Trader Joes Case Solution

2. The Profitability of the Retail Industry

The first step in the analysis of Traders Joe’s case study is to evaluate the competitive positioning of the retail industry. The model used to assess the American retail industry is Porter’s five forces model. 

1. Threat of Substitutes– The risk of substitutes for the US retail industry is high. The purchase of online groceries has emerged as a viable alternative for American consumers. Amazon’s online grocery service is increasing in revenues steadily. This phenomenon of the growth in the online (Alkhafaji, 2014).

2. Threat of New Entrants– Walmart is already experimenting with the formation of more original smaller-sized retail stores in different US states. Costco, Kroger, and Target are increasing the number of stores (Ager & Roberto, 2014). This element of Porter's five forces poses a considerable threat to existing stores (Phadtare, 2011). The threat of new entrants in the industry is very high.

3. Bargaining Power of Buyers– Consumers have a wide variety of options to make their retail purchases. The options available to the consumers range from small mom-and-pop stores to giant retail chains and online retailers (Hughes, Richards, & Calantone, 2019). The bargaining power of buyers is very high.

4. Bargaining Power of Suppliers– Prominent retailers – like, Walmart and Trader Joes’s – offer their private label brands to the consumers. The bargaining power of suppliers is weak in comparison to the retailers (Ansoff, 2019). Only strong brands possess bargaining power against retailers (Alkhafaji, 2014).

5. Rivalry Among Existing Competitors– There is a fierce price competition among retailers to gain market share. Rivalry among competitors is very high. It is a common practice among retailers to operate a few categories as loss leaders to attract customers (Hughes, Richards, & Calantone, 2019).

Porter's five forces analysis shows it is very challenging to be profitable in the American retail industry.

3. Practices in Traditional Grocery Stores 

A supermarket makes profits by selling retail products on a mass scale. The margin per product is low. Thus, a supermarket needs to sell in large volumes to breakeven. There is a broader divergence in practices among retailers to meet these objectives (Edwards, Rosenbaum, & Brosdahl, 2018). This section compares Trader Joe’s strategy with two key competitors in the US market; namely, Walmart and Kroger. 

Trader Joe’s strategy is entirely focused on offering less variety at a competitive price and provides very high quality (Ager & Roberto, 2014). This focus on quality is the reason Trader Joe’s has created a cult around its brand. Trader Joe’s is the only retailer who does not spend on its marketing (Alkhafaji, 2014). Instead, the company’s strategy is to provide its customers with superior customer service. The management of the company hopes it will acquire new customers by word-of-mouth (Ager & Roberto, 2014). 

In comparison, Walmart offers an extensive variety of products to its customers at a very competitive price. The number of SKU's stored by an average Walmart store is almost ten times that stored by Trader Joe's (Ager & Roberto, 2014). The number of categories in which Walmart operates is also fuller than Trader Joe’s. Both retail chains don’t spend on marketing (Dacko, 2017).

Nevertheless, there is a significant divergence in the two retail chains for the emphasis placed on customer service. Trader Joe’s staff is immensely customer-friendly (Ager & Roberto, 2014). The culture of the organization is built around helping customers to shop. Kroger is the chain that spends a sizeable proportion of its revenues on marketing (Hughes, Richards, & Calantone, 2019). The in-store ambiance of Kroger is at a larger scale than Walmart and Trader Joe’s. The range of SKU’s is medium for Kroger. The social media presence of the company is quite strong (Edwards, Rosenbaum, & Brosdahl, 2018).