Today, I’m looking into the cult grocery retailer, Trader Joe’s.

Trader Joe’s doesn't do a lot of other grocery stores do — no loyalty program, no digital platform, and very little advertising, and yet, it has always been one of the very popular brands and top-ranked grocery outlets.

The Exceptional Numbers

Looking at the numbers, there are a total of 564 stores across 43 US states, and have an annual sales revenue of about $13.3B. Compared to the likes of Walmart (4,630 stores) and Target (1,948 stores), TJ’s has a much smaller footprint. Zoom into each of those stores, Trader Joe’s stores are also much smaller in size (average size of 10,000 sqft.) as compared to Walmart (150,000 sqft.) and Target (125,000 sqft.) locations.

Smaller stores mean less number of products on shelves — less variety (or low number of SKUs). SKUs mean stock-keeping units (think unique items). Trader Joe’s has about 4,000 SKUs, which is several times lower than any other grocery outlet. However, the exceptional thing about this is that TJs are so well-located in densely populated areas that their sales per square foot is $2,100 (about 4x of Walmart and Target).

The Model

Joe Coulombe, the founder of Trader Joe’s, worked on unique principles that are very different from the rest of the industry. One of the founding values he had was to pay people well, which during the 1950s (when TJ’s was known as Pronto Markets) meant, an employee earns the median income in the state of California. This value/policy lives even today and some TJ’s employees can get an hourly wage of more than $25, which is much above the minimum wage pay.

Referring to this policy in his memoir, Coulombe wrote, “This is the most important single business decision I ever made“. According to Coulombe, “turnover is the most expensive form of labor expense“ because there is a lot of churn in retail workers and there is an extraneous amount of wasted time and money in hiring and training new employees.

To maintain higher wages, Coulombe had to be strategic and different from the industry in how he ran his business and what he brought to the market. In the 1960s, there was a new education wave where of all the people qualified to go to college, 60% actually were. Secondly, the Boeing 747 was to be launched in 1970, which was going to reduce the cost of travel and a sign of increased global connectedness in the future.

Being the visionary Coulombe was, he rode this wave to focus on the “over-educated and underpaid“consumers who were newly educated shoppers, curious about products from around the world.

Product Knowledge

Rather than following the general supermarket way of stocking shelves with products from all kinds of manufacturers, Trader Joe’s focused on a set of high-quality items that people will desire but not find anywhere else.

Trader Joe’s is probably the only grocery retailer who have such deep knowledge of its product line. Everything you see in these stores has a high consumption rate and can be maintained easily.

This is why you would see so little vegetables and fruits but quite a bit of alcohol. In fact, Trader Joe’s became so good at managing alcohol, that they invented the “Two Buck Chuck” — a profitable $2 wine only found at TJ’s.

But a nitpicking of products also means customers can not depend on this grocery location as a one-shop stop. But that was never the point. It is about giving new people a chance to explore delicacies from around the world.

Customer Trust

While a lot of supermarkets provide the choice from a multitude of options, they leave it to the customer to make a purchase based on quality, brand preference, promotions and discounts, public reviews, etc.

In contrast, all you need when shopping at Trader Joe’s is your preference for type and taste. Customers have this accepted trust that anything at Trader Joe’s is almost hand-picked by a set of experts to be on the shelves.

Most products are branded with Trader Joe’s, which reduces the paradox of choice problem of choosing from too many options (think not able to choose anything new to watch because there’s so much content on Netflix).

There are also no weekly, monthly, or seasonal promotions, but rather low prices throughout.

Stores Experience

To make the strategy work where you can provide selective high-quality items at cheaper prices while paying employees well, Trader Joe’s can not be everywhere. Stores are optimally placed in locations where people want to spend on nice things but are also frugal.

This is why you would find a TJ’s outlet close to where college students and seniors (who want high-quality things cheap) live rather than in areas populated with new families (who want a one-stop shopping place). This ensures the footfall comes from the right customers who bring good profit and have the best experience.

Talking about the experience, we can not - not address why there is no Trader Joe’s online platform. Well, according to Trader Joe's FAQ, "After considering the options, we're still just big ‘ole fans of the neighborhood grocery store where we can say hello when you're looking around wondering - ‘what's for dinner?’”

Trader Joe’s is not the best place to shop for all things and is not suitable for a lot of people. However, it is a successful business and there are definitely several valuable takeaways from Joe’s decisions.

