WaldenU Integrating Internal Resource and External Ecosystems

WaldenU Integrating Internal Resource and External Ecosystems

In Week 3 you utilized the case study, “Trader Joe’s” (Ager & Roberto, 2013), to analyze the current skills, competencies, and capabilities along Trader Joe’s value chain, which included supplier- and customer-related activities. For this week’s case analysis, you will use your prior work on the skills, competencies, and capabilities of Trader Joe’s, but now you will re-analyze your findings relative to the implications of a quick run-through of both general force (P.E.S.T.) and competitive force (five-force) analysis of the food retail sector in the United States. WaldenU Integrating Internal Resource and External Ecosystems,

The goal of this week’s analysis is to compare your current skill, competencies, and capabilities analysis of Trader Joe’s with what your think the future Key Success Factors (KSFs) for the company will be, drawing on data you research about the industry.

To develop the KSFs, consider which core skills and capabilities Trader Joe’s currently has (from your prior analysis). Then, based on a quick and less formal general P.E.S.T. and competitive ecosystem five-forces analysis, determine which critical skills, competencies, and capabilities Trader Joe’s must develop or acquire in order to thrive over the next 5 years. WaldenU Integrating Internal Resource and External Ecosystems

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The logic of the KSF analysis requires you to bring strategic analysis of external issues together with an evaluation of internal skills and capabilities for the first time. Remember, ALL strategy comes down to (1) how you deploy your current skills, competencies, and capabilities, how you develop or redevelop those, and how you augment them via more investment/training, purchase, or acquisition; and (2) what you decide to do with those skills in the future.

So, this week you are moving into “future thinking” mode, and are considering “what are the Key Success Factors for the future?” WaldenU Integrating Internal Resource and External Ecosystems

To prepare for this Discussion:

Review all required readings, including the Weekly Briefing, which provides additional guidance on how to complete the assignment.
Review your analysis of Trader Joe’s from Week 3 and review your original research on the company and industry.
Conduct additional research on the U.S. food retailing industry to obtain some insights about future threats and opportunities in the industry.
Identify and review all relevant readings from the Capstone Program Bibliography.
BY DAY 3
Post a polished Key Success Factor analysis that responds to each of the prompts below:

Based on your projections for the implications of FUTURE five-forces of competition, P.E.S.T. (general environment), and stakeholder support (or stakeholder challenges), what essential skills, competencies, and capabilities will be CRITICAL in order for Trader Joe’s to survive or thrive in the future? Why? Support your evaluation with evidence and reasoning linked to appropriate knowledge.Note: These critical areas may be the same as in the past, BUT they may not. Think this through carefully and use your innovative and economic thinking skills from prior courses. You must become futurists to be good strategists, which means there IS some ambiguity about the bets you will be making (that’s one of the responsibilities of senior leadership). WaldenU Integrating Internal Resource and External Ecosystems
Identify critical gaps in the skills, competencies, and capabilities that Trader Joe’s currently has versus what you think they will need in the future. Think about how Trader Joe’s can bridge that gap. If Trader Joe’s were to hire you as consultant to provide strategic direction in what specific skills, competencies, and capabilities the company should invest in or acquire (and how), which would you emphasize as critical and why?
Be sure to integrate concepts and quotes from this week’s readings. To obtain an exemplary assessment, you must also integrate at least one resource from the Walden MBA Program Capstone Bibliography as well.

General Guidance: Your original discussion post for the Capstone Forum will typically be 1 to 1 ½ single-spaced pages (cut and paste into the Discussion area), excluding references. Refer to the Week 6 Discussion 1 rubric for grading elements and criteria. Your Instructor will use the rubric to assess your work.

