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September 19, 2005

Excerpts: Trader Joe's Adventure - Part II

By: 800-CEO-READ @ 9:08 PM – Filed under: Management & Workplace Culture

CHAPTER 1- Dare to Be Different


If you tuned into Los Angeles classical music station KFAC during the mid-1970s, you likely would have heard an unusual commercial that began something like this: "This is Joe Coulombe with today's words on food and wine." Coulombe wasn't your everyday news commentator. He was promoting the latest food finds for the fledgling grocery chain he'd founded several years earlier, which had come to be known as Trader Joe's.

Granted, it's not exactly your typical screaming radio advertisement. After all, other stores were busily hawking the week's lowest prices for toilet paper, laundry detergent, and ground chuck--not just on the radio but also on television and in weekly circulars. But Coulombe took a far different strategy from the rest of the pack. His ads were more like lectures, taking on such heady questions as "What is Bordeaux?" and "How does this year's vintage compare with last year's?" Unusual for sure. Then again, we're not talking about your average Joe. Coulombe, and the grocery chain he founded, have never done anything even remotely typical.

THINK OUTSIDE THE BOX


The stage was set for what would ultimately become known as Trader Joe's. Back in the late 1950s, Southern California was enjoying a postwar boom and an unprecedented growth in population as people came to the Golden State in search of the California dream. They were also attracted to the allure of a laidback lifestyle in the warm California sunshine. It was about this time that Joe Coulombe, a 1954 graduate of Stanford University's business school, presented an unusual business plan to some of his former professors. He proposed to build gourmet food stores full of items purchased in bulk and then repackaged and sold at moderate prices to well-educated, but not necessarily wealthy, customers. His professors reportedly didn't buy into the idea, which isn't that surprising, considering that true gourmet stores were few and far between in those days. Those stores that did well focused exclusively on high-income shoppers. In addition, at this time national brands were kings. Consumers, whose tastes in food had yet to break out of the ordinary, were more interested in Philadelphia brand cream cheese than trying a French Neufchatel at any price.

However, like any good entrepreneur, Coulombe was undeterred. He went forward with his plans and purchased the Pronto convenience stores in 1958. Pronto consisted of an unremarkable group of three small outlets in and around the burgeoning Pasadena area. As the influx of immigrants from eastern states continued unabated, food retailing in Southern California was a solid, highly profitable business, without the razor-thin profit margins and labor strife that exist today. The large chains competed with both each other and smaller independent grocers. Pronto focused on specialty items and closeouts. It had little competition and did extremely well servicing a niche that no one else had gone after. But during the socially turbulent 1960s, Pronto faced a threat that could have put Coulombe's fledgling business on the skids. A new outfit called 7-Eleven, which had begun in Texas 30 years earlier, was aggressively moving westward, along with the population. In 1963, 7-Eleven purchased the Speedee Mart chain in California, entered the franchise business, and really began to take off.

Legend has it that Coulombe was vacationing on a beach somewhere in the Caribbean, trying to figure out what to do about this new competition, when he decided to adopt a tropical theme and focus on building no-frills stores with deeply discounted gourmet products. He also took inspiration from the novel Trader Horn, which chronicled the travels of a trader and adventurer in Equatorial Africa during the 19th century. It was just the kind of thing that intrigued Coulombe, who had a love of travel and discovery. He finally changed the store’s name from Pronto Markets to Trader Joe's in 1967.

While the beach thing may be more urban folklore than fact, Coulombe was unquestionably an astute businessman and a student of human nature. He knew people were most comfortable trying out new experiences and cuisines while on vacation. His idea was to create a fun environment where people with champagne tastes and beer budgets could feel like they were on holiday. He began to double the floor space of his stores and decked them out with cedar plank walls and nautical decor. Meanwhile, employees added to the ambiance by wearing colorful, Hawaiian-style shirts.

Coulombe took the idea of exotic retailing one step further, when he began buying closeouts and overstocks from gourmet food manufacturers. He also purchased bargain wines from overstocked distributors or importers--even from winemakers who were up against the financial wall. This was a risky move in the 1960s and 1970s, as many of the items he stocked were unfamiliar to most consumers. But shoppers responded well to this retail upstart. Trader Joe's offered hard-to-find goods they couldn't get at the local supermarket. Although few closeouts are on the shelves at Trader Joe's these days, this early strategy boosted the chain's reputation for uniqueness and for turning a mundane shopping trip into a treasure hunt. Furthermore, Coulombe's shrewd vision enabled him to eliminate national brands. This meant he wouldn't have to rely on lowball pricing to compete with other stores.

This is excerpted from Trader Joe's Adventure: Turning A Unique Approach to Business Into A Retail and Cultural Phenomenon by Lenn Lewis