Becoming Trader Joe

Do Business Your Way and Still Beat the Big Guys

Joe Coulombe, Patty Civalleri

• Publisher: HarperCollins Leadership
• Year: 2021
• ISBN:
  9781400225415
• Topic: Commerce
• Subtopic: Histoire des affaires

Build an iconic shopping experience that your customers love—and a work environment that your employees love being a part of—using this blueprint from Trader Joe's visionary founder, Joe Coulombe.

Infuse your organization with a distinct personality and culture that draws customers in a way that simply competing on price cannot.

Joe Coulombe founded what would become Trader Joe's in the late 1960s and helped shape it into the beloved, quirky food chain it is today. Realizing early on that he could not compete and win by playing the same game his bigger competitors were playing, he decided to build a store for educated people of somewhat modest means. He brought in unusual products from around the world and promoted them in the Fearless Flyer, providing customers with background on how they were sourced and their nutritional value. He also gave the stores a tiki theme to reinforce the exotic trader ship concept with employees wearing Hawaiian shirts.

In this way, Joe laid down a blueprint for other business owners to follow to build their own unique shopping experience that customers love, and a work environment that employees love being a part of.

In Becoming Trader Joe, Joe shares the lessons he learned by challenging the status quo and rethinking the way a business operates. He shows readers of all types:

• How moving from a pure analytical approach to a more creative, problem-solving approach can drive innovation.
• How finding an affluent niche of passionate customers can be a better strategy than competing on price and volume.
• How questioning all aspects of the way you do business leads to powerful results.
• How to build a business around your values and identity.

SECTION 1

HOW WE GOT THERE

1

The Milk Train Doesn’t Stop Here Anymore

Trader Joe’s got its start in a bar on La Cienega Boulevard, where a crisis broke over my head on a Friday afternoon in October 1965. The Tail O’ the Cock was a prominent watering hole on La Cienega’s “restaurant row,” where Los Angeles and Beverly Hills expensively and alcoholically come together. One drives La Cienega just after the “lunch” hour at the risk of one’s life.

My host, Merritt Adamson Jr., had just finished drinking his normal ration of three Gibsons. When he ordered a fourth, I knew something was up.

I was thirty-five years old, President and controlling stockholder of Pronto Markets, a sixteen-store chain of “convenience” markets in Los Angeles. Just three years earlier, we had hovered on the edge of bankruptcy with the six stores I had bought from the giant Rexall Drug Co., under whose aegis I had founded Pronto in 1958. After I bought Pronto using extreme leverage (I had no money), Merritt had provided much of the capital, which had helped fuel our expansion to sixteen stores and a recovery to lots of black ink.

Merritt wasn’t much older than I, but he had been thrust into the presidency of Adohr Milk Farms ten years earlier when his father had suddenly died. The Tail O’ the Cock was just a few blocks north of Adohr’s offices and creamery. We were having our monthly business luncheon, and Pronto, as small as it was, had become his largest customer for milk and ice cream. Our business wasn’t enough, however: Adohr was slowly sinking because Merritt was a rare ethical player in the now wholly corrupt California milk business.

In 1935, in the pit of the Depression, when milk was being sold below cost, Merritt’s father had helped write the “milk control” laws, which partly govern California’s milk business (they have since been updated several times), especially the relations between the milk companies and grocery stores. After World War II, these laws increasingly were honored in the breach, as the big creameries and the big supermarket chains cut deals for illegal rebates or illegal financing or both.

This is the normal result of quasi-fascist laws that try to regulate the marketplace. But in 1935, Benito Mussolini’s concept of binding state and industry together (the fasces is a Roman symbol, an ax with a bundle of sticks tied around its handle; the sticks represent the industries and the church, the ax represents the state, a one-for-all-and-all-for-one construct) was so popular around the world that Franklin D. Roosevelt tried to copy it with the Blue Eagle National Recovery Administration, until the Supreme Court threw it out in 1937. Relics of Mussolini, however, linger in all the states of the union, sometimes in milk control laws (and always in alcoholic beverage laws).