This is a unique brand that has developed on the core value of “paying people well“, a thorough study of the grocery industry, and embracing product knowledge. But most importantly, we see a cult around this brand because of the extreme alignment with the right customer.

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The interesting thing is that it was not just me that got interested in this sport because of the series, but it was also 73 million other people. I have been thinking about this sudden recognition of the sport that got itself to become more popular than ever and decided to look a little more into this marketing strategy.

In 2015, the former chief executive of the Formula 1 Group, Bernie Ecclestone, argued that the sport did not need to capture the market of the younger generations and that social media was not valuable. He was focused on getting revenue from the people who had big money and could afford the sport.

While the strategy made some sense considering the luxurious reputation it holds, it failed.

Next year in 2016, Liberty Media, an American media company, completed its acquisition of F1, and their first order of business was doing exactly what Ecclestone didn’t. They decided to change F1’s marketing strategy to align with the US audience that cared a lot about the social content.

Very soon, Formula 1 announced a deal with Netflix for a docuseries. Well, the announcement wasn’t really taken seriously. There was hardly any attention from a new audience. Some of the biggest teams even refused to participate.

Mercedes, who had been continuously winning world championships for years, did not want to participate. Neither did Ferrari (the big global brand) want any part of it. Red Bull was the only big team willing to share a bit of what happens off the grid, maybe because they know the value of good marketing.

But who knew that this is exactly what made the Netflix series so special. The creators were forced to focus on Red Bull’s struggle to snatch the championship and how there was a whole different strategic thinking to the mid and bottom tiers in the race.

This was the first time fans had a chance to build a relationship with all 20 drivers on the grid. There is so much tension in the sport, not just between teams (that is common in any sport) but also between teammates (not so common). And who doesn't love some fiery dynamic between and within teams!

When you see behind the scenes off the grid, you see the people. And that is what Netflix has been playing. You don’t just think about teams. You think about the team principals who make the big and small decisions and are responsible for winning or losing more than a race — tens of millions in capital.

From the very start, episodes in the series have focused on race strategies and how drivers are bought into teams while the season is ongoing. Great examples of such tactical dramas between team principals are Horner (Red Bull) and Wolff (Mercedes) or Brown (McLaren) and Stroll (Aston Martin).

Well, when you bring in new drivers, you are replacing a present driver. And when you have two drivers in each team, how do you decide which driver to replace? There’s good politics (for the lack of a better word) to that.

This is one of the ways rivalries between teammates are heated. Only one driver has the exact same car as you — your teammate. If you lose to some other team, you might just blame the car. But if your teammate beats you in the same car, you don’t really have an excuse. He just performed better than you.

Plus, the fact that these are the top 20 drivers in the world in a sport so competitive, you want to be the winner and better than every other driver. It doesn’t matter if they play in the same team. If you can drive faster, you want to be the one higher on the podium.

And Netflix has made sure their storytelling is just perfect here, with some of the best examples being Verstappen and Checo (Red Bull) and Hamilton and Bottas (Mercedes).

Everyone knew these dynamics existed, but Netflix made it visible. It brings new fans because they can relate much more with the drivers, no matter whether they like a team or not. Fans now anticipate the rivalries off the grid based on the action on the grid.

Netflix does a fantastic job of identifying season-long stories and maximizing the drama. It makes content for gossip, and that just brings more interest from viewers.

Being one of the large global capital markets, F1 had to find a way into the U.S., and they targeted the right demographic.

The viewership in the U.S. keeps on jumping (not just rising or growing but jumping) every year, breaking records. In 2022, there were 1.2 million viewers, which was a 28% increase from 2021, when there was a 54% increase from 2020. According to ESPN, there have also been significant jumps in viewership among younger audiences (49% over 2021) and women (34% over 2021). There are now new fangirl communities like Two Girls 1 Formula that push for the love of the sport through social media and customized merch for women.

The success has clearly translated to the dollars. Libert Media has been reporting increases in revenue and valuation. Recently being $2.5 billion in revenue in 2022, a 20% increase from 2021’s total of $2.1 billion.

The interesting part of this strategy is that Netflix is the one that pays F1 for the series and not the other way around. This show is one big promotion for the sport that itself provides F1 a profit.

I’ll leave it to that and get back to watching some races now!

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