Private Label: Trader Joe’s Takes Differentiation to the Extreme

As more supermarkets use exclusive private brands to promote customer loyalty, Trader Joe’s Co. [4], Monrovia, Calif., may wonder what all the fuss is about, having come up with that approach years ago and developing it to a true art, observers told SN.

“Trader Joe’s is the private-label [5] store,” Jonathan Ziegler, a retired supermarket analyst and a Trader Joe’s enthusiast, said. “Its whole premise is built on house brands.”

According to Art Turock, principal at Art Turock & Associates, Kirkland, Wash., the company’s true edge over conventional chains is the fact that 80% of the offerings are private label, with a quality and uniqueness the chains cannot duplicate.

“Other retailers have premium private-label lines, but it’s not obvious to consumers that that is a point of differentiation,” he explained. “To most shoppers, those items are just a minor tweak, whereas at Trader Joe’s it’s crystal clear that the offering is comprised of products they can’t get elsewhere — and the consistency and quality strike them as well.

“If a customer buys a flawed private-label item at a conventional supermarket, it may have a ripple effect that turns them off to all private-label products. But at Trader Joe’s, with so many excellent products, that flaw would be minor.

“Retailers with 25% or so of merchandise offered in private label aren’t pushing the envelope far enough, whereas Trader Joe’s, with 80% of its offerings in private label, is pushing the envelope almost as far as it can go, and that makes it a very clear point of differentiation, which is a huge competitive advantage,” Turock explained.

“And it’s not just a matter of a major manufacturer making the product and putting the Trader Joe’s name on it — their private-brand products are items you just cannot get elsewhere.”

Unlike most retail ads, Trader Joe’s ads are not crammed with products selling at short-term lower prices, Turock added. “Using The Fearless Flyer, it’s telling a story about each product, which is true selling. Rather than going after price, like most ads do, Trader Joe’s is selling the quality and uniqueness of a product, saying, “As a trader, these are the lengths we go to to bring these special products to you.’”

Ziegler agreed that one of the secrets to Trader Joe’s success with private label is offering products consumers can’t get anywhere else.

“Private brands give Trader Joe’s an opportunity to introduce and develop products that add excitement to the stores, which has always enhanced the company in the eyes of customers,” he said.

“What has made Trader Joe’s so successful is the combination of new products, differentiated products, fairly priced products and products you can buy only at its stores.”

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