The quirky little grocery chain with California roots and German ownership has a lot to teach all of us about choice architecture, efficiency, frugality, collaboration, and team spirit. SOURCES:Kirk DesErmia, facilities manager in Seward, Alaska.Mark Gardiner, journalist and author.Sheena Iyengar, professor of business at Columbia Business School.Michael Roberto, professor of management at Bryant University. RESOURCES:“Trader Joe’s,” David Ager and Michael Roberto (Harvard Business School Case, 2014).“What Brands Are Actually Behind Trader Joe’s Snacks?,” Vince Dixon (Eater, 2017).Build a Brand Like Trader Joe’s by Mark Gardiner (2012).“When Choice is Demotivating: Can One Desire Too Much of a Good Thing?,” Sheena Iyengar and Mark Lepper (Journal of Personality and Social Psychology, 2000).Unlocking Creativity, by Michael Roberto (2019). EXTRAS:“How Can This Possibly Be True?,” by Freakonomics Radio (2016).“How to Save $1 Billion Without Even Trying,” by Freakonomics Radio (2016).
Chapter 1: What is the episode 'Should America Be Run by Trader Joe's?' about?
One of the joys of making this show is going after stories that simply seem interesting and worthwhile without any set agenda to follow. And you never know which episodes are going to strike a chord like this one did. Today, we have gone into the archive to play you another episode that struck a chord when it was first published. It's called Should America Be Run by Trader Joe's?
We've updated facts and figures as necessary. I should note that Trader Joe's did not participate in the making of this episode. Their executives don't tend to give interviews. Although we did receive a note from then-CEO Dan Bain after we first published this episode in 2018. He wrote, you pose the question, should America be run by Trader Joe's?
We are pretty sure such work would likely require a coat and tie. We like Hawaiian shirts, so we will pass. Thanks. Let me know what you think of this episode. You can always leave a comment on your podcast app or send us an email to radio at Freakonomics.com. As always, thanks for listening.
Let's play Shark Tank today. You're the investors. Shark Tank, if you don't know, is the TV show where people pitch business ideas to famous investors. You might be Mark Cuban or Mr. Wonderful. You're trying to decide, would you invest?
And that is Michael Roberto. He's a business professor at Bryant University, formerly of the Harvard Business School. There's one lecture he likes to start by giving his students this fictional Shark Tank pitch.
I'd like to open a new kind of grocery store. We're not gonna have any branded items. It's all gonna be private label. We're gonna have no television advertising and no social media whatsoever. We're never gonna have anything on sale. We're not gonna accept coupons. We'll have no loyalty card. We won't have a circular that appears in the Sunday newspaper. We'll have no self-checkout.
We won't have wide aisles or big parking lots. Would you invest in my company?"
And of course, you're supposed to think, there is no way I'd invest in that company. That sounds like the stupidest company ever. And of course, you get a lot of consternation. That's when Roberto reveals that not only does such a grocery store already exist, but they're crushing the competition.
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Chapter 2: How does Trader Joe's business model differ from typical grocery stores?
They're at the top by a wide, wide margin. The sales per square footage estimates are unbelievable. I mean, three and four times better than some of the leading players in the industry.
So it sounds like customers love this place, but you might think a store like this would be brutal to work for. And yet, it's ranked among the 100 best American companies to work for. So what's it called? Trader Joe's. Trader Joe's. Trader Joe's.
Trader Joe's. I do love Trader Joe's.
There's a good chance that you have never shopped at a Trader Joe's, maybe never even heard of it. It's got just over 600 stores. The big chains like Kroger and Albertsons have well over 2,000. Walmart sells groceries in more than 4,000 of its stores. And as Michael Roberto told us, Trader Joe's doesn't advertise or do a lot of things the typical grocery store does.
A typical grocery store has a SKU count. SKU stands for stock keeping unit. So it's that number of different items carried in a store. Well, typically grocery store, a supermarket might have 35,000 SKUs, right? A tremendous selection of varieties. You go to Trader Joe's and they only have, say, 3,000 stock keeping units in a typical Trader Joe's.
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Chapter 3: Why is Trader Joe's considered a great place to work?
