. Furthermore, stocking a few items keeps customers returning: It eliminates choice. While Walmart might offer thirty types of maple syrup, Trader Joe’s offers just one or two. Studies show this boosts customer satisfaction; otherwise, customers will worry about their choices (The paradox of choice).

People are an investment, not a cost. During a lecture at USC’s business school, Columbo was asked, “How could you afford to pay so much more than your competition?” The answer, of course, is that good people pay for their extra productivity. You can’t afford to have cheap employees.” Trader Joe’s is widely known to treat its employees well. Their benefits package is admirable, with Trader Joe’s employees receiving a complimentary gym membership with their insurance. Paying its employees well allows Trader Joe’s to be highly selective when hiring.  Everyone who shops at Trader Joe’s knows their employees are top-notch. Ask them where something is, and they will tell you and walk you to where it’s located. The firm invests in its employees' product knowledge. As Columbo says, “[Trader Joe’s] greatest departure from the norm wasn’t its size or decor. It was our commitment to product knowledge, something which was totally foreign to the mass-merchant culture.” Employees are paid well, keeping them happy. Better yet, they’re kind, respectful, and knowledgeable, which keeps customers returning.

Adventure (and an excellent customer experience) sells. Inspired by a Caribbean vacation, “Trader Joe’s became a cult of the overeducated and underpaid, partly because we deliberately tried to make it a cult once we got a handle on what we were actually doing, and partly because we kept the implicit promises with our clientele.” One of these promises is store design. Every Trader Joe’s feels like a vacation, from employees’ Hawaiian shirts to the rustic, artful decor. Trader Joe’s is one of the first firms to focus on fun and adventure regarding store design. Unlike its competitors, the firm recognizes the inherent monotony in grocery shopping and makes it fun. The process also cultivates a positive customer experience: Trader Joe’s customers aren’t grocery shopping—they’re probing for adventure. In short, Trader Joe’s store design creates a fun, engaging experience that maintains shopper’s interest.

Streamlined distribution cuts costs. From the beginning, Trader Joe’s has used an unconventional distribution process, catering to its unique customers. They minimize the number of people involved in production and distribution, cutting out the middleman and cutting costs. Like its founder, Trader Joe’s purchases products directly from its manufacturer, which ships to its distribution centers. The firm does much of its own production, even cutting and wrapping products, giving it sole control over its distribution process. Trader Joe’s uses its distribution process to determine its locations: The firm prioritizes well-suited locations across the U.S., cutting out the need for third-party vendors.

Brand is the ultimate form of marketing. While Trader Joe’s was born from an initial reaction against exclusivity, the concept has become engrained in their brand image, a hallmark of their bare-bones marketing approach. The firm markets to an audience that enjoys exclusivity: Their marketing campaign calls back to the mid-2010 era of speakeasies and invite-only gatherings, both of which were quite popular with the “overeducated and underpaid.” The firm uses few—if any—traditional marketing channels beyond its podcast and website. While other grocers have quickly embraced influencer marketing and brand partnerships, Trader Joe’s stays put. Instead of marketing, the firm invests heavily in brand image, beginning with its products. Trader Joe’s focuses on niche, creative, and inventive offerings that customers remember, like their Orange Chicken. 80% of Trader Joe’s offerings can only be purchased there, cultivating exclusivity. Their products and focus on CX build the brand for them, allowing them to operate with minimal marketing. By creating a highly recognizable brand and offering niche products, Trader Joe’s brand image does the talking, rendering traditional marketing tactics obsolete.

Speeches

• Trader Joe Coulombe interview—Founder explains the brand’s backstory.  
• Joe’s Joe: Joe Coulombe—Los Angeles Times interview transcript..

Videos

• How Is Trader Joe’s So Cheap and Popular? | WSJ The Economics Of
• Should America Be Run by … Trader Joe’s—Podcast discussing the firm’s strategy.
• Trader Joe's - Why They're Successful—Secrets behind the brand’s success.
• Why You Spend So Much Money At Trader Joe's—CNBC details the firm’s marketing and design strategies.
• The Cult of Trader Joe's—Secrets behind the brand.
• Inside Trader Joe’s—The firm’s own podcast reveals inside secrets.

Book Recommendations

• Becoming Trader Joe: How I Did Business My Way and Still Beat the Big Guys—The founder’s memoir.
• Build a Brand Like Trader Joe's—How the firm built their brand.

Further Readings

• Inside the Secret World of Trader Joe’s—Keys to the firm’s success.
• Theo Albrecht: One of the two brothers behind the Aldi supermarket empire—The story of Trader Joe’s parent company and its impact on the firm.
• When a Grocery Store Means Gentrification—Criticism for Trader Joe’s strategy.
• Trader Joe's: The Trendy American Cousin–A brief company biography.
• Is Trader Joe’s really a ‘neighborhood store’ for every location?---The firm’s localization strategy.
• Enchanted Aisles—An in-depth company profile and early history.
• There is an actual 'Joe' behind Trader Joe's — here's how he founded the grocery chain—The company’s founder.  
• For Trader Joe's, a New York Taste Test—Business strategy information.
• That Not-So Fresh Feeling: Why Is Trader Joe's Tight-Lipped About Its Food Sources?---The firm’s distribution and manufacturing strategy.
• Joe Coulombe, Founder And Namesake Of Trader Joe's, Dies At 89—Founder obituary and founding story.
• Trader Joe's targets 'educated' buyer—The firm’s target customer.
• The History Of Trader Joe's—A brief history of Trader Joe’s.
• Wait, Trader Joe was a real guy?---Founder profile and business strategy.
• Trader Joe’s Business Model of “Less is More”---The firm’s merchandising and marketing strategies.
• A Tale of Two Stores: Trader Joe’s Trade-Off—Trader Joe’s store location strategy.
• Behind every Trader Joe’s sign is a working artist who painted it—Discusses Trader Joe’s design strategy.