traderj.pdf
DAVID L. AGER MICHAEL A. ROBERTO Trader Joe’s In July 2013, Market Force Information released the results of a new study in which over 6,000 Americans ranked their favorite supermarkets in a variety of categories. Trader Joe’s ranked No. 1 overall.1 Consumer Reports ranked Trader Joe’s the second-best supermarket in the country in 2012.2 One year earlier, Fast Company named Trader Joe’s the 11th most innovative firm in the U.S.3 Hundreds of people waited in line for the doors to open on March 22, 2013 at the grand opening of Trader Joe’s in Columbia, South Carolina. Local police directed traffic, and people hunted for parking at nearby businesses because they couldn’t find a spot in Trader Joe’s parking lot.4 Customers arrived at 3:00 a.m. on June 29, 2012, to line up for the opening of a new Trader Joe’s in Lexington, Kentucky. WaldenU Integrating Internal Resource and External Ecosystems
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5 That same scene played out at new store openings around the country. Job seekers flooded the firm with applications when they learned of a new store. Meanwhile, retail experts marveled that the quirky grocer generated much higher sales per square foot than any of its rivals. With all that success, Trader Joe’s had attracted imitators. Tesco, the world’s third-largest retailer, had launched a chain of small neighborhood markets in the western United States. The British firm appeared to borrow extensively from the Trader Joe’s concept with its Fresh & Easy stores. In April 2013, Tesco announced that it was withdrawing from the U.S. market, hoping to find a buyer for its approximately 200 stores. The British retailer recorded a $1.8 billion loss associated with its failure in the U.S. market.6 Tesco’s troubles did not discourage other retailers from introducing smaller-footprint stores. WalMart, the world’s largest retailer, had experimented with its Neighborhood Markets concept since 1998. These smaller grocery stores differed from traditional Wal-Mart supercenters in size and product variety. They were roughly 38,000 square feet in size and only offered grocery and pharmacy items. The Neighborhood Markets concept had evolved over the years and recently began to show promising results. In 2011 the firm launched Wal-Mart Express, a 12,000–15,000-square-foot store that the company described as a “bit of a hybrid between a food, pharmacy and convenience store.” The first 10 stores turned profitable in one year. 7 In May 2013, Wal-Mart announced strong comparable store sales growth at these smaller locations, and the firm indicated that 40% of new store openings over the next year would come in the small-format category. In 2013, it planned to open over 100 small-format stores. The head of WalMart’s U.S. business, Bill Simon, declared at an industry conference, “You’ll see us increasingly moving into smaller formats. They compete really well against multiple channels.”8 Many other ________________________________________________________________________________________________________________ HBS Senior Fellow David L. Ager and Michael A. Roberto, Trustee Professor of Management at Bryant University, prepared this case. This case was developed from published sources. Funding for the development of this case was provided by Harvard Business School, and not by the company. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2013, 2014 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-5457685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. This document is authorized for use only by Douglas Kiger in MGMT-6990-3/WMBA-6990-3/WMBA-6990B-3-Capstone2020 Summer Sem 05/04-08/23-PT4 at Laureate Education – Walden University, 2020. 714-419 Trader Joe’s retailers, including Target, Kroger, Giant, Tops, and Publix, had launched smaller-format experiments as well. Meanwhile, Amazon continued to make a push into the grocery business. In June 2013, Amazon expanded its online grocery service outside of Seattle for the first time, with an entry into the Los Angeles market. Experts predicted that Amazon would introduce the service in San Francisco later in the year and as many as 20 additional cities in 2014.9 As the onslaught of new competition emerged, Trader Joe’s had to consider how it might adapt to cope with these threats. Company History Joe Coulombe grew up in San Diego, California during the Great Depression. After completing his MBA at Stanford in 1954, Coulombe took a job with Rexall, a North American drugstore chain. While working there, he launched a convenience store chain called Pronto Markets in 1958. Coulombe eventually acquired the small chain from Rexall and branched out on his own. He secured financing from Adohr Milk Farms. WaldenU Integrating Internal Resource and External Ecosystems
