Becoming Trader Joe

““The Power of Chunking”: The essential building block of a company is the section [which] within its sphere does not await executive orders but takes initiatives. The key factor for success is getting one’s arms around almost any practical problem and knocking it off. . . . The small group is the most visible of the chunking devices.”

“The Most Important Strategic Decision Was to Become a Genuine Retailer The fundamental job of a retailer is to buy goods whole, cut them into pieces, and sell the pieces to the ultimate consumers. This is the most important mental construct I can impart to those of you who want to enter retailing. Most “retailers” have no idea of the formal meaning of the word. Time and again I had to remind myself just what my role in society was supposed to be. Many of the policy decisions for a retailer boil down to this: How closely should we stick to the fundamental retailing job? “Retail” comes from a medieval French verb, retailer, which means “to cut into pieces.” “Tailor” comes from the same verb. The fact is that most so-called retailers don’t want to face up to their basic job. In Pronto Markets we did everything we could to avoid retailing. We tried to shift the burden to suppliers, buying prepackaged goods, hopefully pre-price-marked (potato chips, bread, cupcakes, magazines, paperback books) so we had no role in the pricing decision. The goods were ordered, displayed, and returned by outside salespeople. To this day, supermarkets fight with the retail clerks’ union to expand their right to let core store work be done by outsiders. Whole Earth Harry’s moves into wine and health foods had taken us quite a distance into genuine retailing. In our cheese departments we were literally taking whole wheels and cutting them into pieces. I took this as an analogy for what we should do with everything we sold. Getting rid of all outside salespeople was corollary to the programs that would unfold during the next five years. In Mac the Knife, no outsiders of any sort were permitted in the store. All the work was done by employees. The closest thing to it that I see these days is Costco, which shares many features with Trader Joe’s.”

“Letting Off Steam Equally important was our practice of giving every full-time employee an interview every six months. At Stanford I’d been taught that employees never organize because of money: they organize because of un-listened-to grievances. We set up a program under which each employee (including some part-timers) was interviewed, not by the immediate superior, the store manager, but by the manager’s superior. The principal purpose of this program was to vent grievances and address them where possible. And I think this program was as important as pay in keeping employees with us.”

“At that point, in February 1966, I wrote what I call a white paper, something that I have tried to do at every important turn of events. I started with the founding of Pronto Markets. In a white paper you try to write down everything you plan to do, and the reason why you think you should do it. That way, when things don’t work out, you can’t play the role of a Soviet historian and airbrush history. The other important use of a white paper is to circulate it to the troops, to engage their support and solicit their ideas.”

“I concluded that I didn’t have to find an optimum solution to Pronto’s difficulties, just a reasonable one. Trying to find an optimum solution in business is a waste of time: the factors in the equation are changing all the time.”

“This is the most important single business decision I ever made: to pay people well.”

“Each SKU would stand on its own two feet as a profit center. We would earn a gross profit on each SKU that was justified by the cost of handling that item. There would be no “loss leaders.””

“No Place for Secrets People like secrets, because secrets bring power. Consider the priests of ancient Greece who kept the secret of pi. This is one reason I never had a secretary. When I found “executive secretaries” in the various companies I took over after leaving Trader Joe’s, I got rid of them. They hold too many secrets and are actively interested in augmenting their inventory.”

“Focus on discontinuity of supplies. Be willing to discontinue any product if we are unable to offer the right deal to the customer.”

“Growth for the sake of growth still troubles me. It seems unnatural, even perverted.”

“Treasure entrepreneurial vendors and maintain entrepreneurial buying hours: on holidays, or very early or very late. Whenever a vendor claimed to be truly desperate, we offered to meet him at 6:00 p.m. on Friday night. That separates the wheat from the chaff! That’s how Bob Berning made a sensational buy of magnums of Chateau d’Yquem.”

“His first rule for new ideas was to always think outside the box, but always consider our customers and employees.”

“Books are not made to be believed, but to be subjected to inquiry. When we consider a book we mustn’t ask ourselves what it says but what it means, a precept that the commentators of the holy books had very clearly in mind. Perhaps the mission of those who love mankind is to make people laugh at the truth, to make the truth laugh, because the only truth lies in learning to free ourselves from insane passion for the truth. —Umberto Eco, The Name of the Rose”

“The fourth [general theme in winning corporations] is a view of profit and wealth-creation as inevitable by-products of doing other things well. Money is a useful yardstick for measuring quantitative performance and profit and an obligation to investors. But . . . making money as an end in itself ranks low.”

“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.””

“But I was reading The Guns of August, by Barbara W. Tuchman, with its implicit concept of multiple solutions to non-convex problems.”

“It is better to be vaguely right than exactly wrong. —Carveth Read”

“If all the facts could be known, idiots could make the decisions. —Tex Thornton, cofounder of Litton Industries, quoted in the Los Angeles Times in the mid-1960s. This is my favorite of all managerial quotes.”

“In 1962, Barbara Tuchman published The Guns of August, an account of the first ninety days of World War I. It’s the best book on management—and, especially, mismanagement—I’ve ever read. The most basic conclusion I drew from her book was that, if you adopt a reasonable strategy, as opposed to waiting for an optimum strategy, and stick with it, you’ll probably succeed. Tenacity is as important as brilliance.”

