How Joe Coulombe Broke the Rules and Built Trader Joe’s (TPL Insights #243)

By Rob Andrews with paraphrased content from Becoming Trader Joe: How I Did Business My Way and Still Beat the Big Guys Harper Collins 2021

I must admit that even as a student of food and retailing, I didn’t pay much attention to Trader Joe’s, until I needed to return an expensive cut of meat to a Carmel, California area store in July 2021. I called the store and was immediately connected to the manager on duty who politely apologized for a substandard purchase, asked me to take a picture of the package, throw away the steak, and drop in anytime for a refund. It felt like doing business with Wegmans, Nordstrom, or Home Depot back when Bernie Marcus and Ken Langone ran it. When I went to get my refund, I took a slow walk through the store and noticed it was different. It felt good. Employees were friendly, working hard, engaged, and having fun. This is the company that Joe Coulombe built. He sold it in 1979, ran it until 1989, and passed away in 2020. Even now, his presence is felt. Here’s a bit of his secret sauce:

Imagine a grocery store where every full-time employee makes a salary at least equal to the area’s median family income – a chain with a stock of unique, private-label goods providing excellent?value. Imagine that it focuses on its target demographic to build cult-like loyalty. This is Trader Joe’s. Joe Coulombe tells how he?built Trader Joe’s into a success, offering anecdotes in a?casual, idiosyncratic style. His account is neither linear nor ordinary – just like his stores.

“We relied on new ideas implemented in existing stores. This was my favorite form of growth…During those four years of no expansion in terms of number of stores, our dollar sales kept right on growing.”

Paying employees well was a foundational element of Trader Joe’s success.

From the beginning, Coulombe sought to pay the average Trader Joe’s full-timer a salary equal to the median family income for California. By 1988, Trader Joe’s was paying new employees $18,000 a year. The average full-time employee earned $34,000 and store managers earned $44,000, plus generous bonuses worth up to an additional 70%. The stores paid part-timers well, as much as $13 an hour when the minimum wage was $4.35. Almost all full-timers began as part-timers. Trader Joe’s never had to advertise for full-time employees. It provided full medical and dental insurance, a 15.4% retirement accrual, and a non-expiring “Leave Bank” combining vacation and sick leave.

“Productivity in part is the product of tenure. That’s why I believe that turnover is the most expensive form of labor expenses…You can’t afford to have cheap employees.”

Coulombe expected every employee to work hard, and every full-time employee to perform every job, from ordering and stocking to customer checkout and bookkeeping. No one stayed behind a cash register all day.?The company never asked employees to hard sell, but it expected them to develop the product knowledge necessary to answer customers’ questions and help build sales.

Coulombe identified and pursued Trader Joe’s target market – “the overeducated and underpaid.”

In 1965, Coulombe read an article in?Scientific American?that shaped his future retailing leadership. It said that college had become an increasingly common part of American life, with 60% of those who qualified to receive a higher education – up from only 2% a few decades earlier. He also made note of a?Wall Street Journal?story that Boeing would put enormous 747 airliners in service in 1970, cutting the cost of air travel.

“We had noticed that people who traveled…were far more adventurous in what they were willing to put in their stomachs. Travel is, after all, a form of adventure.”

Coulombe wanted adventurous, discerning customers who appreciated a good value, liked to explore, and dared to try foods outside homogenous American brands and advertising.

People in Trader Joe’s demographic are often wine drinkers.?Over time, the stores shifted?from hard liquor and high-end wines to affordable, drinkable wines. By 1976, Trader Joe’s dominated the retail market for inexpensive imported wine and for?private-label California wines.?Coulombe’s goal was to offer a “bottle of decent wine?any family could afford.”

Trader Joe’s marketing entertains and informs its target demographic.

Trader Joe’s signature advertising vehicle began as a wine industry “gossip sheet,” and evolved into the?famous?Fearless Flyer quarterly newsletter. The publication leavens its informative content with humor and whimsical, old-time?illustrations. It treats readers as intelligent and discerning and assumes they want to learn.

Mailing the?Fearless Flyer?to appropriate zip codes?is costly, but it drives sales.?Its?success taught Coulombe not to set an ad budget as a percentage of sales, but to spend what was needed to achieve the desired result.

“For people to exploit their human potential, that took product knowledge. That product knowledge could be best attained not by ‘training,’ but by ‘engaging the interest’ of each employee in what we sold.”

In 1976, Coulombe offered one-minute educational pieces – “Words on Food and Wine” – on KFAC, Los Angeles’s classical music station. By 1982, Trader Joe’s was buying radio spots?on news and classical stations. The ads?focused on a single product?and ended with a polite “Thanks for listening!” Trader Joe’s sponsored PBS television shows that its customers watched, such as programs on cooking and dog training, and its staff members participated in on-air public TV fundraising drives.?The company?made strategic donations – never cash, but usually?wine or other products – to nonprofits that fit its demographic.

Coulombe practiced “intensive buying” – putting creative purchasing at the heart of Trader Joe’s business.

The practice of intensive buying stresses nimbleness and adaptability, creating an?advantage over the inflexibility of supermarket chain wholesale buyers. Intensive buying meant treating?vendors with respect as business collaborators while Trader Joe’s sought valuable opportunities in product ideas or special deals.

“Buying…is not just a matter of trying to beat down suppliers on price. It is a creative exercise of developing alternatives.”

Coulombe wanted buyers to know their products.?He recommended hiring?fewer?buyers and compensating them well. His buyers earned the most in the industry. He wanted?vendors and buyers to have direct access to their companies’ decision-makers.

Coulombe was committed to vendor relationships that thrived on trust. He treated vendors as part of Trader Joe’s extended workforce. He believed in never making vendors wait more than 24 hours for a decision and in working only with vendors who treated Trader Joe’s well. He also believed in staying in touch with good salespeople who moved away, being willing to work at unconventional hours, and always paying cash on delivery.

For 25 years, Trader Joe’s never laid off a full-time employee.

For more than 25 years, despite fluctuating economies and tax rates, the company’s profit grew every year.

“If you adopt a reasonable strategy…and stick with it, you’ll probably succeed. Tenacity is as important as brilliance…Trying to find an optimum solution in business is a waste of time: The factors in the equation are changing all the time.”

From a highly debt-leveraged start, Trader Joe’s became free of interest-bearing liabilities by 1975 and remained debt-free for the final 13 years of Coulombe’s tenure. As overall sales grew at an effective compound rate of 19% per annum, the company’s net worth grew 26% a year. And Coulombe was proud that, in 25 years, Trader Joe’s never laid off a full-time employee.

Is your organization built this deliberately? Joe Coulombe and the CEOs we’ve studied are equipped with a growth mindset, and decidedly deliberate about building cultures in which leadership is unified and driven by purpose, hiring is disciplined, stakeholders are engaged, unnecessary costs are eliminated, measurement systems are in place and the customer experience is exceptional. If you’re building something special, and looking for a thought partner, please give us a call.

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Warmest Regards,

Rob

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ROB ANDREWS

Chairman & Chief Executive Officer

Celebrating 25 years of Executive Search, Leadership Advisory, and Interim Executive Excellence

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