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Case Write-Up Trader Joe's

In: Business and Management

Submitted By lennartsiebold
Words 919
Pages 4
How do firms in the supermarket industry make money?
Operating on very thin profit margins, players in the supermarket industry traditionally either focus on a premium segment or follow a discounter strategy at the low end. Premium players address educated and more price elastic consumers who value healthy, natural and organic food; the share of perishable items for these players is normally distinctly higher. Players that focus on a discounter strategy offer a higher share of simple necessity items and value price competitiveness over premium features like healthiness or organic origin. Independently of the focused customer group it is imperative for players in the supermarket industry to be cost efficient and optimize operations rigorously. Driving down costs is one of the few levers which allows the control of the, already low, profit margins.
What are the key sources of Trader Joe’s competitive advantage?
Trader Joe’s competitive advantage consists of two main drivers: The company’s unique approach to cut down costs and the unconventional marketing and customer communication strategy. Trader Joe’s is able to cut down its cost in a number of ways. Firstly, the company regularly adjusts and alters its product mix, not only to attract and entertain customers, but to get rid of poor selling items. The frequent introduction of new innovative products helps to keep customer interest high and at the same time enables the company to switch its lowest performing products. The downside of this approach is that a portion of customers may react negatively to the discontinuation of a certain product and the fact that Trader Joes, with this concept, cannot offer one-stop shopping like the majority of traditional supermarkets with their higher SKU amount and permanent product mix does. Secondly, Trader Joe’s sources its products itself and thus effectively cuts out the...

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