Trader Joe’s scales back its store expansion plans

AUTHOR

Emma Liem@emma_liem

PUBLISHED

Oct. 16, 2017

Dive Brief:

• Specialty grocer Trader Joe’s added 14 new stores in 2017, falling below the retailer’s previous expansion pace, according to Retail Leader. For the past decade, the retailer has added an average of 23 locations each year.
• The grocer already has plans for 2018 locations underway, and could see its 500th location by late next year if it quickens its pace of expansion. Trader Joe’s also recently celebrated its 50th anniversary with a two-day event that boosted customer traffic by 10% compared to the year-earlier period.
• “A lot goes into bringing a new Trader Joe’s store to a neighborhood,” Trader Joe’s spokesperson Kenya Friend-Daniel told Retail Leader. “Aside from the logistics we want to be sure we have the right space and crew members who are engaged and passionate, not just about Trader Joe’s, food and earning the delight of our customers, but also in their lives outside of work. We continue to find the best of the best.”

Dive Insight:

As Amazon looms over the grocery industry, supercenters, discounters and specialty stores alike are racing to escape its shadow. Many chains are building out stores as a way to keep up with the e-commerce giant’s massive footprint, as well as shoulder out new competitors such as Lidl. It’s curious that during a year of massive grocery disruption, Trader Joe’s has chosen to slow its expansion — especially since it has so much to lose.

According to research firm Magid, Trader Joe’s is the retailer that’s most at risk of losing customers to both Whole Foods and Amazon. This is because Trader Joe’s customers “cross shop” at both companies at more than three times the industry average. Location firm Thasos also has found that Trader Joe’s saw the highest rate of defection (10%) during Whole Foods’ first week under Amazon.

It’s possible that Trader Joe’s is relaxing its typical expansion pace in order to focus on the aspects of its brand that are getting hit hardest by Amazon — namely, product prices. It may want to focus on existing stores rather than get distracted trying to expand just for the sake of growth. Even though research has shown that Amazon’s initial Whole Foods discounts didn’t have much of an impact on the store’s average prices, the e-tailer is poised to lower the natural and organic chains’s overall price tags going forward.

This could undercut the allure of Trader Joe’s low-priced private label, especially since stories revealing the Big Food manufacturers behind the grocer’s store brands have circulated in consumer circles. Many shoppers previously viewed the store’s products as unique, one-of-a-kind offerings. If Whole Foods lowers prices significantly, Trader Joe’s loyalists will have less incentive to stick around.

But Trader Joe’s can still rely on its assortment of small local brands to draw in consumers. Whole Foods, on the other hand, could lose some of its appeal as it centralizes its buying operations to improve efficiency, which could bump some specialty products from its lineup. This could keep more Trader Joe’s customers from changing allegiance, so long as they’re willing to shell out more for the unique brands they love.

It will be interesting to see if Trader Joe’s expansion strategy will change in the coming year, especially since its 500th store milestone is on the horizon. It’s possible that the grocer is regrouping this year to develop a more targeted strategy for the future — one that will fend of the likes of Whole Foods, Lidl and Aldi, all of which are gobbling up more of the specialty grocery space.

The retailer’s 23-stores-a-year expansion rate was not particularly aggressive, at least not compared to competitors such as Aldi. The retailer is careful to pick locations that will best serve its unique format, and this discernment has served it well so far. Still, in the age of Amazon, the specialty grocer will likely need to make changes in order to hold its own.