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However, 7-Eleven acquired Adohr Milk Farms in 1965. The dominant player in the convenience store industry now owned Coulombe’s source of capital, which he found untenable. Coulombe shifted his strategy and founded Trader Joe’s in 1967. He explained the origins of the concept: Scientific American had a story that of all people qualified to go to college, 60% were going. I felt this newly educated—not smarter but better-educated—class of people would want something different, and that was the genesis of Trader Joe’s. All Trader Joe’s were located near centers of learning. Pasadena, where I opened the first one, was because Pasadena is the epitome of a well-educated town. I reframed this: Trader Joe’s is for overeducated and underpaid people, for all the classical musicians, museum curators, journalists—that’s why we’ve always had good press, frankly! 10 Trader Joe’s offered products aimed at the sophisticated consumer interested in finding good bargains. The store tried to offer products (such as whole-bean coffees, sprouted wheat bread, and black rice) not typically found at supermarkets. The environmental movement had caught Coulombe’s eye during those early years, which prompted him to sell many natural and organic foods. Soon the company began offering private label items. The first private label product, granola, launched in 1972.11 In the ensuing years, Trader Joe’s offered an extensive line of private label items with brand names such as Trader Joe’s, Trader Ming’s, Trader Jose, Trader Giotto, and the like. Interestingly, Coulombe also experimented with a variety of nonfood items, ranging from music albums to pantyhose. In addition, trying to cater to the educated, sophisticated customer, Coulombe chose to offer a wide selection of California wines. The wine became a focal point in the ensuing years, while the albums and pantyhose disappeared from the store’s shelves. The stores tended to be quite small, less than 10,000 square feet in many cases. Trader Joe’s stocked far fewer items than a typical supermarket. All of its stores adopted a South Seas theme: Coulombe remembered, “I read that the 747 [Boeing jumbo jet] would radically reduce the cost of travel, and I came up with the term ‘Trader’ to evoke the South Seas. The first stores were loaded with marine artifacts.”12 Coulombe also outfitted the employees with Hawaiian shirts. The store manager became known as the “Captain” of that location, with a “First Mate” serving as his or her assistant. Coulombe believed strongly in paying employees a good wage. He decided that his average fulltime employee should earn the median family income for the state of California—$7,000 per year at the time the company was founded. He said, “What I keep telling people [is] forget about the 2 This document is authorized for use only by Douglas Kiger in MGMT-6990-3/ WaldenU Integrating Internal Resource and External Ecosystems
WMBA-6990-3/WMBA-6990B-3-Capstone2020 Summer
Sem 05/04-08/23-PT4 at Laureate Education – Walden University, 2020. Trader Joe’s 714-419 merchandise; it’s the quality of the people in the stores.”13 He took great pride in the fact that many employees loved working there and stayed for years. The company eschewed traditional supermarket advertising, such as coupon-filled circulars in the Sunday newspaper or television commercials. Instead, it distributed a customer newsletter, which came to be known as the “Fearless Flyer.” The newsletter provided information on certain products and introduced new items. It did not offer sales and promotions, however. Instead, the company embraced an “everyday low-pricing” philosophy. Coulombe also recorded many short radio ads in which he would tell behind-the-scenes stories about various products. Early commercials were broadcast on KFAC, a classical music station based in Los Angeles.14 The Aldi acquisition Coulombe pursued a very deliberate growth strategy: during his 20year tenure as CEO, he typically opened roughly one store per year. He did so without ever straying from the Southern California region. In 1979, German grocer Theo Albrecht, who owned one of Germany’s most successful grocery chains—Aldi North—became enamored with the Trader Joe’s concept, and acquired the company.