The grocery business is famous for low profit margins, lots of competition, and lately an even bigger problem. American consumers now spend more money in restaurants and bars than in grocery stores. Trader Joe's does seem to be bucking this downward trend. It doesn't just have customers, it has fans.
The first thing I do when I know I'm going somewhere is get on the internet and find where the closest Trader Joe's is.
It's never been easy to run a grocery chain, but Trader Joe's makes it look easy and weirdly fun.
I don't walk into Trader Joe's with a strong to-do list. It's not a chore. When I walk into Trader Joe's, it's a variety-seeking exercise.
Chapter 4: What are the secrets to Trader Joe's success?
So how do they do it? That's the question we'll try to answer today. A question made more difficult by the fact that Trader Joe's is a fairly secretive company. I think that some of the secrecy is probably due to who owns them. So we put on our Freakonomics goggles in an attempt to reverse engineer the secrets of Trader Joe's. which, it turns out, are incredibly Freakonomical.
Things like choice architecture and decision theory. Things like nudging and an embrace of experimentation. In fact, if Freakonomics were a grocery store, it might be a Trader Joe's, or at least try to be. It's like a real-life case study of behavioral economics at work. So, here's the big question. If Trader Joe's is really so good, should their philosophy be applied elsewhere?
Should Trader Joe's, I can't believe I'm going to say this, but should Trader Joe's be running America?
This is Freakonomics Radio, the podcast that explores the hidden side of everything with your host, Stephen Dubner.
I first got interested in Trader Joe's around 15 years ago. I'd never been to one of their stores, but I had a general impression. Cheap and cheerful, relatively laid back and sort of groovy for a grocery store, apparently a reflection of its surfy California roots. Also, not aggressively health conscious, but leaning in that direction.
And then I read a Wall Street Journal article about a German grocery chain called Aldi that was ramping up its U.S. expansion. Aldi is a super cheap, super generic grocery store. 95% of its products were house brands. And it was beating even Walmart on price. The article said the Aldi chain had two branches back in Germany, separately owned by two wealthy brothers named Albrecht.
and that one of those branches also owned Trader Joe's. I found this fact surprising only because when I think of German business practices, I don't think of a groovy, earthy, crunchy, California surfy vibe, but there it was.
I also learned that Trader Joe's stores were much smaller than typical supermarkets, that they had their own way of doing things, and that places without Trader Joe's often started petitions to bring one to their town. It was a sort of loony devotion usually reserved for sports teams or your favorite band. What kind of grocery store has a following like that?
And then when I learned that Trader Joe's outsells all other grocery stores per square foot, I really started paying attention. Then one opened up near my office here in New York. I started shopping there and for the most part, loving it. I realized it's not for everyone. In fact, part of their strategy is trying not to be for everyone. But I did want to know the secrets to their success.
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Chapter 5: How does Trader Joe's maintain low prices while offering good pay?
It's a strange combination, a firm that prides itself on user friendliness while also keeping its distance, which means that a lot of what's known about it comes from industry analysts and other secondary sources. Let's start here. In the very beginning, there really was a Joe behind Trader Joe's, Joe Colombe. He opened the first store in 1967 in Pasadena, California.
He went with a South Seas theme, beachy tchotchkes, Hawaiian shirts, calling employees captains and crew members. In 1979, Colombe sold the chain to one of the secretive Albrecht brothers, Theo. Theo Albrecht was a recluse, perhaps, it was said, because he had once been kidnapped and held for ransom for 17 days in Germany. Albrecht died in 2010, but Trader Joe's remains notoriously press shy.
It's also a privately held company, so no earnings calls with investment analysts, no public proclamations of any sort, really, about how it does business. And so to figure out how it works, we'll rely on a few people who've spent a lot of time thinking about Trader Joe's, including the business school professor Michael Roberto, whom you've already met. Correct.
Also, the Columbia Business School professor Sheena Iyengar, whose research specialty is particularly relevant here.
So I've been studying choice. Why do we want choice? What are the things that affect how and what we choose? And what are some things we can do to improve our choice-making abilities?
We'll also talk to a Trader Joe's super fan. My name is Kirk DeSarmia. I reside in Seward, Alaska.
