1. [Environment analysis] By using Porter’s Five Forces Framework, analyze and e
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Question
1. [Environment analysis] By using Porter’s Five Forces Framework, analyze and explain industry attractiveness (profitability). [About 350 Words]
2. [Firm analysis] By using Porter’s Value Chain Analysis, analyze the internal activities of Trader Joe’s and their relationships among one another (i.e. how the interactions/combinations of activities contribute to value creation). [About 350 Words]
3. [Competitive advantage] By using Porter’s Generic Competitive Strategies, explain what the competitive advantage of Trader Joe’s. Identify and explain the company’s source of competitive advantage. [About 350 Words]
4. [Suggestions/Solution] What strategic advice would you provide to Trader Joe’s to reinforce its future profitability? Identify a strategic recommendation that fits with the opportunities or threats of the external environment and with Trader Joe’s capabilities. [About 200 Words]
Explanation / Answer
The tool was created by Harvard Business School professor Michael Porter, to analyze an industry's attractiveness and likely profitability. Since its publication in 1979, it has become one of the most popular and highly regarded business strategy tools.
Porter recognized that organizations likely keep a close watch on their rivals, but he encouraged them to look beyond the actions of their competitors and examine what other factors could impact the business environment. He identified five forces that make up the competitive environment, and which can erode your profitability. These are:
Where rivalry is intense, companies can attract customers with aggressive price cuts and high-impact marketing campaigns. Also, in markets with lots of rivals, your suppliers and buyers can go elsewhere if they feel that they're not getting a good deal from you.
The more you have to choose from, the easier it will be to switch to a cheaper alternative. But the fewer suppliers there are, and the more you need their help, the stronger their position and their ability to charge you more. That can impact your profit.
When you deal with only a few savvy customers, they have more power, but your power increases if you have many customers.
Trader Joe’s Trader Joe’s: A Quiet, Private, and Savvy Retailer Thomas Pinnola Strategic Management Professor Backhaus March 17th 2013 Thomas Pinnola Professor Backhaus Writing Assignment 2 March 17th 2013 Trader Joe’s: A Quiet, Private, and Savvy Retailer Joe Coulombe started Trader Joe’s in 1967. Traded Joe’s can be characterized as a low cost, high quality grocery store. Eighty percent private label product mix, expanding its target markets, keeping costs down, and extremely effective marketing powers Trader Joe’s increase popularity.
first of Porters Five Forces, threat of new entrants. The threat of new entreats encompasses factors of absolute cost advantages, brand loyalty, and economies of scale. Trader Joe’s uses absolute cost advantages in many aspects of its business operations. An absolute cost advantage is characterized as having experience in the industry or anything else that gives a company an advantage For example Trader Joe’s uses smaller stores in not prime locations (Datamonitor, 2008). This allows Trader Joes to keep costs low because they are able to rent smaller spaces for their stores.
However, these stores prove to be extremely efficient within their small space. Consider their sales per square foot statistic of $2,000, which is said to be three times higher than industry average (Datamonitor, 2008). Brand loyalty is something that Trader Joe’s struggles to achieve. This is because they constantly keep their shelf stock moving. This is shown by the SKU (stock keeping units) of 3500 compared to the traditional supermarket, which has an SKU of 55,000 (Kowitt, 2010). Trader Joe’s keeps their SKU much lower which enables them to constantly offer high numbers of new products.
Therefore brand loyalty will not be as high for Trader Joe’s. Trader Joe’s keeps their costs per unit down achieving exceptional economies of scale. All of these barriers to enter the market make it difficult for new entrants trying to enter the market. The second force that I will use to analyze the Trader Joe’s company is the “the rivalry among established competitors”. Factors to consider when looking at the rivalries in the industry are industry demand, cost conditions, and exit barriers. Trader Joe’s competitors include The Kroger Co. , Whole Foods Market, and Safewat Inc. and all super markets in general (Llopis, 2011). With that said, there seems to be a high demand for what Trader Joe’s offers, private labels. This means that the intensity in the industry is less compared to an industry with a flat demand. Trader Joe’s does not have to fight hard to sell their products because of the service they have created. Trader Joe’s brand can be considered “diversity on steroids” which has somewhat of a cult following among consumers (Llopis, 2011). Consumers that want unique experiences with their food are able to do exactly that at Trader Joe’s.
Exit barriers for Trader Joe’s industry are high. This is because people are always going to need food. There are certain consumers that enjoy the routine of buying the same products every week. That basically means there is always going to be a decent amount of demand in this industry, making it difficult for firms to back out. The bargaining power of buyers is the third force that I will use to analyze Trader Joe’s company. The bargaining power of buyers can be defined as the buyer’s ability to drive prices down or the quality up.
