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larrywww

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Reply with quote  #1 
Interesting podcast about how Trader Joe's is so successful as a business---leads the market with over $2,000 income per square foot for its store---versus $1200 per square foot for Whole Foods.  (I'm not sure what the price differential is, but it's an interesting fact.)

But from a real estate perspective, having Trader's Joes----and/or Whole Foods---actually leads to higher real estate prices for homes nearby.  This from a Freakonomics podcast.  They interviewed someone from Alaska who travels hundreds of miles to stockpile their products since Alaska has no Trader Joe's---this guy started a Facebook page to bring Trader Joe's to Alaska---now THAT is dedication.

The other weird thing about the business is how highly they pay their employees---I think the podcast said that cashiers were making like 50K---which sounds way higher than the industry average, plus there are benefits.  I'm guessing morale must be high, though they also stay busy.

There were alot of fascinating facts about the business model for Trader Joe's----namely, how can they be so successful even though they have a very narrow selection?   So, for example, instead of a dozen kinds of tomato,  there are maybe one or two.  (Not true of every product--but many)  The other thing that one learns is that their tomato sauce may not, after all, be really special-----the company that produces their quirkily named brand is usually the leading producer of tomato sauce for the other, regular markets.   So, for example, instead of Cheerios, you have their counterpart but using their own description.  (I can't recall their actual examples, but you get the idea.) Even though this is true and you aren't necessarily even getting a different product from what is available in most grocery stores, their brands have a halo of respectabilty that no other store brand has----because of the quirky names that the give their products----and the loving writeups for products in their Fearless Flyer.   

What appears to be central to the Trader Joe's experience is the customer service and their quirky philosophy.  The company doesn't look for experienced cashiers / grocery store managers---that is maybe 5 to 10% of what they are looking for.  What they primarily want is someone extraverted who chats with customers easily---what the customer's experience is supposed to be like accounts for the vast majority of their training.  And according to those who work there, employess are encouraged to bond with customers and go out of their way to get them what they really want----and to even interrupt their normal job and work one on one with a customer.  This kind of philosophy is very unusual in this type of business---most grocery store employees are too business shelving, checking or whatever else they do.  It sounds rather chaotic, but the primary mission of most of these employees is customer service----and secondarily their assigned job.  But it's this unique philosophy why some business school analysts think that duplicating a Trader Joe's is not as easy as just buying the real estate and decking it out to look like a  Trader Joe's.

There are products that Trader Joe's produces inhouse that are not made by brand name manufacturers.  Whereas most in house store brands from your average supermarket have the downscale reputation of being slightly above the quality one assumes one would find in dog food, whereas the exotically named Trader Joe products demand a premium.  It seems to be the marketing and their having been in the business for so long.  Although their products have been succesful in finding a niche where no niche seemed to previously exist---so they should receive credit for that.  (Although some of the exotic sounding ingredients I have to question whether it really has the advertised impact: Do you really need Himalayan salt rather than regular table salt?  At least, the table salt is iodized.  Just saying.) 

Also, the podcasts says that their products are generally cheaper than most stores---I can't exactly verify who they are cheaper than since there is such a wide spectrum of grocery stores.  And it's kind of fascinating they have this reputation for upscale products when their wine and liqour offerings sometimes seem downscale (2 Buck Chuck, anyone?)---although since liquor is profitable, this is the one area of the store where they DO have multiple brands.

The owners of Trader Joe's have also been very low profile---the original owner was similarly low profile, especially after he was involved in a ransom kidnapping---not exactly an event that will encourage you to take center stage and invite future kidnappings.  But from their "Fearless Flyer" advertisement to their quirky advertising approach they seem to have captured this fanatical brand loyalty from customers.  And the weird thing is that their products cross category lines----some sound very healthy (ala Whole Foods)---but they also sell the pretzels filled with peanut butter, so their product lines almost defy any easy categorization.  But who knew this niche store with weirdly named products is actually the industry leader---forget Kroger's, Safeway, etc---these guys rule the pack, no comparison.  And these much larger stores actually have shrinking profit margins because Walmart, Target, and who knows who else is adding to the competition.  These large, traditional grocery stores are starting to look like an white elephant----the next Sears or Kmart---compared to their sleaker, more profitable competitors.  (Do we really need to give shelf space to 10 kinds of peanut butter?  And how profitable is that?)

It's also unclear who their customer base is---some think it's the well educated but poor consumer----although their formula for siting stores has always to find the cheap retail in an otherwise upscale area.  And by showing up, I'm sure they increase the rents in this cheaper area.

I'm not trying to convince the board to skip Trader Joe's or anything since they must be providing some kind of value to the customers, but if you look under the hood as Freakonomics has done what emerges is a very ambiguous track record.  I think they are just fascinated (as I cleary am) about their business model and are trying to figure it out.  And I would certainly love to own one of their stores---they make very respectable profits indeed.

