How Is Trader Joe’s So Cheap and Popular? | WSJ The Economics Of

- [Narrator] These are bananas, obviously. They're from Trader Joe's. Today, they cost 19 cents each, and about 25 years ago, bananas at Trader Joe's cost 19 cents.

As of 2020, Trader Joe's gross average sales per square foot was more than double those of other major grocery store chains, and it's been ranked the highest rated grocery store for customer satisfaction. So how does Trader Joe's manage to keep prices low while out-competing traditional grocery stores by selling fewer products? This is the economics of Trader Joe's.

- Trader Joe's stores are smaller and they tend to carry fewer items, and the vast majority of what they sell is private label. - [Narrator] When the store first opened in 1967, Trader Joe's founder, Joe Coulombe, emphasized stocking products that were unconventional to shoppers at the time like Dijon mustard and granola. In 1979, Trader Joe's was bought by the German discount grocery store chain, ALDI Nord, and today, Trader Joe's has built its image around selling trendy, quirky, and seasonal items.

- Orange chicken. - Cacio E Pepe pasta sauce from Trader Joe's. - It helps with fueling the experience for customers.

People can go and kinda feel like they're discovering something new. - [Narrator] And these products have created a large and loyal customer fan base. - I went to Trader Joe's and I accidentally got, I got way too much stuff.

- Of course, I love Trader Joe's. - [Narrator] Its popularity on social media is helpful for the company, because Trader Joe's doesn't do a lot of advertising. Actually, the grocery store doesn't do a lot of things that other grocery stores do.

There's no loyalty program, no online shopping platform, and no deli counter, still. . .

- The Trader Joe's fan base is strong and they are dedicated, they are mega fans. People will sell Trader Joe's products on places like eBay for a much higher price tag than what you would find at the stores. - [Narrator] Trader Joe's smaller selection can make the in-store shopping experience more efficient for customers, according to psychologist and professor, Barry Schwartz.

For example, instead of having to pick between many different brands of tomato sauce at a conventional grocery store, customers at Trader Joe's can quickly select one from its more limited options. By selling a small selection of house brands, Trader Joe's can control its own supply chain, which it says brings down prices. - Trader Joe's items tend to be cheaper, because they buy directly from producers and manufacturers whenever they can, so this cuts cost that would typically go to the middleman, and the company says they are able to pass that along to shoppers.

- [Narrator] Trader Joe's says it buys in bulk and often pays for items upfront whenever possible from suppliers, this all helps lower prices. The grocery store chain also says it pays for some products like Dijon mustard in local currency, so if the currency fluctuates, Trader Joe's takes on the risk, not the supplier. And by assuming the risk, Trader Joe's says it can negotiate better prices with suppliers.

This control over its products and supply chain means Trader Joe's can easily add and remove items from its shelves. - One of the unique things about Trader Joe's is they're constantly changing their shelves. If products aren't selling as well as they thought they would, they remove them from their shelves to make room for something better.

- [Narrator] Some grocery stores charge brands various marketing fees to stock products, but Trader Joe's says it only makes money when customers make a purchase. So according to Trader Joe's, this incentivizes it to only stock products that customers like, from Joe-Joe's Sandwich Cookies to Kung Pao Chicken. - There isn't really another chain that does what they do.

There are other discounters that sell for cheaper, but you're not gonna find the innovation and the fun products there. The traditional grocery stores have tried to go that route, but Trader Joe's is Trader Joe's.