When Merritt Adamson Sr. wrote the laws, most milk was sold by home delivery; there were hardly any supermarkets. After the war, Adohr was stuck with home delivery while the new suburbs shifted their milk purchases massively to the newly dominant supermarkets. But to get supermarket business, Merritt Jr. would have had to go against his own father’s legislation. He refused to play ball, and Adohr was sinking. His thousand-head herd of Golden Guernsey cattle out in Ventura County, the nation’s largest and another legacy from his father, was producing more milk than he could sell.

Despite my desperate need for money as Pronto emerged from Rexall in 1962, I’d had a bellyful of under-the-table offers from creameries. “We’ll pay you in cash, if you’ll just meet us anywhere outside the United States—our foreign subsidiaries will fund it, and the IRS will never know.” That was a typical pitch. I was prudent enough to guess, however, that it would expose me to blackmail should I ever try to switch brands.

My ethics were not, shall we say, entirely ethical in their genesis nor had my hands been entirely clean while I was running Pronto for Rexall. To quote the late, great senator Sam Ervin in the Watergate hearings, when he was asked if he had ever broken the law, “the statute of limitations has expired on all my sins.”

The institution of blackmail was not unknown in the grocery industry. At the big conventions, innocent (I’m positive!) grocers found themselves trapped—yes, trapped!—in hotel rooms with awfully friendly ladies, and hidden cameras. Some bread companies were notorious for this.

In 1962, Merritt and I got together on common ground. He’d get our milk business; we’d get capital; but whatever we did would be squeaky clean with the state. His attorney, Julian Burke, created such a financing plan. (Burke later became a noted turnaround specialist. Then, at age seventy, he was in charge of the Metropolitan Transit Agency of Los Angeles.) This plan worked well, but it wasn’t enough to move all that Golden Guernsey milk (noted for its high butterfat content in a society that was moving to skim).

Merritt had another problem: he and his sisters had inherited Malibu.

His mother, Rhoda (Adohr is Rhoda spelled backward) Rindge, was heiress to the Spanish land grant that we peasants call Malibu. But it was a big problem. 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.

So the fourth Gibson came to slake our waning thirst. Merritt, a huge bear of a man whose face looked perpetually sunburned, was very shy: hence the Gibsons. After drinking the fourth one, he finally got the story out. Painfully, he confessed, “Joe, I’ve sold Adohr. And I’ve sold it to Southland Corporation.”

Southland, for the uninitiated, is the owner of 7-Eleven Markets. As a partner of Rexall, I had started Pronto in 1958 as a copy of 7-Eleven, because there were no 7-Elevens in California, partly because of the labor issues discussed in “The Guns of August” chapter. What Merritt was telling me was (a) my source of financing was cut off and (b) a competitor a thousand times greater in wealth was coming to town, and (c) they had found some way to avoid California’s high labor costs.

I knew we would be crushed, if only inadvertently, by this monster. 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. Between Southland and Pronto, it would be no contest.

Suddenly stone sober, I drove home, got Alice and the kids, and holed up for two days in a cabin at Lake Arrowhead, in California, while I tried to figure out what the hell to do. And that’s how Trader Joe’s got started.

2

The God of Fair Beginnings

The God of Fair Beginnings Hath prospered here my hand—The cargoes of my lading, And the keels of my command.

—Rudyard Kipling, “The Song of Diego Valdez”

Late in my career at Trader Joe’s, about 1986, I decided that we needed to juice up management with a freshly minted MBA who could bring the latest management theories to us. We had built Trader Joe’s with only one four-year college graduate, Dave Yoda, our Controller. The people who are responsible for what Trader Joe’s is today all came from the School of Hard Knocks.

The first candidate to bring Management Enlightenment to us was a young lady just out of my alma mater, Stanford University. Over coffee I explained how I ran the company while she listened, obviously with growing impatience. “Oh, Joe,” she finally burst out, “you do all the right things for all the wrong reasons!” She didn’t get the job.

