Trader Joe's: The Trendy American Cousin

It's a small grocery chain that moves into abandoned retail stores in second-rate locations. Parking is all but impossible. There's not a deep selection in the cramped aisles, and you'll be lucky to spot a national brand on the shelves.

Welcome to Trader Joe's. About all this 210-store U.S. chain shares with Germany's Aldi Group -- besides being owned by a trust created by Aldi co-founder Theo Albrecht -- is its rigorous control over costs. But where Aldi carries such basics as toilet paper and canned peas, TJ's, as it's known, stocks eclectic and upscale foodstuffs for the wine-and-cheese set at down-to-earth prices.

It's a phenomenally lucrative combination, analysts say. Sales last year were an estimated $2.1 billion, or $1,132 per square foot, twice that of traditional supermarkets, according to the Food Institute, a nonprofit research group in Elmwood Park, N.J. The Monrovia (Calif.) company would not talk to BusinessWeek, but its Web site notes that while the 37-year-old chain quintupled its store count from 1990 to 2001, profits grew tenfold.

"What's unique about Trader Joe's is that there's no competition," says Willard R. Bishop Jr., who heads his own consulting firm in Barrington, Ill. TJ's develops or imports many of its own products from sources it has developed over decades and sells more than 80% of them under the Trader Joe's brand or a variant thereof: Trader José, Trader Ming, and Baker Josef are a few. In states where it can, it sells discount wine and liquor. The latest rage is its own Charles Shaw label of California varietals, affectionately known as Two-Buck Chuck for its $1.99 price tag in California (it's $3.39 in Ohio stores).

It's not all about value pricing. Trader Joe Co.'s products have a definite feel-good bent. The company promises that products with the TJ label won't include genetically modified ingredients. After complaints from animal-rights activists about the way ducks are slaughtered, it stopped selling them. Ahi tuna is caught without nets, its dried apricots are unsulfured, its peanut butter is organic -- and has no trans fats to boot. And what about those Ghirardelli chocolate-covered dried blueberries, $3.99 for a 10-oz tub? TJ's notes that you can get your choco-fix and your antioxidants at the same time.

One place where TJ's has never stinted is with its employees. Besides above-union wages and generous bonuses (pay for entry-level part-timers starts at $8 to $12 an hour; first-year supervisors average more than $40,000 a year), TJ's contributes an additional 15.4% of each worker's gross pay into a company-funded retirement plan.

The company got its start when Joe Coulombe was trying to figure out how to protect his three Southern California convenience stores, called Pronto Markets, from the onslaught of 7-Elevens in the 1960s. He loaded the stores up with hard-to-find gourmet items and low-priced wines, and cherry-picked food manufacturers' discontinued and overstocked merchandise, which he peddled at steep discounts. Coulombe sold the renamed Trader Joe's in 1979 to the family trust established by Theo Albrecht, and he retired in 1988.

The ever-changing closeouts turned shopping at TJ's into somewhat of a treasure hunt. Now, the closeouts are mostly gone, but with its wide selection of unique products and a friendly staff (they're the ones in the funky Hawaiian shirts), it remains that today. For most people, shopping is a chore. Trader Joe's makes it recreation.

By Larry Armstrong in Los Angeles

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