Becoming Trader Joe

Becoming Trader Joe



The Pequod Review:

Becoming Trader Joe is that rare thing — a practical, specific, and actually useful business book. Joe Coulombe (1930-2020) founded Trader Joe's in 1967 and ran it as CEO for the next twenty years during its formative period of growth. Rather than mythologizing his own personal history, Coulombe's memoir gets right into the details and shows through specific examples why his company was successful — an obsessive focus on product innovation, an intelligent understanding of complex government regulations, and creative leadership that was constantly implementing new ideas. 

Here for example Coulombe describes how he stumbled across a low-cost alternative to tuna:

In 1981, Newsweek ran a story about a fish called pilchard, which was a lot like tuna but much cheaper, which was being promoted in New England. I don’t know how the story got planted, because we soon learned that the pilchard had failed to sell: the importer offered it to us. We cut the cans and were impressed by the high quality of fish, which was seemingly as good as white meat or Albacore tuna.

By this time we were beginning to realize that Trader Joe’s was becoming a powerful brand. We took the pilchard, relabeled it, and blew it out at a price two-thirds that of green-labeled tuna and half the price of albacore.

I became intrigued by this and located the source of the pilchard: a packer in Peru. In June 1982, my wife, Alice, and I went to Lima to visit the canning plant. We witnessed something very interesting: the United States had a quota for imported tuna. Once Peru’s quota had been filled, a biological miracle occurred right there on the canning line. What had been tuna was now pilchard, a member of the herring family, on which there was no quota. The like hasn’t been seen since the Sea of Galilee! To this day, Trader Joe’s is virtually the only retailer of pilchard.

Again with big eye tuna, government regulations created a bargain. Big eye, Parathunnus mebachi, are huge tuna with excellent flesh.

In Canada they can be called “albacore” or “white meat” because they meet Canada’s spectroscopic test of whiteness. Our government, however, says that only Thunus alalongus can be labeled albacore. One more bargain for the table, thanks to the product knowledge we built up at Trader Joe’s.

One of Trader Joe's early marketing successes was its consumer newsletter, the Fearless Flyer. As with the discovery of pilchard, the newsletter's creation shows how much Coulombe got into the weeds while still maintaining his larger vision:

The Fearless Flyer began life in 1969 during the Good Time Charley phase of Trader Joe’s as the Insider’s Wine Report, a sheet of gossip of “inside” information on the wine industry at a time where there weren’t any such gossip sheets, for the excellent reason that few people were interested in wine. As of the writing of this book, 11 percent of Americans drink 88 percent of the wine according to contemporary wine gossip magazine the Wine Spectator.

In the Insider’s Wine Report we gave the results of the wine tastings that we were holding with increasing frequency, as we tried to gain product knowledge. This growing knowledge impressed me with how little we knew about food, so in 1969, we launched a parallel series of blind tastings of branded foods: mayonnaise, canned tuna, hot dogs, peanut butter, and so on. The plan was to select the winner, and sell it “at the lowest shelf price in town.”

To report these results, I designed the Insider’s Food Report, which began publication in 1970. It deliberately copied the physical layout of Consumer Reports: the 8.5” x 11” size, the width of columns, and the typeface (later changed). Other elements of design are owed to David Ogilvy’s Confessions of an Advertising Man. The numbered paragraphs, the boxes drawn around the articles, are all Ogilvy’s ideas. I still think his books are the best on advertising that I’ve ever read and I recommend them. Another inspiration was Clay Felker, then editor of New York magazine, the best-edited publication of that era. New York’s motto was, “If you live in New York, you need all the help you can get!” The Insider’s Food Report borrowed this, as “The American housewife needs all the help she can get!” And in the background was the Cassandra-like presence of Ralph Nader, then at the peak of his influence.

I felt, however, that all the consumer magazines, never mind Mr. Nader, were too paranoid, too humorless. To leaven the loaf, I inserted cartoons. The purpose of the cartoons was to counterpoint the rather serious, expository text; and, increasingly, to mock Trader Joe’s pretensions as an authority on anything.