Seward, by the way, does not have a Trader Joe's, nor does the state of Alaska. The closest store from DeSermia's house is 2,295 miles away by car in Bellingham, Washington. DeSermia is the guy who we heard earlier say this.
The first thing I do when I know I'm going somewhere is get on the Internet and find where the closest Trader Joe's is.
And we'll hear from a spy in the house of Trader Joe's, a former advertising executive named Mark Gardner, who became obsessed with the chain.
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Chapter 6: What unique strategies does Trader Joe's use in product selection?
And I just had this thought, like, you know, what if I just went and worked there? What would I learn about this company?
What Gardner learned about the company is that just about everything Trader Joe's does outside of exchanging food for money is unorthodox for a modern grocery store. There's a lot to talk about. The products, of course. The economics of their business model. Their very homemade, do-it-yourself aesthetic, including the hand-painted murals that reflect the neighborhood of every store.
But let's start with one of the first things I noticed when I started shopping there. The employees. Yes, they are friendly and helpful and enthusiastic.
At Trader Joe's, what they want is employees in the aisles who have sampled the product, who know the product, who can say, have you tried this wine or that cheese?
But what really caught my eye was the sheer number of employees. There are so many of them. If you go in during a slow time, you can easily be outnumbered by employees in their TJ's t-shirts and Hawaiian prints. One reason is that rather than stocking shelves overnight, like most grocery stores, Trader Joe's stocks them during business hours. Why?
As Mark Gardner learned when he went to work there, the priority is to maximize customer interaction.
So they would tell us they're going to be looking for customers who seem like they can't find something that they want or just seem curious about something. You're going to initiate conversations with these people and that we want you to be flexible. We want you to be chatty. We want you to be empathetic.
And more than anything else, we want you to do what it takes to make customers feel appreciated and wanted.
So that explains why there's so many employees in the aisles. But there are also a ton of employees staffing the checkout. On one level, this makes sense. It makes the long checkout line move fast. And checkout, after all, is where a store takes the customer's money. Lesson number one in sales, don't make it hard for people to give you their money.
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Chapter 7: Why does Trader Joe's have a cult-like following?
Really didn't matter if it was a little old lady that was looking for one $5 bottle of wine and if the wine shipment had just come in the back and I would go and look through 100 different cases and see if I could find the one that she wanted and get her that one bottle of wine.
If I spent 15 minutes doing that and that made that customer really happy, then the managers were happy and the store was happy.
So this is a riddle. Here's a company that doesn't harness big data, doesn't generally seem to embrace a lot of technology. It employs a lot of real live people and offers decent pay and benefits. But this is also a company that sells its products at low prices.
One head-to-head comparison of grocery prices in Washington state found that Trader Joe's was 19% cheaper than the local average, 12% cheaper than Target and 24% cheaper than Whole Foods. So how on earth can Trader Joe's, as Michael Roberto told us, take in the most revenue per square foot in the industry? They're at the top by a wide, wide margin.
A 2024 analysis found that Trader Joe's sells around $1,750 of groceries per square foot. Kroger, $800. Walmart, $600. How is this happening? We should probably start with the products that Trader Joe's sells. Here, let me read some of what they say are their most popular items.
Mandarin orange chicken, mushroom and black truffle flatbread, butter chicken and basmati rice, Italian truffle cheese, dark chocolate peanut butter cups, spicy tempura seaweed snacks.
These are the sort of foods that light up Instagram accounts and Facebook pages, that inspire fanatical devotion even among people who don't have a Trader Joe's within 2,300 miles, like Kirk DeSermia, who works as a facilities manager for the National Park Service in Alaska.
Whenever I leave the state, I usually buy a couple hundred dollars worth of goods, and I have an extra suitcase or duffel bag with me in my luggage. DeSermia and his duffel bag have been all over. I've been... I know to some in Portland, Oregon, Reno, Nevada, all over Southern California, there's a number of them.
My wife is from Kentucky, and so we've been to, they have one in Louisville now, as well as Indianapolis. I go to DC about once a year for work, and I love to go to the Trader Joe's in Georgetown.
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