June 9, 2006
 
RETAILING: The Tao of Trader Joe’s
 
By Pia Sarkar
San Francisco Chronicle
 
For nearly 40 years, Trader Joe's has staked its reputation on private labels, Hawaiian shirts and a quirky sort of charm. And so far, the formula has worked.
 
Company employees greet customers with laidback smiles. Handmade signs advertise bargain prices in colored chalks and markers. And store aisles stock rows and rows of products like dark-chocolate-covered soy nuts, peach halves in white grape juice and seasoned rack of Australian lamb.
 
Californians fell in love with the gourmet grocery chain based in the Los Angeles area a long time ago. But more people keep joining the cult following as Trader Joe's continues a slow expansion into other parts of the country. Today, it has more than 240 stores in 19 states.
 
But as much as it thrives off a swelling population of admirers, Trader Joe's has refused to shake its long tradition of privacy, posting only selective information on its Web site. The company hardly even advertises outside of its monthly newsletter called the Fearless Flyer, which is jammed with descriptions of new products and bad clip art.
 
"They're low-key and they'd prefer to stay that way," said Len Lewis, author of "The Trader Joe's Adventure," whose request to interview the company's president, Doug Rauch, was politely declined, as are most requests of that nature, including the San Francisco Chronicle's. "There's nothing sinister going on there. That's just the way they are."
 
As a private company, Trader Joe's is not required to disclose financial information, leaving retail experts to speculate. Some have guessed the company has upward of $2.6 billion in sales a year. In his book, Lewis writes that Trader Joe's produces sales per square foot of more than $1,300, which is twice the industry average, even though the chain carries far fewer items than a typical supermarket.
 
Even customers have taken it upon themselves to fill in what Trader Joe's leaves blank. Jovanna Brooks, who lives near Boston and has created a Web site for Trader Joe's fans (www.traderjoefan.com), said she often receives inquiries from customers even though she has no affiliation with the company. Trader Joe's does not have an e-mail address and instead encourages correspondence the old-fashioned way -- by letter or in person.
 
Mike Kaltschnee of Danbury, Conn., also created a Web site, www.trackingtraderjoes.com, which contains information about store openings and collects articles about the company. Kaltschnee said his site gets about 1,000 visitors a day. Like Brooks, he finds himself responding to questions from customers, many of whom want to know why there isn't a Trader Joe's in their community.
 
"I don't pretend to be a textbook for the company," Kaltschnee said, but added that he is happy to at least point people in the right direction. "Trader Joe's needs an e-mail address. And a blogger, hopefully."
 
As the company grows in popularity, so do the Web sites that feed off the Trader Joe's frenzy. Enthusiasts join online message boards, where they lament about items that Trader Joe's has discontinued.
 
There is even a message group for Seattle residents looking for love at Trader Joe's. The site proclaims: "This is for singles who shop at Trader Joe's and are sick of accidentally checking out attached people while shopping for groceries. Trader Joe's singles, unite and flirt!"
 
Trader Joe's started as a string of convenience stores scattered through Los Angeles in 1958, then called Pronto Markets. In response to increasing competition from 7-Eleven, owner Joe Coulombe expanded the chain in 1967 to include gourmet foods at discount prices and changed the name to Trader Joe's. In 1979, he sold the company to Theo and Karl Albrecht, two of the richest men in Germany, who own and operate the European grocery chain Aldi.
 
The Albrechts are known for being reclusive. In 1971, Theo Albrecht was kidnapped for 17 days and released on a $3 million ransom. The family has stayed clear of the media ever since. There is no mention of the Albrechts on Trader Joe's Web site, although Coulombe is still featured as the original owner.
 
For the most part, the Albrechts have preserved the business model that Coulombe put in place. Trader Joe's still relies on a heavy supply -- 80 percent to 85 percent -- of private labels, which is a big reason it can keep its prices low. Organic vodka sauce costs $2.69 while yellowfin Ahi tuna goes for $4.69 a pound. And most stores continue to carry Charles Shaw wine for $1.99, although in some places the price is as high as $3.39.
 
"We went into private labels because of the value opportunity, so we could put our destiny in our own hands," Rauch said during a rare discussion of Trader Joe's practices at an industry conference in Scottsdale, Ariz., in February, reported by the trade publication Supermarket News. "Over time, the consumers built confidence in our private label. That made them more likely to try new things in our stores."
 
Trader Joe's employees still come to work dressed in Hawaiian wear, a tradition that Coulombe started to make customers feel relaxed when they walked into the stores. Although the chain is not unionized, workers are said to be paid well. Lewis reports that first-year supervisors can earn more than $40,000 while store managers can make upward of $140,000.
 
The company acknowledges that it cannot compete with supermarkets in offering fresh produce and meats -- two departments that supermarkets use to pull in customers. But Lewis said Trader Joe's isn't looking to replace the traditional supermarket and can function successfully with its private labels, which it constantly replaces and replenishes.
 
Trader Joe's remains deliberate in its every move, opening only a handful of stores throughout the United States each year. "They're very, very cautious people," Lewis said. "They're not going to expand too fast."
 
In March, the company departed from its usual strategy of opening stores in out-of-the-way places and took the bold step of planting a Trader Joe's smack in the middle of New York City's bustling Union Square.
 
Some retail experts wondered how well the company would fare in a fiercely competitive environment, especially when pitted against gourmet shops as well as a nearby Whole Foods. But when customers lined up before the doors swung open on the first day, Trader Joe's proved that it could create yet another loyal base.
 
Last month, the company confirmed plans to open a store in downtown Walnut Creek, Calif., although to much less fanfare. It will be Trader Joe's 12th in the San Francisco Bay Area, measuring 12,600 square feet. California remains its largest market.
 
While many communities will embrace news of a Trader Joe's coming to their area, a few scoff at the prospect. In September, residents of San Francisco's Castro district fought off a proposal for an 11,000-square-foot store with 48 parking spaces. They pointed to potential traffic congestion. Lewis agreed that parking can be a problem at some locations, but because Trader Joe's typically restricts its store size to between 10,000 and 15,000 square feet, traffic can never get out of control.
 
"I don't think it's a major issue for them because they're not putting in a 200,000 square-foot store," he said. "I don't think that alone is going to stymie their expansion."
 
Indeed, the only thing that has stymied Trader Joe's expansion so far is the company itself. And unless it starts opening stores at a much faster pace, there will always be customers willing to travel long distances in search of banana crisps, spinach tofu egg rolls and Mexican red sauce.
 
Distributed by Scripps Howard News Service, www.scrippsnews.com.