How Trader Joe’s Became a Cult Phenomenon — and Made a Fortune

Trader Joe's navigated the notoriously difficult food business and created an iconic grocery store.

If you want to see smiling people and hear ringing bells when it’s not Christmastime, Trader Joe’s is a safe bet.

The eclectic grocery store has been operating for over 50 years, expanding from just a few operations in California into a national phenomenon with an extremely loyal customer base.

Check out how Trader Joe’s navigated the notoriously difficult food business and created one of the world’s most iconic grocery stores.

Trader…Pronto’s?

Joe Coulombe founded Trader Joe’s in California in the 1950s. Entrepreneur / YouTube

It all started out with Trader Joe’s founder, Joe Coulombe, in 1950’s California. The original Trader Joe had an idea to buy gourmet goods in bulk, repackage them, and sell them to more discerning clientele in his own set of stores.

By 1958, Coulombe launched his business with a few stores originally called Pronto Markets in the Pasadena area.

The 7-Eleven Threat

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Things were going fine until the ‘60s, when 7-Eleven started expanding into the area and threatened to wipe out Coulombe’s brainchild. He needed a way to make his business stand out from the competition — and, while vacationing in the Caribbean, he found it.

Taking inspiration from the local environment, he decided his stores would take on a nautical, Caribbean-style theme. In 1967, he renamed Pronto Markets to Trader Joe’s. The store interiors were redesigned with bright nautical themes and cedar-plank walls while the employees donned Hawaiian-style shirts.

It Used to Sell Pantyhose

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For a few years, Trader Joe’s sold more than just food. In fact, you could get pantyhose with that bottle of wine.

The store also had a butcher shop. It sold nuts in barrels and magazines, but it finally dropped pantyhose in 1978.

It Expanded Slowly but Is a Huge Success Today

It wasn’t until 1993 when Trader Joe’s expanded outside of California. Getty Images

Understanding that a rapid expansion would be a risky move, Trader Joe’s took a long time to leave even Southern California. It wasn’t until 1988 that the company expanded to Northern California, and not until 1993 when it expanded outside of the state into Phoenix, Arizona.

By 1995 the company had opened 70 stores, and in 1997 finally made the jump to the Eastern seaboard where, opening shop in Brookline, Massachusetts. Today it has over 550 stores in several states.

Trader Joe’s stores may be small, but they are mighty when it comes to sales revenue. A 2014 report by the real estate investment firm JLL found that Trader Joe sells over $2100 worth of product per square footage — that’s more than twice the sales-per-square-footage of Whole Foods.

It’s estimated that the company generates more than $13 billion a year.

Granola Paved the Way to Private Labels

Trader Joe's Dark Chocolate with Almonds Bar

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Trader Joe’s is now well known for its branded foods, but it wasn’t until 1972 — five years after Trader Joe’s launched — that the store started creating its own private labels.

Its first private label was granola, and in 1977 the company expanded with Trader Mings (Asian food), Trader Jose (Mexican food), Trader Giotto (Italian food) and Pilgrim Joe (New England-style foods) private labels.

That year was also the first time it released a private label organic item, organic apple juice.

The Products Have to Be Good

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Now, between 80 and 85 percent of Trader Joe’s goods are private label — a typical supermarket only has about 16 percent, according to “The Trader Joe’s Adventure: Turning a Unique Approach into a Retail and Cultural Phenomenon” by Len Lewis.

This unusual strategy allows Trader Joe’s to keep careful control of its stock. When a new product is introduced, its sales are counted and considered. “If an item doesn’t pull its weight in our stores, it goes away to gangway for something else,” the company’s website reads.

Fewer Items for Fewer Dollars

Trader Joe’s purchases items in bulk, which brings prices down. Getty Images

Trader Joe’s makes a ton of cash off of a relatively tiny selection of inventory. The typical grocery store stocks nearly 40,000 items while Trader Joe’s carries about 4,000.

But that’s a huge advantage because Trader Joe’s can purchase items in bulk quantities, which brings prices down. Do this across the board with every item and it means a lower selection at cheaper prices throughout. And it also helps to cut out the middlemen — Trader Joe’s deals directly with the supplier.

It also helps that the products are hand-selected for quality.

Scouring the Globe for Food

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An anonymous employee told Thrillist that an entire team travels around the world looking to find new food. According to this person, a Trader Joe’s rep approached an Italian pizzeria owner and asked to buy out his company after chowing down on his pizza. The owner refused, so instead the Trader Joe’s rep drew up a business plan which included freezing the pizza on site, packing it up and shipping it back to the United States.

This process, combined with the aforementioned strategy of jettisoning underperforming products, means Trader Joe’s offers only the most popular — and therefore best tasting — goods. And they offer new products every week to keep things fresh.

