The secret of Trader Joe’s

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CNN goes behind the secret of Trader Joe’s success

The privately held company's sales last year were roughly $8 billion, the same size as Whole Foods' and bigger than those of Bed Bath & Beyond, No. 314 on the Fortune 500 list. Unlike those massive shopping emporiums, Trader Joe's has a deliberately scaled-down strategy: It is opening just five more locations this year. The company selects relatively small stores with a carefully curated selection of items. (Typical grocery stores can carry 50,000 stock-keeping units, or SKUs; Trader Joe's sells about 4,000 SKUs, and about 80% of the stock bears the Trader Joe's brand.) The result: Its stores sell an estimated $1,750 in merchandise per square foot, more than double Whole Foods'. The company has no debt and funds all growth from its own coffers.

This is how they do it

Customers accept that Trader Joe's has only two kinds of pudding or one kind of polenta because they trust that those few items will be very good. "If they're going to get behind only one jar of Greek olives, then they're sure as heck going to make sure it's the most fabulous jar of Greek olives they can find for the price," explains one former employee. To ferret out those wow items, Trader Joe's has four top buyers, called product developers, do some serious globetrotting. A former senior executive told me that Trader Joe's biggest R&D expense is travel for those product-finding missions. Trade shows that feature the flavor of the moment "are for rookies," a former buyer said. Trader Joe's doesn't pick up on trends -- it sets them.

With growth comes dangers

Some former employees say Trader Joe's has already lost its quirky cool. "In the early days we never tried to be the neighborhood store," says a former employee. They didn't have to: Trader Joe's was the neighborhood store. And yet walk into the Chelsea location on a busy weekday night and you'll see something you almost never see in Manhattan: strangers chatting with one another. Veteran customers tell newbies what products they absolutely have to try, and serious cooks share tips on how to spike sauces and semi-prepared foods to make them even tastier. If Trader Joe's can maintain that kind of mojo, it could end up the biggest neighborhood store ever.

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