Posts Tagged ‘private labels’

Why Not Blame the Parents?

October 15, 2010

I was very disappointed by the recent supposed exposé of the “secret world of Trader Joe’s” by Fortune magazine.

For those who’ve never wandered the aisles of this US supermarket chain, Trader Joe’s is a rather quirky purveyor of intriguingly packaged groceries that conjure up vague images of some exotic South Pacific trading post (see left) – if said trading post had access to goods and flavours from around the globe.

The chain has been spreading quickly across parts of the US in recent years, such that it now has 344 stores in 25 states. It is a very private business, with little to say to the finance press, or media in general. Fortune’s story makes much noise about the ‘secrets’ behind their success:

– a focus on private labelled offerings (i.e. about 80% of products are internally branded), that it turns out are often sourced from FMCG giants who are sworn to secrecy about these production arrangements
– tightly controlled costs
– small (often standalone) stores
– very limited variety within each product and narrow offerings generally (so around 4,000 SKUs per store vs 50,000 for typical supermarkets)
– a tiny head-office, and considerable autonomy for regional and store managers
– well paid staff at all levels in the very flat organisation
– low numbers of in-store staff who are expected to be very multi-skilled
– loyal customers who are not deterred much at all by the limited range…

Does that sound familiar to many of you? Bring to mind the Aldi model, perhaps?

That’s no surprise. German giant Aldi has owned Trader Joe’s since 1979 (Correction to initial version of post: it was Aldi Nord that acquired Trader Joe’s. Aldi Süd, the other half of the Albrecht brothers’ empire owns the Aldi stores in the US (and Australia) – See more in comments section below ).

While the article acknowledges this, the author implicitly dismisses any impactful level of involvement by the German hard-discount giant in Trader Joe’s practices.

This is very odd. While it may be the case that significant elements of the Trader Joe’s business model were the brainchild of the firm’s founder, to ignore the similarities in competitive advantage is to miss a big part of this story. It also ignores the exciting prospects for the future.

Surely Aldi bought these guys because they could see the crossover and scope to transfer knowledge and practices. The eventual expansion of the chain across the country reflects Aldi’s own experiences, as does the extent to which consumer behaviours have been transformed when these stores open.

The Fortune article asks some great questions – such as whether these quirky brands and perceptions of uniqueness and ‘small-ness’ can be retained as suppliers must service a bigger and bigger market, and as consumers become aware of the ubiquity (and perhaps the multinationality) of the stores. The answer may lie in Aldi’s sustained advantage in both supply relations and as a consistently well-regarded firm. But ignoring the parent makes such an answer unlikely.

The other unasked question (and lesson) is the transferability of this brand and model beyond the US grocery market. Would a higher-end, more gourmet-tinged supermarket chain, built around a relatively low cost private-label strategy, work in other markets (such as Australia)?