Trader Joe Series Part 1: Supplier, SKU Density
Supplier
In a traditional grocery business model, many retailers would order products from certain big name ™️ suppliers. They think that well known names bring familiarity and customers. Sometimes, they price it lower than their wholesale price. This is known as a loss leader.
Many suppliers bully the retailers. Some retailers, on the other hand, bully the suppliers.
The origin of the word retail means to cut into smaller pieces. That’s exactly what Trader Joe does. A lot of packaging were done in house. When they sell cheese, they literally follow the origin of retail, slicing a giant wheel into smaller pieces in store. Instead of brand name items, Trader Joe’s carry their unique products with catchy names that you don’t see elsewhere.
Joe specifically said the didn’t have any loss leader. If a product loses money, they simply discontinued it. Why would you follow someone else’s business model?
SKU Density
I’m personally familiar with the idea of SKU through my work at Instacart. This is the official definition
In inventory management, a stock keeping unit (abbreviated as SKU and pronounced /ˌɛsˌkeɪˈjuː/ ESS-KAY-YOO or /ˈsk(j)uː/ SK(Y)OO) is the unit of measure in which the stocks of a material are managed. Or to put it another way; it is a distinct type of item for sale,[1] purchase, or tracking in inventory,[2]such as a product or service, and all attributes associated with the item type that distinguish it from other item types (for a product, these attributes can include manufacturer, description, material, size, color, packaging, and warranty terms). When a business records the inventory of its stock, it counts the quantity it has of each unit, or SKU.
For a small and hip store like Trader Joe’s to be profitable, Joe needed more SKUs per square foot than Costco or Walmart. A SKU could be a sack of flour that takes a customer a year to go through. A SKU could also be an almond. The amount of space required is drastically different.
In order to optimize the SKU density, Joe also designed the shelves and fixtures with his employees to make the iconic wine selection more stackable vertically.
Become Your Own Supplier - At Least Trying
Trader Joe’s acquired a grandfathered wine license from an old Californian winery in order to import European wine at a cheap price. This kind of behind the scene story is something most business books don’t talk about. Grocery business is heavily regulated, and a sightly different type of license would not permit this kind of import export.
Joe also worked with a creamery and produced butter using a slightly different manufacturing process. Because of that, the local legislation didn’t allow them to call this kind of butter premium butter.
More stories to come on how Joe navigated his ship.