Trader Joe’s impact on market levels off

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Filed on 31. Jan, 2008 in Contents

Sales pick up for local grocers after 60-day downturn

 

Brian Casey, Bellingham Trader Joe’s general manager — or “Commander” as his nametag reads — said the new grocery store continues to do better than was expected before it opened Sept. 28.

 

The bells and whistles of Trader Joe’s opening day on James Street may be somewhat quieter now, but they are still resounding. With a steady stream of customers lined up at checkout counters and a parking lot where finding a spot often takes patience and eagle-like watchfulness, some might think the grocery chain has had a cult-like following in Bellingham for years.

Brian Casey, whose red name tag identifies him as “COMMANDER” — Trader Joe’s speak for general manager — said he is approached by at least five customers daily who tell him how happy they are Trader Joe’s is here and that they have been waiting a long time for the store to move into town.

“We’ve been open since Sept. 28 and it’s been a great experience so far,” Casey said of the new store. “I think Bellingham was overly excited and still seems to be excited. Business has been great. It’s better than was expected.”

Apparently, Bellingham isn’t alone in its excitement over a Trader Joe’s opening, however. Len Lewis, author of “The Trader Joe’s Adventure,” said red-hot welcomes are to be expected for the grocery chain. He said once someone begins shopping at Trader Joe’s, they tend to continue shopping there. Such customer loyalty leads to mad-house opening days in communities like Bellingham, where a significant number of residents have shopped at Trader Joe’s in places like Seattle, Everett and even California, home to the original stores. Lewis has even heard of store christenings that had customers lined up around the block.

“They create quite a fuss wherever they go,” Lewis said. “They have always had a following.”

 

Local stores see temporary dip

But where did their Bellingham following migrate from? The customers who now browse the diagonal aisles of the sky-blue, fishnet-draped store had to have bought their food somewhere before Trader Joe’s moved in. With the Community Food Co-op, Terra Organica and Food Pavilion and Cost Cutter authorities saying their losses have evened off, the answer to where these customers are coming from remains a little fuzzy.

Lewis, who has covered the retail industry for 35 years, said Trader Joe’s customers don’t go to the store expecting to do their weekly shopping, but to find food that is unique, thus fulfilling their other grocery needs and wants elsewhere.

Stephen Trinkaus, the owner and general manager of Terra Organica and the two Bargainica stores in town, said although his Cornwall Street stores’ sales were down 5 percent compared to last quarter, they remain higher than the same quarter last year. He also said the 5 percent hit was lower than what he had anticipated and sales have already started to pick up again.

“I think the picture that is painted here is Trader Joe’s has slightly slowed our momentum, but it has been a small bump in the road,” Trinkaus said.

Bargainica on State Street took a larger hit, 13 percent, but in addition to Trader Joe’s opening Trinkaus said he attributes some of that loss to students leaving for winter break, which always impacts that business.

In preparation for Trader Joe’s move to Bellingham, Trinkaus did industry research to see what happens when major competitors like Trader Joe’s and Whole Foods move into a neighborhood. He learned that nationally, a natural food store will average a reduction in business of 10 percent to 20 percent within the first month of a Trader Joe’s opening, and usually closer to the 10 percent side. After that period of time, sales will pick up again, assuming business was growing before the opening, he said.

Jeff Voltz, general manager of the Community Food Co-op, characterized Trader Joe’s impact on the store as small. He said the Co-op’s customer count dropped for the first 60 to 90 days after the its opening, but then leveled off.

Cost Cutters and Food Pavilions experienced similar behavior, according to Craig Cole, president of Brown & Cole Stores, which owns the chain of 20 supermarkets. Cole said it was hard to say exactly how long the impact lasted because of variables such as weather, but he estimated a few weeks.

“I think people went to look to see what was going on and then returned to their customary patterns,” Cole said. He also said the company decided to increase its product line of organic and other unique foods, such as spices and gourmet foods. “I think we will gain ground on them and other competitors,” he said.

Voltz said the Co-op budgeted for a Trader Joe’s impact and experienced a decrease in customers that was slightly more than what they had anticipated, but he remained optimistic and said the sales per customer actually increased during that period.

Voltz said its local ownership sets it apart from Trader Joe’s’ international ownership. Trader Joe’s is operated by Aldi Inc., an international retailer with more than 850 stores in the United States, according to its Web site, and thousands of stores in Europe, according to Lewis.

“We will continue to do what we do well because we’re different — primarily in the local focus,” Voltz said of the Food Co-op. “We are the only community owned grocery store in Whatcom County. We’re woven into the fabric of the community.”

Trader Joe’s general manager Casey said he realizes being part of the community is important in Bellingham, and the store is looking to do just that. Murals of Bellingham Bay and the Peace Arch welcome shoppers. Even the checkout lines try to fit in, marked by Bellingham street names. Casey said the store also shops at locally owned Hardware Sales for repair supplies and is looking into different local charities.