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Coulombe agreed to remain as CEO, a position he held until 1988. Albrecht ran a lean low-cost operation with minimal overhead. His discount grocery stores bore a strong resemblance to the Trader Joe’s business model, minus the South Seas theme and a concerted focus on cultured, urbane consumers. Aldi North sold mostly private label goods at low prices, stocked far fewer items than a typical supermarket, and maintained a fairly small footprint. It also carried a small amount of fresh fruits and vegetables. Theo’s brother, Karl, owned a sister chain, Aldi Sud, which would eventually open small-footprint discount grocery stores in the United States. As of July 2013, Aldi Sud operated over 1,000 stores across 31 states. 15 Together, the two Aldi chains operated roughly 10,000 stores around the globe. 16 Many experts attributed Wal-Mart’s exit from the German market in 2006 to its failure to match Aldi’s combination of merchandising prowess and operational efficiency. Albrecht gave Coulombe a great deal of autonomy to continue running Trader Joe’s as he wished, and executives from Germany visited the Trader Joe’s headquarters in California only once per year. However, Trader Joe’s adopted Albrecht’s obsession with secrecy. Theo and Karl Albrecht maintained very private lives—so much so that German newspapers had a difficult time finding a photograph of Theo when he died in 2010.17 Consistent with Albrecht’s philosophy, Trader Joe’s did not have signs with the company’s name or logo at its headquarters in Monrovia, California. Further, company executives almost never talked to the media. And the company’s website remained very simple, with little information about the company’s strategy, leadership team, or financial success. The site did not even have a timeline of the firm’s history until 2009.18 New leadership Coulombe stepped down as CEO in 1988 and was replaced by fellow Stanford graduate John Shields. Under the new CEO’s leadership, Trader Joe’s expanded beyond its Southern California base. The company opened its first locations in Northern California in 1988, and expanded to Arizona in 1993. The next big move entailed the opening of locations on the East Coast. Trader Joe’s chose Brookline, Massachusetts—a suburb of Boston—as the site of its first East Coast store.19 The Boston area, of course, had more universities than virtually any metropolitan area in the country.20 Trader Joe’s began selling its now-famous private label wines in 2002. The wines—sold under the brand name Charles Shaw Winery—became a huge hit with customers. They affixed the name “Two Buck Chuck” to the wine, because it sold for $1.99 per bottle in California ($2.99 on the East Coast). Soon, Charles Shaw wines had become a classic example of “cheap chic.”21 3 WaldenU Integrating Internal Resource and External Ecosystems
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This document is authorized for use only by Douglas Kiger in MGMT-6990-3/WMBA-6990-3/WMBA-6990B-3-Capstone2020 Summer Sem 05/04-08/23-PT4 at Laureate Education – Walden University, 2020. 714-419 Trader Joe’s Trader Joe’s expanded to the Midwest in 2000, opening stores in the Chicago area. On St. Patrick’s Day in 2006, the company opened its first store in Manhattan. Soon thereafter, Trader Joe’s made its debut in the southeastern part of the United States. The stores remained fairly low-tech during this time. The company did not even introduce price scanners at the checkout lines until 2001, and it continues to eschew self-checkout to this day. In 2001 Shields stepped down as CEO; by that time, the chain had grown to 175 locations. Dan Bane succeeded him as chief executive, and was still the company’s leader as of 2013. Trader Joe’s remained a privately held company, owned by an Albrecht family trust since Theo’s death in 2010.22 The Supermarket Industry Wal-Mart, Kroger, Safeway, and Supervalu were the four largest grocers in the United States. 23 (See Exhibit 1 for a list of the top grocers in the country.) Supermarkets traditionally operated on very thin profit margins, and they faced increasing challenges in 2013. Many traditional supermarket chains found themselves squeezed between premium players such as Whole Foods at the high end of the market, and “hard discounters” such as Dollar General and Aldi at the low end.24 (See Exhibit 2 for details on the financial performance of several grocery retailers.) Whole Foods Market ranked as the nation’s leading retailer of organic and natural foods. The company operated more than 330 stores in the United States, Canada, and the United Kingdom. Stores averaged roughly 38,000 square feet. Whole Foods locations typically carried 21,000 stockkeeping units (SKUs).

