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Lessons From The Original Trader Joe

For decades the educated, well-traveled, and underpaid1The OG Joe’s view have sought refuge in a place with exotic names, cheap and good wine, and easy-to-make orange chicken.

For fans, Trader Joe’s (TJ’s) needs no intro. It’s part wine store, part health food store (health food meaning food grown with as few chemicals as possible, natural). A seeming contradiction but those people are basically on the same taste radar, the same cultural attitudes. 

Joe Coulombe, the talented and personable founder wrote a book called Becoming Trader Joe, a fantastic read full of aphorisms and anti-business school lessons. The culmination of his work career is stellar. Joe had a 26-year record that compounded the firm’s value at 26% per year, a staggering $407,000 for every $1,000 invested, while gradually and deliberately giving up three-quarters of the equity value of the firm to employees. The idea? Owners act differently.

My reading notes and summary are below.

Ambiguity is a given

Case studies don’t fit. Imperfect information and a plan well-executed rule. “If all the facts could be known, idiots could make the decisions2Tex Thornton.”  A reasonable strategy, as opposed to waiting for an optimal one, and sticking with it, you’ll probably succeed.

Productivity and work

Pay people well and remove artificial rules. Productivity matters a lot. “This is the most important single business decision I ever made: to pay people well.” Work and seniority rules can be an enemy to meritocracy, which becomes a problem with unions. Productivity in part is a product of tenure; turnover is the most expensive form of labor expense. Transparency matters. Give employees full disclosure on the state of company affairs. A deeply troubled company is always the fault of the CEO, the board, and the controlling stockholders. It is never the fault of the frontline troops.

The company gives top-notch medical insurance. “If employees are stressed by medical bills, they may steal.” Cheap, cheap, cheap on life insurance–nobody steals because of bare-bones life policies. “Our insurance brokers did a brilliant job of meeting the needs of Trader Joe’s.” Plug: Paytient gives consumers an interest-free, low-stress way to pay for care.

Decision making

There are two kinds of decisions: ones that are easily reversible and ones that aren’t. The hard-to-reverse decisions deserve lots of attention. 

Products

In naming products: “I wanted to create a silent conspiracy among the overeducated, underpaid people in town so that as they moved down the aisles they would read secret messages on the product.”  Extra-large eggs weren’t popular with shoppers. Trader Joe’s found a place for them, and “we built Trader Joe’s on the principle of discontinuity.” odd items, limited lots, fresh, unique; wine is a great example of this.

Stores

Stores were aggressively redesigned to conserve energy, a small footprint, tiny windows (good for earthquakes and riots too, a reason later discovered as a bonus). Four tests for Trader Joe’s model: high value per cubic inch, high rate of consumption; easy to handle; outstanding in price and assortment. Trader Joe’s is not a store for kids or people with big families. People who use lots of fossil fuels are generally not a good fit. One key part of success is the excellence of the locations and the shrewdness of the language of its leases. 

The store layout is driven by stocking and shoplifting concerns. The company dropped cigarettes and crime fell. In 1988, Joe seriously considered accepting only credit cards, due to the high cost of cash and checks. On stores, cautious not to open too many, insisting on high volume stores. The normal distribution of retail is that of stores: 20% are dogs, 60% are ok, and 20% are real winners. TJ’s is different and very methodical on where to put stores. Growth for growth is unnatural.

There are tests for Trader Joe’s model on merchandise: high value per cubic inch, high rate of consumption; easy to handle; outstanding in price/assortment. They wanted it in-house, with no Frito Lay guys roaming the stores. 

Embrace problems

“All businesses have problems. It’s the problems that create the opportunities. If a business is easy, every simple bastard would enter into it.” We broke all the received wisdom of retailing, except one: we delivered great value, where many failed. Mass retailers have been practicing 18th-century buying and merchandising. To complain too much is to not understand where your bread is coming from. 

Joe Coulombe lamented having sold Trader Joe’s in the late 70s. Though he was proud that 75% of the company at the time of the sale was owned by employees, changes and threats to changes to tax laws in the late 1970s, led him to seek an exit.

“No man acquires property without acquiring with it a little arithmetic also.” –Ralph Waldo Emerson

Note and rabbit hole warning: most of Joe’s ideas of how to act as an entrepreneur are derived from The Revolt of the Masses, by Spanish philosopher Jose Ortega y Gasset. 

Disclosures: the author’s personal healthcare coverage is a $5,000 deductible3“member share per illness” is a better but less catchy term but it’s not really a deductible since it’s illegal for them to market it that way. cost-sharing plan (non-ACA). Healthcare investments: Cigna, Covetrus (animal health).