Case Study #1 – Trader Joe’s: Managing Less with More
Due Date: No later than 9:40 AM
Thursday, February 7, 2013
Remember the importance of deadlines, both in and out of class. Please do not ask to hand in the assignment past the due date. If you miss this one for some reason, there will be another. Thanks!
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Directions (use this as a checklist):

* Read Chapter 1 thoroughly * Read both cases. One is about Trader Joe’s and the other is about Chobani Greek Style Yogurt. * Answer each of the four questions with significant thought and further research. Rushing through this the last minute will show loud and clear. * Your paper should be a total of 1,600 words (more is fine) and typewritten double spaced with 1” margins. * Please use no larger than 11 point font (this helps conserve paper). * Please conserve paper and fill each page (similar to the second page) * Please check for spelling and grammar * Please edit thoroughly. Any sloppy and haphazard papers will not earn full credit. * Each answer (if you want to divide 1,600 words by 4 questions, this should be 400 words for each answer, but you can decide how you want to allocate your words). * Remember that you can print (do so 48 hours in advance) in Cloud Hall 111. * Get started this week. I think you’ll find that managing your time is as important as managing any other precious resource. * Have a great time! I hope you find the case interesting. If you have never been into a Trader Joe’s, you may want to stop by one for a data point!

Susan businessblackboard@yahoo.com Ask me anything about the expectations of the assignment. I’ll respond quickly. Thanks!

