Trader Joe’s questions; 1. How do firms in the supermarket industry make money? 1. Please conduct a financial ratio analysis using the data in Exhibit 2. How do the results reflect different strategies pursued by the 4 firms? 2. What do the results say about how firms in this industry can deliver strong financial returns in different ways? 2. What are the key sources of Trader Joe’s competitive advantage? 3. What are the main threats to Trader Joe’s competitive advantage? Is their advantage sustainable? 4. How would you modify Trader Joe’s strategy moving forward?
What are the key sources of Trader Joe’s competitive advantage?
Trader Joe’s Competitive Advantage
Their competitive advantage stems not
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Even Whole Foods and its quirky CEO, John Mackey, seem remarkably undifferentiated, by comparison. So, from the Fortune story and my own observations, here's an analysis of this unique company's more or less counterintuitive approach to a mature industry, and insight into how its strategies may apply to other businesses. 1. Consumers want fewer choices? Contrary to long-standing grocery store dogma, TJ's stores are smaller and the choices are fewer but consumers are happier. On average, TJ's sells less than one tenth the number of SKUs, but achieves twice the revenue per square foot versus Whole Foods. I mean, who needs 40 varieties of peanut butter to choose from, anyway? 2. Economies of scale: Low prices for high-quality products. Amazingly, TJ's offers high-quality products at rock bottom prices. How does it do that? Scale. Since it carries fewer products, its volumes are higher, giving it bargaining power when negotiating with its coveted suppliers. Everybody wins. It's nothing new in business operations, but it's very new in the grocery business. 3. The death of branding? Not at Trader Joe's. 80 percent of Trader Joe's stock bears the company's brand. Customers trust the brand, which is one of the ways the company gets away with having fewer choices. 4. Secrecy. Some think TJ's secretiveness comes from Germany's Albrecht family which owns the chain, but that's not the case. TJ's is secretive because it doesn't want