The Big Business Of Keeping It Mellow

For the third year in a row, Trader Joe’s was voted America’s favorite grocery store (according to a survey from Market Force Information), in terms of both customer satisfaction and the percentage of customers who would recommend it to others.

It’s an impressive streak for a chain that had humble beginnings and, even now, arguably at the height of its brand appeal and grocery-pushing powers, counts a meager (compared to the likes of Kroger and Safeway) 457 locations — about half of which are in one state (California). It has modest convenience store roots and puts forth a laid-back and decidedly West Coast vibe, personified by the Hawaiian shirts its employees don.

How is it, then, that a grocery retailer with those characteristics can sell twice as much per square foot as Whole Foods, the once-dominant brand in the organic game?

As far back as 2008, media outlets have been seeking an explanation for Trader Joe’s success. The smaller size per location (thus keeping overhead costs down) is certainly a factor, as is the company’s practice of turning food shopping into what Fortune has described as a “cultural experience,” which contributes to customer loyalty. And, of course, there are the chain’s low prices, particularly on its private label items … which is where the true secret of Trader Joe’s success may lie.

“Secret” is the operative word there, as Trader Joe’s brand products are produced not by the company itself but by third-party suppliers that sell the same goods under their own name, side-by-side with the store’s, at notably higher prices. This by itself is not an uncommon practice in retail; where Trader Joe’s situation is unique is how much of its business its own label makes up (90 percent compared to the average 20 percent in a chain grocery store) and how hard the brand works to keep the identities of the manufacturers of its private label items under wraps. It goes to extenuating lengths to keep its suppliers a secret in order to retain brand loyalty for itself, and so the brands’ customers don’t become overtly aware that they could be getting the same product at a fraction of the cost.

In fact, Trader Joe’s knockoffs are so good and well-marketed — the company spends a lot of time on packaging and well-written product descriptions that serve to remove the “cheapened” feeling shoppers may have when buying a “store brand” elsewhere, like Whole Foods or their local supermarket chain — that they often develop a cultish following. Ask anyone who has moved away from Southern California about his or her favorite Trader Joe’s wine varietal or which cookies are their favorite, and you are sure to get an impassioned response. By keeping its suppliers a secret, Trader Joe’s doesn’t dilute any of this brand affinity.

However, this practice of white-labeling products produced by other manufacturers has come under scrutiny as well.

Among other outlets, Trader Joe’s practice of keeping its sourcing a secret has been apparently driving Chowhound nuts for years. The site dedicated a piece back in 2008 to uncovering who was making Trader Joe’s food then took another pass at it a couple years later.

A recent lawsuit filed by Pepperidge Farm, though, may at last be peeling the corner back on some of the grocery chain’s sourcing practices. Pepperidge Farm (owned by Campbell Soup) alleges that Trader Joe’s Crispy Cookies infringe on its own “famous and unique” Milano cookie trademark. A little deductive reasoning leads us to infer that Pepperidge Farm is not producing these knockoffs for Joe’s.

While these secretive practices may have once added to Trader Joe’s charm, in an era where consumers increasingly value transparency and authenticity, the strategy could start to backfire.

Vani Hari, founder and investigative reporter at FoodBabe, recently commented to PopSugar: “If you shop at Trader Joe’s and buy their Trader Joe’s branded products, you’ll never know which companies are producing your food. You could be supporting a company with shady or unethical business practices.” A valid point in an age where consumers are, more than ever, voting with their wallets.

Another point of concern is Trader Joe’s global sourcing strategy. Sourcing produce from developing countries like China raises concerns for consumers, as the organic food industry in developing countries may not be well-regulated. Hari notes: ”Trader Joe’s is able to keep their produce and goods inexpensive because they source their goods from all over the globe — especially from underdeveloped countries where prices are cheaper.”

But Trader Joe’s appeal to millennials may lie in the economics and may win out over ethics in the end. As Time puts it, Trader Joe’s, unlike Whole Foods, is for the hipster shopper who’s bougie but broke.

The chance for Trader Joe’s method of mixing a low-key, corporate-but-not-corporate attitude with a decidedly low profile when it comes to the true identities of its private label goods to continue into the future will depend on, as millennials age, whether their tastes remain “cheap-but-good” … or they start to develop a taste for more authenticity.