Best-Cost Strategy Assignment Discussion Paper
Over the last 50 years, Trader Joe’s has built a cult-like following by offering a limited selection of highly popular private-label products at great prices, under the Trader Joe’s brand. By pursuing a focused best-cost strategy, Trader Joe’s has been able to thrive in the notoriously low-margin grocery business. Today, Trader Joe’s earns over $2,000 of annual sales per square foot— nearly double that of Whole Foods.
One key to Trader Joe’s success, and a major part of its strategy, is its unique approach to product selection. By selling mainly private label goods under its own brand, Trader Joe’s keeps its costs low, enabling it to offer lower prices. By being very selective about the particular products that it carries, it has also managed to ensure that its brand is associated with very high quality. The company’s policy is to swiftly replace any product that does not prove popular with another more appealing product. This has paid off: when you ask U.S. consumers which grocery store represents quality, Trader Joe’s tops the list. On a recent YouGov Brand Index poll, nearly 40 percent of consumers ranked Trader Joe’s best for quality—the highest among its competitors. While Trader Joe’s offers far fewer stock-keeping units (SKUs) than a typical grocery store—only 4,000 SKUs as compared to 50,000 + in a Kroger or Safeway—the upside for customers is that this also helps to keep costs and prices low. It results in higher inventory turns (a key measure of efficiency in retail), lower inventory costs, and lower rents since stores in any given location can be smaller Best-Cost Strategy Assignment Discussion Paper.
Trader Joe’s also intentionally locates its stores in areas with value-focused customers who appreciate quality. Trader Joe’s identifies potential sites for expansion by evaluating demographic information. This enables Trader Joe’s to focus on serving young educated singles and couples who may not be able to afford more expensive groceries but prefer organics and ready-to-eat products. Given that it occupies smaller-sized retail spaces, Trader Joe’s can locate in walkable areas and urban centers, the very same neighborhoods in which its chosen customer base lives. Because of its focused best-cost strategy, it is unlikely that the company’s loyal customers will quit lining up to buy its tasty corn salsa or organic cold brew coffee any time soon.
Using the information in “Trader Joe’s Focused Best-Cost Strategy” abow, discuss how Trader Joe’s has been able to achieve its focused best-cost leadership status in the industry Best-Cost Strategy Assignment Discussion Paper.
- Explanation for step 1