The real reason Trader Joe's is so cheap

pulse

May 9, 2017 1:57 PM

The cost-cutting secrets of Trader Joe's come down to labels.

null

During a recent trip to a Trader Joe's location in New York City, the cheapest available ground beef cost $4.99 a pound, compared with $9.99 at a New York Whole Foods location, which was selling only organic. The lowest price for a liter of extra-virgin olive oil was $6.99 at Trader Joe's, compared with $9.99 for the same size at Whole Foods.

Consumers view Trader Joe's as high quality but inexpensive. How can Trader Joe's afford to keep its prices so low?

The biggest reason is that Trader Joe's sells private-label products instead of well-known brands.

Eighty percent of the products carried by Trader Joe's are in-house. While that means customers can't get those products anywhere else, it also means the grocer buys those goods directly from suppliers, cutting out the middlemen in a supply chain that can drive up costs.

The creativity of the in-house products is also important. Some of the most popular products include Chili-Lime Chicken Burgers, Cookie Butter (a cookie-flavored nut butter), and corn-and-chili salsa.

While Whole Foods has private-label products, they tend to be more basic. The company also sells a wider variety of organic and healthy brands. As Walmart and other grocers begin to stock these products, consumers have less of an incentive to visit Whole Foods.

Trader Joe's also uses a no-frills design, similar to Aldi, a European grocery chain that was founded by the same people who created Trader Joe's. Whole Foods is trying a similar tactic with its millennial-centric 365 brand, which has a much more open, minimalist design in an attempt to cut costs — and provide customers with lower prices.

Another way Trader Joe's cuts costs and passes the savings on to customers is by spending less on marketing, instead depending on word of mouth to attract customers.

Stores also use natural and energy-efficient lighting to cut down on utility costs.

pulse