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Two-thirds of its sales consisted of perishable items, including bakery and prepared foods. That percentage ranked much higher than most supermarkets in the country. In 2012 Whole Foods achieved 8.4% same-store sales growth. Over the past decade, the company had benefited from robust growth in natural and organic food sales in the United States. 25 Meanwhile, Dollar General operated the largest number of small discount stores in the United States, with over 10,000 locations in 40 states. Dollar General’s stores typically carried approximately 10,000 SKUs (mostly simple necessities such as laundry detergent, paper towels, socks, etc.) and had 7,200 square feet of selling space. The average customer completed a shopping trip in roughly 10 minutes. The company reported same-store sales growth of 4.7% in its 2012 annual report.26 Supermarkets had faced another major challenge in recent years. Their share of grocery sales in the United States fell to 51% in 2011. Just a decade earlier, supermarkets had accounted for two-thirds of all grocery sales in the nation. But supermarkets lost ground as large discount retailers (Wal-Mart, Target), warehouse clubs (Costco, BJ’s, Sam’s Club), and pharmacy chains (CVS, Walgreen’s) increased their emphasis on grocery sales.27 Wal-Mart had become the largest grocery retailer in the nation. The company operated over 3,000 supercenters throughout the U.S. These supercenters had an average of 185,000 square feet and carried over 100,000 SKUs. Supercenters sold groceries as well as general merchandise, including apparel, electronics, home goods, hardware, toys, and more. In 2012 Wal-Mart’s grocery revenues exceeded $100 billion. Wal-Mart’s highly efficient operations enabled it to take share from traditional supermarkets by dropping prices significantly. 28 While Target did not operate nearly as many supercenters as Wal-Mart, the company had recently expanded its food section dramatically at stores throughout the country. By 2013, groceries accounted for nearly 20% of Target’s revenue. Like WalMart, Target found that grocery sales drove store traffic, leading to increased sales of higher-margin items such as apparel and electronics.29 4 This document is authorized for use only by Douglas Kiger in MGMT-6990-3/WMBA-6990-3/WMBA-6990B-3-Capstone2020 Summer Sem 05/04-08/23-PT4 at Laureate Education – Walden University, 2020. Trader Joe’s 714-419 As a result of these trends, many traditional supermarket chains found themselves shedding employees in order to become more cost competitive. Several experienced financial distress. The Great Atlantic and Pacific Tea Company (known as the A&P brand) had filed for bankruptcy protection in December 2010. Supervalu, which operated chains such as Jewel and Albertson’s, suspended its dividend in July 2012 and hired Goldman Sachs and Greenhill & Co. to examine strategic options for the business. 30 In January 2013, Supervalu sold five of its grocery chains to private equity investors, cutting the size of the company roughly in half. Trader Joe’s in 2013 By 2013, Trader Joe’s had expanded to approximately 400 locations across 37 states and the District of Columbia. Of the 414 stores currently open or set to open in the coming year, 172 were located in California (see Exhibit 3 for a list of stores by state). Illinois ranked second, with 20 locations. The top five states accounted for 60% of the company’s stores.31 Experts estimated that Trader Joe’s generated approximately $10 billion in annual revenue.
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32 The company did not disclose financial results, but most analysts believed that it achieved higher returns on investment than most supermarkets in the nation. Experts noted that while Whole Foods Market had the highest sales per square foot of any publicly traded grocer in the country, Trader Joe’s doubled the sales per square foot achieved by Whole Foods (see Exhibit 1 for data on the top chains in the country).33 Store operations Many Trader Joe’s stores could be found in old strip malls in suburban locations. The typical Trader Joe’s store had less than 15,000 square feet of selling space. Many early locations maintained footprints of approximately 10,000 square feet. The typical supermarket ranged in size from 40,000 to 50,000 square feet. As a result, Trader Joe’s did not have the wide aisles that existed in many supermarkets. Writer Dave Gardetta explained the logic of the quirky, cramped layout of the stores: This “chevron” pattern is used in all Trader Joe’s stores, aisles canting left. . . . The offbeat floor arrangement complements Trader Joe’s unregimented persona: “Hey, we just threw up some shelves, and there they are.” It’s also a retail trick. Angled passageways reveal a store’s contents in profile to arriving shoppers. Rows squared with the walls (see: any supermarket) inadvertently conceal their contents from customers peering into a corridor’s mouth looking for the toothbrush display.34 Checkout lines could be quite long at Trader Joe’s during busy Saturday mornings, and parking lots tended to be quite crowded. One Los Angeles area blogger complained about it: I love Trader Joe’s for their prices, for their Joe-Joe’s, for their simmering sauces. But, all the mushy love I have for Trader Joe’s is nearly outweighed by how much I hate it for having absolutely awful parking lots. If you don’t live near one of their new and improved stores— i.e., the ones at Hollywood and Vine or Olympic and Barrington—then you’re stuck with an archaic lot that is a one-way traffic jam from hell. This is my list of the 5 Worst Trader Joe’s Parking Lots in LA.35 Trader Joe’s did not invest a great deal in technology within the stores. The company did not offer self-checkout lanes, and it did not have flat-screen TVs at the checkout coun … WaldenU Integrating Internal Resource and External Ecosystems