“Twenty-eight years later, the Economist of November 10, 1990, put it this way: . . . non-convex problems . . . are puzzles in which there may be several good but not ideal answers which classical search techniques may wrongly identify as the best one. I concluded that I didn’t have to find an optimum solution to Pronto’s difficulties, just a reasonable one. Trying to find an optimum solution in business is a waste of time: the factors in the equation are changing all the time. But you’ve got to have something to hang your hat on. The one core value that I chose was our high compensation policies, which I had put in place from the very start in 1958.”

“In a lecture at the University of Southern California Business School, I talked about this. A young woman raised her hand: “But how could you afford to pay so much more than your competition?” The answer, of course, is that good people pay by their extra productivity. You can’t afford to have cheap employees.”

“I don’t use the euphemism “associates.” It joins “vertically challenged,” “significant other,” and other obfuscations in the contemporary lexicon. —Sam Walton”

“Early in my career I learned there are two kinds of decisions: the ones that are easily reversible and the ones that aren’t.”

“In the context of the career of Julius Caesar,”

“Ortega offers an explanation of how such a person can get an enterprise started. In the context of the career of Julius Caesar, an entrepreneur who started without power, Ortega says of the state: Human life, by its very nature, has to be dedicated to something, an enterprise glorious or humble, a destiny illustrious or trivial. . . . The State begins when groups, naturally divided, find themselves obliged to live in common. This obligation is not of brute force, but implies an impelling purpose, a common task which is set before the dispersed groups. Before all, the State is a plan of action and a Programme of Collaboration. The men are called upon so that together they may do something. . . . It is pure dynamism, the will to do something in common, and thanks to this the idea of the State, is bounded by no physical limits. . . . Never has anyone ruled on this earth by basing his rule essentially on any other thing than public opinion. . . . Even the man who attempts to rule with janissaries depends on their opinion and the opinion which the rest of the inhabitants have of them. The truth is that there is no ruling with janissaries. As Talleyrand said to Napoleon, “You can do everything with bayonets, sire, except sit on them!” (The Revolt of the Masses, chapter 14, “Who Rules in the World?”)”

“From the beginning, thanks to Ortega y Gasset, I’ve been aware of the need to sell everybody. That’s why, throughout my career, my policy has been full disclosure to employees about the true state of our affairs, almost to the point of imprudence.”

“The fundamental “chunk” of Trader Joe’s is the individual store with its highly paid Captain and staff: people who are capable of exercising discretion. I admire Nordstrom’s fundamental instruction to its employees: use your best judgment.”

“Many people, however, are concluding on the basis of mounting and reasonably objective evidence that the length of life of the biosphere as an inhabitable region for organisms is to be measured in decades rather than in hundreds of millions of years. This is entirely the fault of our own species. It would seem not unlikely that we are approaching a crisis that is comparable to the one that occurred when free oxygen began to accumulate in the atmosphere. —G. Evelyn Hutchinson, Sterling Professor of Zoology at Yale, writing the introductory article to Scientific American, September”

“This massive increase in the mailing massively increased our advertising costs in the short run. I don’t believe, however, in advertising budgets that are based on a percentage of sales. You figure out the dollars needed to do the job right, and go ahead and spend them.”

“there’s no better business to run than a cult.”

“No one is ever held as an example of goodness or badness in Shakespeare; He presents . . . a philosophy of wondering at the world without looking for easy answers, looking for some other easy way out. He shows us that there is none, but that you can laugh just the same. —Sir Ian McKellen, interviewed in the LA Times, December 3, 1983”

“All businesses have problems. It’s the problems that create the opportunities. If a business is easy, every simple bastard would enter it. In a sense, that was my problem with Pronto: the only barrier to entry in the “bantam market” field was capital. Anyone with enough capital could and did enter the field until overdevelopment caused the entire opportunity to crash and burn in the 1980s, leaving it in the hands of those with the most capital, like the oil companies.”

“The economist, Joseph Schumpeter, was absolutely right: Innovation is less an act of intellect than an act of will. —Michael Schrage, former technology editor for the Los Angeles Times, June 15, 1995”

“After chewing things over for two months with the key players—Leroy, Bob Berning, Gene Pemberton, and Frank Kono—I wrote a white paper in February 1977 outlining our answer to deregulation, a white paper I called the Five Year Plan ’77.”

““Retail” comes from a medieval French verb, retailer, which means “to cut into pieces.” “Tailor” comes from the same verb.”

“And along the way not only did we drop a lot of products that our customers would have liked us to sell, even at not-outstanding prices, but we stopped cashing checks in excess of the amount of purchase, we stopped all full-case discounts, and we persistently shortened the hours. We violated every received-wisdom of retailing except one: we delivered great value, which is where most retailers fail.”

“Instead of national brands, focus on either Trader Joe’s label products or “no label” products like nuts and dried fruits.”

“Carry individual items as opposed to whole lines.”

“Above all we would not carry any item unless we could be outstanding in terms of price (and make a profit at that price per #7) or uniqueness.”

“Jacques, Comte de Guibert’s “Essay on Tactics” remodeled logistics, field artillery and military engineering, stressing mobility, irregularity, adaptability: all cardinal sins in the old rule books. In March 1788, he regrouped regiments of cavalry and infantry into combined brigades that were then trained together intensively for battle-readiness. —Simon Schama in Citizens: A Chronicle of the French Revolution”