Case 1: Trader Joe’s: Managing Less with More

In a space one-fourth the size of its competitors, the average Trader Joe’s stocks approximately 4,500 products - a mere ten percent of those typically found in a supermarket. Affectionately nicknamed “TJ’s” by its loyal customers, the retail grocery chain of 365 U.S. stores typically stocks their 4,500 SKUs (stock-keeping units) in stores between 8,000 to 12,000 square feet. Compare this to 50,000 SKUs, the bustling variety carried in most mega-markets, in average store sizes of 46,000 square feet. Due to word-of-mouth advertising, Trader Joe’s spends a mere 0.2% of sales on advertising compared to competitors who typically spend at least 4%. Trader Joe’s is a model of how a company effectively performs the management functions of planning, organizing, leading and controlling. Today, the company stands for unique quality items like olive oil, Greek olives, brie and baguettes at peanut butter and jelly prices. Well known for its wine, in 2002, Trader Joe’s became the exclusive distributor of the iconic, alarmingly cheap two dollar bottle of Charles Shaw wine aptly nicknamed “Two-Buck Chuck.” Take a walk down any Trader Joe’s aisle and you’ll see the fundamentals of management at work -- a testament of how TJ’s has become more than just the average Joe of food retailers.
“Planning” Growth: From Corner Store to Foodie Mecca
In 1958, Joe Coulombe, an MBA from Stanford Business School, started a “7-11 style” corner store in the Los Angeles area which soon grew into a chain. While on vacation in the Caribbean, the Trader Joe South Seas motif resonated with Coulombe when he saw tourists returning home from their travels with hard-to-find food delights. In 1967, he opened the first Trader Joe’s store – and twelve years later, he sold the chain to the Albrecht family, German billionaires and owners of a discount supermarket chain based in Germany. How did this retail grocer grow to $8.5 billion in sales and attract an obsessive and diverse cult following of foodies, hipsters and recessionistas? Much has to do with its corporate culture, which includes everything from to how the company meticulously plans its store locations, manages its employees, and purchasing and branding strategies, to name just a few. Planning for new stores is premised upon offbeat strip mall locations. Purchasing is direct from manufacturers and sent to distribution centers to minimize “the number of hands that touch a product.”
Trader Joe’s Upside Down Pyramid
The notion of an upside-down pyramid can be used to describe the mindset at Trader Joe’s. Rather than given orders, crew members (nonmanagerial employees) are coached. They’re also given the go-ahead to open up a bag of goodies for customer sampling and taste tests. At the top of its pyramid are nonmanagerial (stockers and checkers) workers who interact with customers to provide a unique shopping experience. Shoppers are led by cheerful guides in Hawaiian print shirts to culinary discoveries such as lime and chili cashews, Chicken Gyoza pot stickers, salmon jerky, ginger almond and cashew granola, and baked jalapeño cheese crunchies. As evidenced by its cheerful and enthusiastic employees, there is no doubt that Trader Joe’s exists to serve its customers. Management cultivates this customer connection because of product knowledge and customer involvement among store employees (part of the leading function of management). Margins (profits) on products are not shared with crew members so that placement decisions are made solely on customer wants and needs. The attitude and culture is customer-focused, yet laid back. Trader Joe’s aggressively courts friendly, customer-oriented employees by writing job descriptions highlighting desired soft skills (“ambitious and adventurous, enjoy smiling and have a strong sense of values”) as much as actual retail experience. Crew members report to “mates” (the highest position which Trader Joe’s hires into from the outside), who assist the “captain” or store manager of each store.
Management Function at Work: “Leading” by Example
Trader Joe’s employees earn more than their counterparts at other chain grocers. In California, Trader Joe’s employees can earn almost 20% more than counterparts at supermarket giants Albertsons or Safeway. Store managers, hired only from within the company, are highly compensated, partly because they know the Trader Joe’s culture and system inside and out. Future leaders enroll in training programs such as Trader Joe’s University and Regional Mobile Thriver (RMT) that foster the loyalty necessary to run stores. According to company and customer expectations, teaching managers to imbue their part-timers with the customer-focused attitude shoppers have come to expect.
By limiting its stock and selling quality products at low prices, Trader Joe’s sells twice as much per square foot than other supermarkets. Trader Joe’s allocates most of its research and development dollars to travel by its four top buyers (called “product developers”) for “product finding missions” to bring back the most unique products at the best value. There are another dozen or so buyers (called category leaders) who manage hoards of vendors and food suppliers eager to land their products on the Trader Joe’s shelves. In essence, the Trader Joe’s customer trades value for selection.
Going Direct: Managing Private Label House Brands
Approximately 80 percent of Trader Joe’s products are their own private label goods. At Trader Joe’s, you won’t find mass marketed brands (like Coca Cola or Doritos), typically found in supermarket chains. Trader Joe’s strongest weapon in the fight to keep costs low may also be its greatest appeal to customers: its unique products. The company follows a deliciously simple approach to stocking stores: (1) search out tasty, unusual foods across the globe; (2) contract directly with manufacturers; (3) label each product under one of several catchy house brands (also known as “private-label”); and (4) maintain a small stock, making each product fight for its place on the shelf. This common-sense, low-overhead approach to retail serves Trader Joe’s well, embodying its commitment to aggressive cost-cutting.
Most Trader Joe’s products are sold under a variant of their house brand—Italian food under the “Trader Giotto’s” moniker, Mexican food under the “Trader Jose’s” label, vitamins and health supplements under “Trader Darwin’s,” and Chinese food under the “Trader Ming’s” label. The house brand success is no accident. According to now-retired Trader Joe’s President Doug Rauch, the company pursued the strategy to “put our destiny in our own hands.”
Control Function of Management: “Economic Food Democracy”
Ten to fifteen new products debut each week at Trader Joe’s—and the company maintains a strict “one in, one out” policy so as to not increase the total number of unique products it sells. Items that sell poorly or whose costs rises get the heave-ho in favor of new blood, something the company calls the “gangway factor.” If the company hears that customers don’t like something about a product, out it goes.
Conversely, discontinued items may be brought back if customers are vocal enough; making Trader Joe’s control function the model of an open system. “We feel really close to our customers,” says Audrey Dumper, vice president of marketing for Trader Joe’s East. “When we want to know what’s on their minds, we don’t need to put them in a sterile room with a swinging bulb. We like to think of Trader Joe’s as an economic food democracy.”
Private Practice: Mum’s the Word in the Secret World of TJ’s
Privately held (shares of stock are owned by the Albrecht family and not sold to the public), Trader Joe’s is very guarded about revealing producers of their store brand manufacturer relationships to customers and competitors. The company remains hyper-private and media-shy -- executives do not grant interviews. Any information garnered is from former executives. Suppliers operate under a Trader Joe’s “cloak of secrecy.”
What does the future hold? Some critics claim that as Trader Joe’s has expanded, it has lost its “entrepreneurial zeal” and cozy, intimate “quirky cool.” Reports from realtors reveal Trader Joe’s efforts to expand store sizes in suburban markets. Despite this, will Trader Joe’s struggle to sustain its international flavor in the face of limited assortment imitators, cut throat competition and shrinking discretionary income, or will the allure of cosmopolitan food at provincial prices continue to tempt consumers?