Additionally, they offer the most consumer-friendly monthly newsletter, titled The Fearless Flyer that shares recipes, product origin stories and other non-traditional insights that further promote the treasure-hunt experience. They are passionateabout introducing something new that in turn challenges potentially new and existing vendors to remain active in their innovation efforts.
Trader Joe’s has mastered their business model, but they are never satisfied. In fact, they are always looking for new ways to push new ideas as they feel a deep sense of responsibility to satisfy their consumers. Their generous purpose is to listen and to carefully respond to the needs of those they serve. In fact, they encourage consumer feedback and ask that consumers complete a simple response card that is available at the front counter of every store. Trader Joe’s is diligent about maintaining the standards of their cultural promise.
Trader Joe’s sees opportunity everywhere, just like the immigrant leader. They will partner with their vendors and create opportunities beyond the obvious. For example, all Trader Joe’s shoppers know about “two-buck chuck.” The $2.00/per 750ml bottle of Charles Shaw branded wine that has been used to introduce a good quality low cost entry price point has attracted new consumers to the category. Trader Joe’s has leveraged the success of the Charles Shaw program (nearing 500 million bottles in sales since its launch) into expanded wine selections that many praise to be one of the best selections amongst food retailers.
Beyond wine, Trader Joe’s shelf-stable, refrigerated and produce selections, while limited, is expansive in cultural variety and selections. This is apparent in the melting pot of consumers that shop at Trader Joe’s. But these product selections are not merely attempts to attract a growing multicultural population. These are intentional forward-thinking strategic decisions to create an authentic and meaningful relationship with the fastest growing consumer groups in America (ie. Asians, Indians, Hispanics, etc.). And it is apparent that Trader Joe’s carefully addresses their diverse consumer needs in their research & development efforts: from product quality, product origin, packaging to the subtle attention to detail that cater to the cultural nuances of this consumer. Trader Joe’s knows these consumer groups are loyal and incredibly viral within their own communities
4. [Suggestions/Solution] What strategic advice would you provide to Trader Joe’s to reinforce its future profitability? Identify a strategic recommendation that fits with the opportunities or threats of the external environment and with Trader Joe’s capabilities. [About 200 Words]
Trader Joe’s is faced with a number of challenges. First of them is “how to maintain the eclectic, friendly vibe that has garnered it legions of faithful shoppers, while expanding at a brisk pace” (Li 2011).
The retailer is not only increasing the number of store locations but also it isexpanding their size, for example in La Crescenta- the store was re-located to a newly built location in Monrovia, which “boasts more spacious aisles, higher ceilings and a trim brick-and-glass exterior” (Li 2011). The consumers have voiced concerns and mixed feelings about the move claiming that the new site is uncomfortable and that it “lacks the offbeat charm they've come to expect from Trader Joe’s” some said that the new building “doesn't square with what Trader Joe’s is in my head" or that they are upset about not having a homey feel in the store (Li 2011).
Secondly, Trader Joe’s strives for their shops to be perceived as mom-and-pop (Bellona et al. 2010). Oxford dictionary (2015) defines mom-and-pop stores as “owned and run by a husband and wife, or by a family”. Kowitt (2010) explains that creating the mom-and-pop image as you grow is challenging because the store expands to new markets and opens new locations but at the same time it must maintain the small-store vibe with the customers. Therefore, given the increased number of location and increasing size of the stores, the strategy seems not to be in sync with the image (Bellona et al. 2010). On the one side the consumers understand that there is a need for corporate expansion but on the other side the company is running a risk of alienating the consumers, who were loyal to the company for many years and who do not like the idea of shopping in larger stores (Li 2011).
According to some employees, the company has already lost its quirky cool. “In the early days we never tried to be the neighbourhood store,” says a former employee. They didn’t have to, Trader Joe’s was the neighbourhood store. “And yet walk into the Chelsea location on a busy weekday night and you’ll see something you almost never see in Manhattan: strangers chatting with one another. Veteran customers tell newbies what products they absolutely have to try, and serious cooks share tips on how to spike sauces and semi-prepared foods to make them even tastier.” If Trader Joe’s manages to maintain this kind of mojo, it could end up the biggest neighbourhood store ever (Kowitt 2010).
Thirdly, while increasing the size, the company is also running a risk of not finding suitable employees who will convey the message of adventure and ‘aloha spirit’ to customers, while providing an excellent service. In an interview former employee states that “the company is becoming more and more corporate as it grows and it is beginning to have an impact on the enjoyability of being a part-time "crew member"” (Huffington Post 2011).
The retailer’s mission is to become the nationwide chain of neighbourhood grocery stores (Li 2011) yet the strategy seems to put retailer’s credibility in question (Bellona et al. 2010). However, as Kowitt (2010) states “Trader Joe’s may be one of the few retailers to marry cult appeal with scale
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