Trinkaus, whose businesses carry a significant amount of locally produced goods, attributes part of his success in fending off customer loss to stocking the shelves with local items. He said, overall, his businesses have been able to differentiate themselves from other stores, which has led to an average growth of 55 percent per year over the 11 years they have been open and helped him retain customers during the Trader Joe’s opening.

Trinkaus said Terra Organica and Bargainica also stand out to shoppers because of the public market concept — with eight businesses sharing a fairly open space — and the amount of fresh and organic products he carries.

Nearly 95 percent to 99 percent of the items sold at Terra Organica are organic, Trinkaus said. Trader Joe’s public relations spokeswoman, Allison Mochizuki, said the number of organic products in the store varies because new products come in to replace the others, but in early January, Trader Joe’s weighed in at 20 percent organic.

 

On the cusp of a ‘retail revolution’

Lewis said Trader Joe’s has also done an incredible job differentiating itself from other grocery stores. He said the small-store formats they have used for the past 25 years have put them on the cusp of a retail revolution.

“I think they really have set the pace in small store retailing that everyone else is just starting to look at,” Lewis said. “People want something more intimate with a selection of products that they can’t find anywhere else. It’s kind of like a treasure hunt. You never know what you’re going to find when you walk in.”

Trader Joe’s puts approximately 15 new items on the shelf every week, Lewis said, 80 percent of which are under their own label, allowing them to offer low prices.

Lewis said that although Trader Joe’s is a highly profitable grocery store, with estimated annual sales of approximately $1,200 to $1,300 per square foot — about twice the supermarket industry average — it’s unlikely they will put traditional stores out of business because they only offer one tenth of the product selection.

“They do take some business away from traditional retailers, but the weekly grocery shopper is not going to use Trader Joe’s for everything they need,” Lewis said. “It’s not a pantry-load kind of store. You go in there because you’re looking for something special or you enjoy the environment.”

 

Filling a specialty gap

Kris Remy, of Everson, packed a box of a dozen wine bottles into her vehicle while explaining that she only does part of her shopping at Trader Joe’s and the rest at the Food Pavilion in Lynden.

Other customers also said they buy only a portion of their groceries at Trader Joe’s and do their remaining shopping at Haggens, Fred Meyers, Cost Cutters, Food Pavilions and Costco. They also said they had excitedly awaited Trader Joe’s opening, having already shopped at the store’s other locations.

Michael Maier, of Bellingham, who said he does one quarter to one third of his shopping at Trader Joe’s, was among those excited customers.

“As a matter of fact, my wife gave them population statistics to try to get them to move up here — I’m sure she’s not the only one,” Maier said.

In fact, minutes after Maier’s assertion, Kelly Follis of Sandy Point confirmed it.

“I used to make the trek to Everett and bug them to open one in Bellingham,” Follis said. “They said it was never going to happen.”

While it did happen, Trader Joe’s’ move to Bellingham was anything but brash. Lewis said locations for new stores are strategically chosen.

Lewis said he thinks Trader Joe’s stores generally move into densely populated areas with a “good mix” of customers who don’t necessarily fit into a high income demographic.

“The best description I have ever heard for a Trader Joe’s customer is ‘an out-of-work Ph.D. who drives an old Volvo’ — people who know what they like and might be a little adventurous in their eating tastes,” Lewis said. “You should be honored that they picked Bellingham. They have people coming at them from all sides asking them to open stores.

“They’re very, very careful with where they put their stores,” he said. “They do a lot of research on area demographics and the competitive dynamics of an area. They don’t open them very quickly and they don’t open them often. And they don’t make mistakes.”

 

Trader Joe’s history… and about those Hawaiian shirts

Trader Joe’s began as a small, three-convenience-store chain in Pasadena, California in 1958. Store founder Joe Coulombe expanded the business and later sold it to Karl and Theo Albrecht. The German Albrecht brothers are among the wealthiest people in the world — they own the Aldi company, which consists of thousands of European supermarkets and is quickly expanding in the United States, with more than 850 stores. There are 258 Trader Joe’s locationed in 23 states.

And the Hawaiian print? According to legend, founder Joe Coulombe thought of the idea when he was vacationing on the beach in the Bahamas or the Caribbean, and he thought the tropical theme would put people at ease, make them relaxed and get them to shop more.

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bGk+PHN0cm9uZz53b29fc2xpZGVyX2hlYWRpbmc8L3N0cm9uZz4gLSBSZWNlbnQgbmV3czwvbGk+PGxpPjxzdHJvbmc+d29vX3RoZW1lbmFtZTwvc3Ryb25nPiAtIFRoZSBKb3VybmFsPC9saT48L3VsPg==