Questions (The four questions should be answered in a total of 1,600 words or so). Please spend significant time thinking, researching and applying what you’ve learned by reading chapter 1.
1. DISCUSSION : Of the six “must have” managerial skills (teamwork, self-management, leadership, critical thinking, professionalism, and communication) listed in this chapter, how does each apply to the management practiced by Trader Joe’s store managers?

2. DISCUSSION: After reading the case (and, if applicable, from your own personal experience as a Trader Joe’s shopper), describe and provide examples of how Trader Joe’s utilizes the four functions of management (plan, organize, lead and control).

3. PROBLEM SOLVING:
Lifelong learning refers to the process of continuously learning from our daily experiences and opportunities. Using the six “Must Have” managerial skills outlined in Table 1.1, which would you say apply to the success of Hamdi Ulukaya’s management of Chobani Greek-style yogurt?

4. FURTHER RESEARCH:
Study recent news reports to find more information on Trader Joe’s management and organization practices. Look for comparisons with its competitors and try to identify whether or not Trader Joe’s has the right management approach and business model for continued success. Are there any internal weaknesses or external competitors or industry forces that might cause future problems?
Sources:
Elaine Misonzhink. “Retail Real Estate Pros Laud Trader Joe’s Upsized Aspirations.” (November 3, 2011). Retail Traffic Magazine. http://retailtrafficmag.com/retailing/operations/retail_real_estate_trader_joes_11032011/ (Accessed August 24, 2012).

Amy Groth. “Trader Joe's Is Run By This Ultra-Secretive German Family.” BusinessInsider.com (August 1, 2011). http://articles.businessinsider.com/2011-08-01/strategy/30016518_1_theo-albrecht-albrecht-family-discount-supermarket-chain#ixzz24DAaRk00. Accessed 8/21/12.
Christopher Palmeri. “Trader Joe’s Recipe for Success.” Businessweek. (February 20, 2008). http://www.businessweek.com/stories/2008-02-20/trader-joes-recipe-for-success (Accessed 8/21/12).
Beth Kowitt. “Inside the Secret World of Trader Joe’s,” Fortune. (February 23, 2010). http://money.cnn.com/2010/08/20/news/companies/inside_trader_joes_full_version.fortune/index.htm# (Accessed August 22, 2012).
Torres, Blanca. “Safeway Escalates Food Fight.” San Francisco Business Times. March 30, 2012. Accessed http://www.bizjournals.com/sanfrancisco/print-edition/2012/03/30/safeway-escalates-food-fight.html?page=all 21 Aug. 2012.
Trader Joe’s Website “About” http://www.traderjoes.com/about/general-faq.asp#Traded (Accessed August 22, 2012).
Trader Joe’s Website “Store Management” http://www.traderjoes.com/careers/store-leadership.asp (Accessed August 23, 2012).
Matthew Enis. Supermarket News, July 19, 2010. v58 i29 pNA
Kara Zuaro. “The 10 Best Trader Joe's Store-Brand Items,” L Magazine (February 22, 2012). http://www.thelmagazine.com/gyrobase/the-10-best-trader-joes-store-brand-items/Content?oid=2214053&storyPage=4 (Accessed August 23, 2012). “Trader Joe's Private Label World Revealed.” Store Brand Decisions. (August 24, 2010). Accessed August 23, 2012. http://www.storebrandsdecisions.com/news/2010/08/24/trader-joes-private-label-world-revealed
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Chobani’s Recipe for Success includes Good Planning