Anyway, you've got to admire their success, especially since it clearly involved a good deal of outside-the-box type thinking.
Paul

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Reply with quote  #2 
Great post, Larry.

I now live in Mooresville, North Carolina, and I'm convinced it's the supermarket capital of the U.S. We have these major stores: Publix, Food Lion, Harris Teeter, Walmart Super, Target Super, Walmart Neighborhood, Sam's Club, BJs and Aldi. Lidl and Costco are under construction.

Despite that incredible selection, my wife, daughter and many of their friends still aren't happy. They want a Trader Joe's because they now travel 15 miles to the closest location.

I was in Winston Salem last week – and my wife knew there was a Trader's – so we had to stop. I waited in the car.
larrywww

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Reply with quote  #3 
Thanks, Paul.

You know the article that I read this week that impressed me the most had nothing to do with real estate.

Tom Wolfe has been a very unique journalist for decades and the portrait that emerges in Michael Lewis article in Vanity Fair is really kind of fascinating.

https://www.vanityfair.com/culture/2015/10/how-tom-wolfe-became-tom-wolfe

When Wolfe was asked about the article / book that he was most proud of----I would have chosen, the Right Stuff---but he didn't .  The book that he chose was: Radical Chic and Mau-Mauing the Flak Catchers.  This was about Leonard Bernstein having a fund raising cocktail party for the Black Panthers---and the portrait from Wolfe that emerges is priceless---it may have made his reputation, or significantly propelled him to the front ranks of journalism.   In fact, Michael Lewis cites the example of Tom Wolfe in terms of why he ended up a journalist.  The question that haunts Lewis is why did Wolfe---and Wolfe alone---figure out The Right Stuff---it was there in front of everyone and only he caught it.  That isn't just journalism, it's an investigative journalism of a very unique kind---and one that is in decline given the decline of most news organizations.

Anyway, Wolfe told Lewis the back story about how the piece even got wrote---it wasn't commissioned by his editors, he stumbled across it.  Wolfe was visiting a publication where his girlfriend worked----and he was looking at the other offices to see if anyone wanted to socialize----when he stopped in the office of David Halbertstam, the noted investigative journalist.  On Halbertstam's desk, Wolfe noticed that there was an invitation from Leonard Bernstein to this rather unique fund raising cocktail party being held for the benefit of the Black Panthers.  Wolfe immediately called the RVSP phone number on the Invitation---they confirmed him as a guest---even though he was NEVER on the original guest list.   In all this time, he NEVER told David Halberstam what he did---it was mentioned for the first time in Lewis' article.

There is a similar story for idea behind The Right Stuff---it wasn't specifically, Wolfe just stumbled onto the subject in his research---in fact, he originally was going to write a much different treatment.

The question explored in the article is----where in the world does a journalist get the original idea for his pieces?

IMHO, you can't really teach the kind of journalistic eye that both Wolfe and Lewis seem to have---it seems almost innate and mysterious.

Anyway, since I like Michael Lewis so much, I've  been investigating his earlier articles.





 

rickencin

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Reply with quote  #4 
The local tie in to Thomas Wolfe is "The Pump House Gang" (1968) about La Jolla surfers.  I won't mention their name out of consideration for those of a delicate constitution.  I lived in Pacific Beach in the early 1970's, so this was familiar territory to me.  
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Paul

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Reply with quote  #5 
I'm a huge fan of Tom (never Thomas) Wolfe. To this day, if I say, "Hey, Pan-thuh," to certain friends, they immediately look for a guy wearing shorts with black shoes and black socks.

When I was the editor of Surfing Magazine, we asked Tom Wolfe to cover the contest scene one winter on the North Shore of Hawaii. He respectfully declined, but he wrote a nice, hand-written response to the associate editor. Wolfe's noted for his calligraphy.

[75-TWlet]
larrywww

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Reply with quote  #6 
Amazing story, Paul.

Yeah, Tom Wolfe was something of an illustrator in addition to being a journalist and a novelist.  (Lewis mentioned it in his article).

I wish Lewis would do a book about Wolfe, although by this point maybe almost all of the great anecdotes have been published.

Great post, as always.
rickencin

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Reply with quote  #7 
"Saudi Aramco is the world's most profitable company."
https://start.att.net/news/read/article/cnn-saudi_aramco_is_the_worlds_most_profitable_company-cnn2/category/finance
"The Saudi oil company made $111 billion last year, according to a note from Moody's."
Piece of cake if you  have vast natural resources?
Let's talk Venezuela.

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Robertbouffad

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Reply with quote  #8 

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