Trader Joe's Case Analysis

The retail grocery industry consists of the following strategic groups: grocery chains, small and large discount grocery (e.g. Dollar Stores and Walmart), wholesalers, and fresh-focused and specialty markets. Trader Joe’s could be categorized as a specialty fresh-focused store and it is often compared to Whole Foods, another organic store, defining it as its key competitor. Yet, it still competes with the large grocery retailers and now, Amazon grocery services.
Threat of Entry
The threat of new entry for the industry is low, as considered by high costs and intense price competition, which make the industry’s profit margins very low. In the United States the market is concentrated, where the 50 top firms, including: Wal-mart, Kroger, Safeway

The large retailers have many options when it comes to selecting suppliers. The scale of operations of Walmart, for example, give it tremendous bargaining power, and this has enabled its cost leadership in the industry. As will be discussed further in the next question, Trader Joe’s has an extensive supply of private labels; it is argued that private labels enable strategic bargaining power of supermarkets. The retailers are able to imitate the national brands under a lower-priced private label, thus the national brand manufacturers must provide better negotiation terms with the retailers (Meza and Sudhir, 2009). Technology may also strengthen the supermarkets purchasing power, as their point-of sale data provides information on what is not selling, or what is selling. They are able to purchase the popular items in larger amounts, possibly strategically negotiating prices and obtain the low-selling items at reduced

There is more than one recent article, written in 2015, that mention that Costco now has the top spot. This news is a bit surprising. Furthermore, the information in Exhibit 1 of the case presents Trader Joe’s in the 12th rank for top revenues. “The $8 billion of estimated revenue Trader Joe’s earned in 2009 was nearly indistinguishable from Whole Foods’ of the same year” (Bellona, Breivik, Cannon, & Yap, 2010).
Additionally, ‘extreme value’ retailers also impact the rivalry among competitors. Recently, Target, Kroger and others have added dollar sections and major bargains to their format. Price sensitive consumers are attracted to the dollar store grocery deals; also, discount stores such as the 99 Cent Only stores compete on perishable items, such as produce and dairy. They seem to be affecting the supermarkets market share, as described in Retailing in the 21st Century:
“Even though the average dollar store transaction is only $9,