Condescension is typical of wet-eared MBAs, and few have been so condescending as I on my first job, even though it was the only job I could get in June 1954, during the first of the three Eisenhower recessions. Few people knew or cared what an MBA was in those days. I was lucky to get hired for $325 a month, especially since I had never taken a course in retailing at Stanford and had no interest in retailing whatsoever. I was even luckier in the man who hired me, who put up with me, who encouraged me, and who taught me everything I know about being a chief executive officer: Wayne H. “Bud” Fisher Jr., to whom this chapter is dedicated: my god of fair beginnings.

Once, I had the chance to thank him in public. Thirty years after the events in this chapter, the Stanford Business School’s Los Angeles Alumni group honored me as Entrepreneur of the Year. Even though that night was their fortieth wedding anniversary, Bud and his wife attended the banquet, and to his embarrassment I paid him full tribute.

For a while I wondered how that association, which lasted almost forty years until his death in 1993, was forged, until I realized it was simple: we were both left-handed. I think that handedness is the most important thing one can know about a person. 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. One of them, Doug Rauch, is President of Trader Joe’s on the East Coast as of this writing.

Bud Fisher, the handsome scion of one of the founding families of Southern California; an alumnus of Pomona, Harvard, and Stanford; a first lieutenant in the Normandy landings; married to a beautiful blonde, was then Executive Vice President of the Owl Rexall Drug Co., a moribund chain of three hundred stores on the West Coast. Sav-on drugstores, a brilliant new concept in self-service retailing created by two Latter Day Saints, Messrs. Call and Clark, had hit Los Angeles like napalm. Every time one Sav-on opened, three Owl Drug stores closed.

Bud hired me to find out why. Shall we count the ways? For once, an MBA’s condescension, not to say scorn, was justified. The Owl Drug Co. was the pits with only one asset, Fisher, who had just recently come on board. What was not justified was my impolitic way of expressing my disgust. Bud defended me against my own brashness, even though he quietly viewed the Byzantine management of his superiors at Rexall no more forgivingly than I did. But he was ten years older than I chronologically, and far older than that because of his experience at Normandy. All of those men who had experienced both the Great Depression and World War II are dead and gone from management now, but they were powerful forces in shaping postwar America.

In the course of our research on alternatives for Owl, we discovered 7-Eleven stores in Texas. There were none in California. Grocery stores intrigued me.

I then quit. I told Bud that I had learned all I could at Owl, and that I was afraid I would begin to lose my Stanford standards for management if I stayed. I went to Hughes Aircraft and became the financial planner for their Semiconductor Division, which sextupled during the short time I was there.

Neither Bud nor I, however, had forgotten the business opportunity we saw in 7-Eleven. According to Dun & Bradstreet, the typical grocer’s return on investment was 54 percent in the early 1950s.

Eighteen months after I quit, he called me: he had persuaded Rexall to hire me back to clone 7-Eleven. And that’s how at age twenty-seven I became President of Pronto Markets.

We Build Pronto Markets;
But Dart Buys Tupperware

There were no 7-Elevens in California at the time, so the first, experimental chain of six Prontos that we built was successful. Two years into the project, however, lightning hit: Justin Dart, the famous President of Rexall (twenty-two years later he was a member of President Reagan’s kitchen cabinet) bought Tupperware, against, I am told, the unanimous vote of his board of directors (“nothing but a goddamned party formula!”). Within a year, Tupperware was generating a third of Rexall’s profits.

Dart gave orders to liquidate all 1,100 drugstores he owned (Lane Drug in the South, Liggett Drug in the East, and Owl) to raise cash so he could go into partnership with El Paso Natural Gas and produce all the plastic that he needed for Tupperware. What was vertical integration for Tupperware was going to be horizontal disintegration for The Owl Drug Co., and Pronto.

But Dart had a problem: nobody wanted to buy the molting Owl Drug. Today it would be fought over by the vulture capitalists, but neither ventures nor vultures were common in those days. Thirty-two years later, when I was in charge of liquidating Thrifty Drug Stores in 199...