Highlights for Becoming Trader Joe

We witnessed something very interesting: the United States had a quota for imported tuna. Once Peru’s quota had been filled, a biological miracle occurred right there on the canning line. What had been tuna was now pilchard, a member of the herring family, on which there was no quota.
The Adamsons were land-rich but cash-poor; they lacked the funds to develop the magnificent property. They were having to sell off pieces for far less than they potentially were worth.
The convenience store business is 90 percent real estate, 10 percent all other (merchandising, personnel, etc.). In real estate, it’s the tenant’s balance sheet that counts.
The question was never on the employment application forms, and it’s probably verboten to ask these days. But dyslexia lurks in the brain of every left-hander, which means, we see the world differently, sometimes profitably. That’s why, when I interview people, I try to get them to write something. At one point I was accused of running a cabal of left-handers at Trader Joe’s.
Today it would be fought over by the vulture capitalists, but neither ventures nor vultures were common in those days.
If all the facts could be known, idiots could make the decisions. —Tex Thornton
Trying to find an optimum solution in business is a waste of time: the factors in the equation are changing all the time.
This is the most important single business decision I ever made: to pay people well.
We really didn’t pay more per hour than union scale, but we gave people hours. Because union scale is so high, the supermarkets are very stingy with hours and will do anything to avoid paying overtime.
Time and again I am asked why no one has successfully replicated Trader Joe’s. The answer is that no one has been willing to pay the wages and benefits, and thereby attract—and keep—the quality of people who work at Trader Joe’s.
Much as I would like to pose as an altruistic visionary, my policy was grounded partly by the desire to stay un-organized by the Retail Clerks Union, which under the direction of the legendary Joe DeSilva terrorized the market industry of those days.
The problem with unions is not their pay scales; it’s their work rules and seniority rules.
In fairness, however, those work rules did not spring from the ground like dung beetles working it over. They came from inexcusable employer practices.
The buyers at the supermarket chains knew nothing about what they sold, and they don’t want to know. What they did know all about was extorting slotting allowances, cooperative ad revenue, failure allowances, and back-haul concessions from the manufacturers.
But the Byzantine management atmosphere at first Rexall and then Hughes Aircraft had convinced me that the only real security lies in having your own business, and this left-hander was well ahead of the curve on that one.
Also, I was convinced that I was on a holy mission in preserving a company owned significantly by its employees. My hope was that someday it would be 100 percent owned by them. On that one I proved to be wrong.
That’s why, throughout my career, my policy has been full disclosure to employees about the true state of our affairs, almost to the point of imprudence. I took a cue from General Patton, who thought that the greatest danger was not that the enemy would learn his plans, but that his own troops would not.
It absolutely addressed our prime market, the overeducated and underpaid people of California.
Being king of the low-price, high-value wine trade in California was one of the greatest satisfactions of my career.
But bran is a low-value product. They couldn’t afford to deliver it. Since they also packaged nuts and dried fruits, however, we somewhat reluctantly added them to the order. And that’s how Trader Joe’s became the largest retailer of nuts and dried fruits in California!
In the Insider’s Wine Report we gave the results of the wine tastings that we were holding with increasing frequency, as we tried to gain product knowledge. This growing knowledge impressed me with how little we knew about food, so in 1969, we launched a parallel series of blind tastings of branded foods: mayonnaise, canned tuna, hot dogs, peanut butter, and so on.
It’s the problems that create the opportunities. If a business is easy, every simple bastard would enter it.
For forty years supermarkets in California had operated on a simple formula: run weekend ads, promoting Best Foods Mayonnaise and Folgers coffee below cost to get the people in the door, and sell them full-profit milk and alcohol.
The progress of the internet and electronic interfaces is demanding new levels of trust between the retailer and the supplier. Under these new interfaces, the supplier automatically resupplies the retailer on the basis of scanning data, which goes online to the supplier without batch-by-batch purchase orders. Individual internet buying must also operate on severe rules of trust.
In 1982, we employed an Apple II to do most of the number crunching. That was a big help, but it didn’t solve the problem of the nightly communication to the bakers. Young Joe rigged up one of the first voice-activated computer systems in the U.S. to take the orders from the stores. It was daring and full of bugs, but it began to teach us about electronic ordering.
created an electronic ordering system on the Macs that fed into Guy Lundberg’s computer service. This was an enormous breakthrough. You need to understand that we were outsourcing not just the mainframe number crunching but the printing of the documents that it generated. High-speed printers were a big choke point. They had to spew out “picking” documents for the warehouses, “receiving” documents for the stores, and summaries for our Accounting Department.
Look at any supermarket ad. You’ll learn precious little about the provenance of any product in it; you’ll see only name, size, and price. Partly this is because the grocers themselves don’t know anything about the provenance of what they sell, and they don’t want to bring up the subject of individual differences.
A distinction between full-time and part-time is a false dichotomy, when it comes to productivity.
The real limit on what range of products we could carry was our product knowledge. I believe that the greatest advantage of a limited-SKU retailer is that the employees at all levels can become truly knowledgeable about what they sell
Giving discounts to people over sixty is, to borrow a phrase from Charlie Munger, “a type of dementia I can’t even classify.” Here you have the fastest-growing, most affluent part of the population, and you give them a discount? If anyone should get a discount, it’s the shrinking workforce, which subsidizes the old folks through their income and social security taxes.
All members of Central Management, including myself, worked in the stores those days as a matter of morale for the troops.
The same mentality that doesn’t want to rock the boat also tends to hold onto its job. You’ll encounter those guys again and again! Try to help them do a good job; make them feel important; and make them feel that you’re Playing the Game, not trying to abolish it.
Believe me, you have a system for everything that has to happen in your business—you just may not be conscious of it. And you probably have still other systems that are not needed. That’s why The Winning Performance calls for a “constitutional contempt for business as usual.” To practice “constitutional contempt,” you have to arrive at work every day with the attitude, “Why do we do such-and-such that way? Better yet, why do we do it at all?”
Why Did I Want to Get Rid of This “Free” Labor? Some of those guys steal. They steal by doing “fast counts” with your receiving clerk (some of those route men should be dealing blackjack in Vegas). That’s one big reason why the supermarkets went to “electronic receiving.” They also steal by putting high-value items in the “empty” cases they take back to the trucks. That was one reason I welcomed L’Eggs in its egg-shaped containers in the late 1960s: it was harder to hide L’Eggs in an empty soft drink case than flat-pack hosiery. Ask any grocer about this. The bread and cupcake guys are under heavy penalties if they bring too much “stale” back to the bakery. So they pick up out-of-code product from one store and “roll” it into the next. As the drug culture developed in the wake of Vietnam, route men evolved into natural distributors of the stuff. You never know when they’re going to arrive at the store: this makes labor scheduling difficult. Related to this . . . They always show up in your parking lot when it’s jammed. Or have you never been blocked from a parking space by a beer truck?
Because of internal theft, one of the most important non-merchandise suppliers may be a detective agency. It is very hard to find effective agencies. The nature of the work tends to attract unstable people.
And with eleven years of Stanford education between us, we could never be poor, just temporarily impecunious at times.
Not until months after Dan arrived did Thrifty Drug begin to have even the most basic financial reports needed to operate a $1.8 billion business.
This is one of the most important things I can impart: in any troubled company the people at lower levels know what ought to be done in terms of day-to-day operations. If you just ask them, you can find answers.

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