If you’ve ever pondered the difference between traditional yogurt and Greek-style yogurt, Greek-style yogurt is tangier and creamier, and strained to remove much of the whey and sugar. This brings about a more dense and creamy texture. Health conscious consumers have pushed aside traditional sugar-filled yogurt for what has created a booming niche of Greek-style yogurt.
Chobani was started in 2005 by Turkish immigrant, Hamdi Ulukaya, in a former Kraft food dairy plant in upstate New York. For Ulukaya, the planning function meant bringing in an expert yogurt maker from his home country of Turkey and spending 18 months perfecting the Chobani recipe. For every pound of yogurt made, three pounds of milk are used. With good planning, Ulukaya says “you are less likely to launch a premature business ridden with flaws.” Planning has clearly paid off – in a few short years, Chobani is ranked third behind major longtime yogurt players Yoplait and Dannon.
Deeply rooted in Ulukaya’s management style is collaboration. Chobani, a sponsor of the 2012 Olympic Games, aired the following commercial during the games: “The Chobani story is a community story. We started with a handful of local employees and a whole lot of heart. The community came together, got stronger. The dairy farmers, the plant workers, the truck drivers. Like our Olympians all worked hard to fulfill a dream.”
Ulukaya was counterintuitive and persevered with major retailers to allow product samplings of his bold flavors (pomegranate and pineapple) rather than go the traditional route of paying fees for shelf space. The secret to Ulukaya’s success is leading by example. “If you make yogurt, go to the plant. Work with your people; if you want people to work on Sunday, be there next to them.” Ulukaya, calling himself an “accidental entrepreneur,” credits his company’s success to its people and “not knowing the old way of doing business.”
Sources:
Diana Ramson. “Chobani Yogurt’s Success Starts Where a Giant Left Off.” Entrepreneur Magazine. May 25, 2012. http://www.entrepreneur.com/blog/223668 (Accessed August 25, 2012).
Megan Walsh. “Chobani Takes Gold in the Yogurt Aisle.” BusinessWeek. July 31, 2012. http://www.businessweek.com/articles/2012-07-31/chobani-takes-gold-in-the-yogurt-aisle (Accessed August 25, 2012).
Philip Butta. “The World’s 50 Most Innovative Companies.” Fast Company. http://www.fastcompany.com/most-innovative-companies/2012/chobani (Accessed August 25, 2012).
Christopher Steiner. “The $700 Million Yogurt Startup.” Forbes. September 8, 2011. http://www.forbes.com/sites/christophersteiner/2011/09/08/the-700-million-yogurt-startup/3/ (Accessed August 25, 2012).
Sarah Needleman. “Old Factory, Snap Decision Spawn Greek-Yogurt Craze.” Wall Street Journal.” June 20, 2012. http://online.wsj.com/article/SB10001424052702303379204577476974123310582.html (Accessed August 25, 2012).
Samantha Cortez. “INSTANT MBA: The Recipe For Success Requires A Lot Of Experimentation.” Business Insider. July 19, 2012. http://www.businessinsider.com/chobani-yogurt-ceo-hamdi-ulukaya-shares-recipe-for-success-2012-7#ixzz24bidfAqA (Accessed August 25, 2012).
Sheridan Prasso. “Chobani: The unlikely king of yogurt,”Fortune Magazine. November 30, 2011. http://money.cnn.com/2011/11/29/smallbusiness/chobani_yogurt_hamdi_ulukaya.fortune/index.htm
(Accessed August 27, 2012).