The Founder Is Long Gone

A store of German discount chain Aldi is seen in Nordenham, northern Germany, in 2007. Aldi owns Trader Joe’s. Joerg Sarbach / AP Photo

Coulombe sold Trader Joe’s to Aldi Nord in 1979, a private Germany-based grocery giant owned by the Albrecht family. It’s not known how much the company paid for the franchise, as the Albrecht family is notoriously private and Coulombe claims to not remember how much he made from what was probably the biggest business deal of his life.

Aldi keeps a very low-key presence over Trader Joe’s — you’d never know the foreign company owned the quirky grocery store unless you looked it up.

Trader Joe’s Curates its Customers

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Like its products, Trader Joe’s actively cultivates customers of a certain type — and those customers actually can help Trader Joe’s expand.

“Although its customer base is not considered upscale by any means,” writes Lewis, “Trader Joe’s consumers have relatively high household incomes and propensity for social activism. Furthermore, their ardor for the company is such that they are not above lobbying local politicians, real estate developers and the company itself to get a store in their local neighborhoods.”

One Washington-based store captain told the Seattle Post-Intelligencer, “Our favorite customers are out-of-work college professors. Well read, well-travelled, appreciates a good value.”

That’s some good, calculated branding.

Want to Work There? You’d Better Be Nice.

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If customers love Trader Joe’s, then its employees must be infatuated with the joint. Or at least they should act like it.

Ex-employees told Thrillist about the importance of having a good attitude to work at Trader Joe’s. But that means only the ones that are really happy with their job stay on board, since those who think the workplace culture exists in a happy bubble are likely to leave.

Listen to the Bells

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There’s no PA system at Trader Joe’s. Instead, the crew communicates through a simple system of bells:

* One bell means another register needs to be opened

* Two bells means the cashier needs help with a customer

* Three bells summons a manager

The Salaries Are Good

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Trader Joe’s lead managers (they call them “captains”) make an average of $101,574 a year; “mates,” a step below captain, make about $53,545 a year. Regular workers — crew — make about $35,730 a year.

Full time workers get health insurance, retirement benefits, 7 to 10 percent raises each year for crew members and a 20 percent discount on all products. No wonder they’re happy.

Every Location Has a Lobster

Red Lobster Plastic Toy Close-Up Front View

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A plastic lobster, that is. In 1976, a big plastic lobster was added to one of the stores as just a kitschy bit of island-themed fun, but by 1983, you could find the plastic crustacean in every store. The tradition continues to this day.

The Tragic Tale of Two Buck Chuck

Grendelkhan / Wikimedia Commons

Everyone loves “Two Buck Chuck,” the nickname given to that Trader Joe’s-specific wine label Charles Shaw that originally debuted for $2 a bottle in 2002 (however, in some places, it’s up to $3.99 — that’s still pretty inexpensive.)

Charles Shaw is a real person who became obsessed with wine in the ‘70s, made millions of dollars buying vineyards and selling wine in Napa Valley, and then went broke after a series of bad moves and bad beats. According to Thrillist, Shaw went into bankruptcy and was forced to sell his label.

The offer? $27,000. The buyer? Fred Franzia. He and his family used to own the Franzia boxed wine company but sold it to Coca-Cola in 1973. Fred now owns a big wine label named the Bronco Wine Company, whose flagship brand is Two Buck Chuck.

The wine ages on the truck and has been sued for its arsenic levels.

Shaw claims he never saw a penny of that $27,000 deal.

Who Makes the Food?

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So if Franzia owns the wine, what other big time companies have their trucks in the trade routes of Trader Joe’s? Trader Joe’s is transparent only about the fact that it doesn’t make its branded items — and it is fiercely secretive of which companies do.

Companies are kept under contract to never reveal that they’re trading with Joe, but Eater did something brilliant: they used the Freedom of Information Act to obtain FDA and USDA records to find any mentions of Trader Joe’s over the last 15 years. Eater also compared ingredient lists to find perfect matches.

Here are the brands and companies they concluded were supplying Trader Joe’s at some point and those they suspect:

* Wonderful Pistachios

* Tribe Mediterranean Foods

* Naked Juice (owned by PepsiCo)

* ConAgra (the company behind Hunt’s canned tomatoes; they recalled some organic sweet corn)

* Stacy’s Pita Chips

* Tate’s Bake Shop

* Snack Factory

But that’s for just a few items out of 4,000 products. For the vast majority of goods, you’ll never know.

You Can Sample the Goods

Wesley Fryer / Flickr (CC BY 2.0 DEED)

Don’t know if that cookie butter or chocolate-coated espresso beans are right for your palate? You might be able to find out right inside the store. Go ahead and ask a Trader Joe’s crew member if you can have a sample, and it’s likely that you can have a bite. (This doesn’t apply to everything. A worker won’t crack you open a beer or cook up a frozen dish).

But if you find out you don’t like something after you’ve purchased it, no problem. Trader Joe’s has a very liberal return policy, and encourages any unhappy customer to head on over to customer service for a full refund.