For artwork, I simply turned to nineteenth-century books and magazines, of which I built a large collection. I knew that (under the copyright laws of the time) works created prior to 1906 were no longer subject to copyright, so we were free to use the artwork. To create the cartoons, I would leaf through old sources until I found a cartoon that I thought would match the text.

Much later, I learned from Robert Graves’s The White Goddess that what I was practicing was iconotropy, the deliberate misreading of images. Graves thought that a lot of myths had come from people misreading or twisting the meaning of the pictures on Greek vases.

I spent the next nineteen years iconotropically creating those cartoons. They were at once a chore and a relief from the pressures of running the business. Best of all, they caught on with the public, and played a major role of establishing Trader Joe’s as a “different” kind of retailer, one that didn’t take itself too seriously.

At all times I wrote the Fearless Flyer for overeducated, underpaid people. This required two mindsets:

(1) There are no such things as consumers—dolts who are driven by drivel to buy stuff they don’t need or even want. There are only customers, people who are reasonably well informed, and very well focused in their buying habits. (This caused me grief later in my career when I took over a chain that was so terrible it had attracted only dysfunctional shoppers. They did not respond well to my treating them as adults.)

(2) We always looked up to the customers in the text of the Fearless Flyer. We assumed they knew more than they did; we never talked down to them. We did phoneticize the more difficult French words (I still can’t pronounce Bourgeuilor Maroilles; I assumed that neither could my readers), but that was our only concession here.

(3) Given the first two assumptions, we assumed that our readers had a thirst for knowledge, 180 degrees opposite from supermarket ads. We emphasized “informative advertising,” a term borrowed from the famous entrepreneur Paul Hawken, who started publishing in the Whole Earth Review in the early 1980s. These informative texts were intended to stress how our products were differentiated from ordinary stuff. Please see the chapter on Private Label Products for examples of claims we made.

Originally, we distributed the Fearless Flyer only in the stores and to a small but growing subscriber list. Doing a mailing to individual addresses, however, was a rotten chore: Americans move about every three years. In 1980, I attended a marketing lecture that taught me that, when someone moves, someone just like them is likely to occupy the same address. This proved to be correct. By mailing to addresses rather than to individuals—by blanketing entire ZIP codes—we were able to tremendously expand the distribution of the Fearless Flyer. The ZIPs to which we mailed, of course, were chosen on the basis of the likely concentration of overeducated and underpaid people.

Coulombe even got involved in the company's decision to use flooring rather than carpet:

The same is true of floor covering, but the Demand Side has to be compromised by critical Supply Side questions, like “Can you drag pallets over it?” During the first years of Good Time Charley, I carpeted the stores using the new carpet material just developed for the hospital trade. There were advantages. When bottles fall, they bounce instead of break; and dust gets trapped in the carpets instead of on the merchandise. Unfortunately, when the Santa Ana winds blow in Southern California, the humidity goes to zero and static electricity builds in your customers as they tread the aisles. When they reach for a metal shelf: Zap! What with static electricity, chewing gum, and ground-out cigarettes, carpets didn’t prove out.

In later sections, he shows how some of the company's best business ideas were pure accidents:

Jim forwarded articles from the British medical magazine Lancet, describing how a high fiber diet could avoid colon cancer. But where could we get bran? The only stores that sold it were conventional health food stores, who sold it in bulk, something that I have always been opposed to on the grounds of hygiene. And still am!

Leroy found a hippie outfit in Venice—I think it was called Mom’s Trucking—which would package the bran. But bran is a low-value product. They couldn’t afford to deliver it. Since they also packaged nuts and dried fruits, however, we somewhat reluctantly added them to the order. And that’s how Trader Joe’s became the largest retailer of nuts and dried fruits in California! Brilliant foresight! Astute market analysis!

But these accidents happen when you are constantly in motion, implementing new ideas. And this passion and focus can never be outsourced. 

Becoming Trader Joe is packed full of such wisdom as it relates to running a successful business. It's first and foremost a great management book, but it's also a useful history of the American grocery industry more broadly. Highly recommended.