Sharon Lin

Trader Joes: Industry Analysis

Trader Joes is a grocery store chain label, owned overhead by the German supermarket company
ALDI. It operates within the grocery industry, which includes national food retailers, regional
supermarket retailers, and small family owned groceries. Trader Joes specifically targets the
middle-high end food market, selling niche products to consumers looking for premium quality
food at a lower price.
The Five Forces:
1. Buyers
Within the grocery industry, buyers have minimal power. Each buyer is forced to make individual
choices, similar to the CEMEX buyers in Mexico. Trader Joes leverages control in its own way by
using product differentiation. Many of TJs products can only be found at TJs, such as the peanut
butter stuffed pretzels described by the St. Louis lawyer. Buyers are less price-sensitive, willing to
pay more for the products unavailable elsewhere. TJ maintains a competitive advantage in
controlling buyer power.
2. Suppliers
Within the grocery industry, large suppliers often maintain a large hold on the retailers profits.
Many suppliers, through sheer size and market dominance can dictate pricing guidelines. Trader
Joes minimizes the power held by it suppliers through its vertical integration of label management
and production. 80% of TJs products carry its own label, which means that TJ doesnt have to deal
with the monopoly price bargaining. TJ sources its products on an individual basis, fragmenting its
supplier chain and thus yielding the most structural power to itself. TJ maintains a competitive
advantage in this department of the five forces.

3. Substitutes
Within the grocery industry, the threat of substitutes is extremely high. There is little to no switch
cost for the consumer, since the basic shopping experience remains the same. Furthermore, many of
the products available at one grocery store are available at another. This is an industry vulnerability
that Trader Joes must also deal with. TJ deals with this by being the company that offers the
substitutes to its consumers, whether in snacks or in breakfast bars. However since TJs products are
still susceptible to substitutes, they do not have an advantage in this area.
4. New Entrants
There is a fair amount of barriers to entry within the grocery industry. Economies of scale exist for
supermarkets that are able to expand such as Safeway. Furthermore, established companies have
strongholds on distribution networks, as well as established relationships with suppliers. Trader
Joes does not have an advantage in this area, as it is a middle-sized retailer that is relatively new to
the market.
5. Rivalry
The grocery industry has high levels of rivalry. The industry must deal with high price competition
as well as general low product differentiation. Trader Joes maintains a competitive advantage in
this aspect by catering to a niche market, using selective selling instead of supplying everything that
they could possibly sell. TJs also competes aggressively on price, which increases the number of
consumers.
Success?
Yes, I think Trader Joes created a very good strategy for their company because it capitalizes on
many sweet spots glossed over by larger supermarket chains. The strongest aspect of Trader Joes is
its careful product selection, and its price competitiveness. Consumers get to taste unique, gourmet
level products at prices that are affordable on an everyday basis.