6. The History of Trader Joe’s With Patty Civalleri [FourWeekMBA Podcast]

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For this episode, I interviewed Patty Civalleri, an author at 1-TAKE Publishing LLC. She authored many incredible travel guides. And she made sure the memoir of Joe Coulombe could come to life!

Becoming Trader Joe: How I Did Business My Way and Still Beat the Big Guys

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Can we get a little bit into the story and the context of how you got into this book and the initial years of Trader Joe's as a company?

Patty Civalleri:

Yes. I got involved in the stories socially and Joe had written a journal about the founding of Trader Joe's and he held onto it and made changes over the years, and one day he found it in a box and didn't know what to do with it, so he gave it to his first employee Mr. Leroy Watson, who is a very close friend of my husband. And because we've been friends with Mr. Watson for many, many years, I have met Joe socially, gosh, many times over the last couple decades. So when Joe asked Leroy to do something with this book, Leroy came to me and he said, "Patty, you have published many books, can you help us do something with this book?" And I had written many books about Italy for travelers being a historian and Italy has the coolest history in the world.

I took a look at the manuscript and I fell in love with Joe's story, what a great story. So I looked at it it was very raw, it needed a lot of work, so I spent many months bringing the manuscript, cleaning it up and making it work and rearranging everything. And I sat down with my agent and said, "Paul, can we sell this manuscript?" And we got several bids for the manuscript, but the winning bid was from HarperCollins, one of the largest American publishers in the world and that's how we got the story published.

And as soon as we signed the contract with HarperCollins, the following week Joe passed away, which was a very sad event, and left me wondering how on earth I was going to promote this book without Joe, because he is clearly the center pin of all of this. But I realized that since Joe's passing it's much more important now to get his story out and get his history out, so that his story is not lost to history and doesn't get lost. So the book was published late last summer and it's gone global, we're so extremely happy with it and it looks like a book that's going to be around for a long time, so we're quite happy.

Gennaro:

Yeah. As I was telling you I'm very glad that the book came to life because it's an evergreen, the story it's very compelling, it's contemporary, the way it is written it's very practical. For a digital entrepreneur as well, looking at the story behind how you create such a valuable brand, it's incredible, so thanks for putting this together. How were the first and early years before we get to Trader Joe's because the story before Trader Joe's would come to life there is an evolution to that?

What's the story behind Trader Joe's, especially the story of the man who founded the company. Joe Coulombe?

Patty Civalleri:

Joe was born in Southern California on an avocado farm, avocados grow very well here in Southern California, but Joe went to Stanford University and got an MBA at Stanford. And right out of school Joe got his first job with Rexall Drugs, which was a large pharmaceutical retail company here in the United States at the time. And Joe was very bright and had quite a compelling personality, and he got the attention of the executives at Rexall very early when he was working there, and they adopted Joe and took him under their wing and groomed him for executive management, which is incredible because you learn a lot more in real life than you could ever learn in school, in a classroom, and every entrepreneur knows that. Joe was called into the executive offices one day and they said, "Listen, Joe, we have funding for six stores and we don't know what to do with these six stores, so we want to send you around the United States to go find a model that doesn't exist here in California, but that could work here in California."

So Joe set off for a couple of months on a road trip and visited many different types of retail stores. When he finally got to Texas he found a chain of variety stores that were all over Texas and doing very well. For those that don't know the American definition for a variety store is sort of a small footprint store, that you can just run in real quick and run back out, that you could buy anything from paper towels and toilet paper, to cereal, to olives, to beer, dog food, everything all in one small store, they're convenience stores basically. And California didn't have that kind of convenience variety store, so he brought that idea back to Rexall and Rexall said, "Okay, Joe, we can open six stores. We're going to give you 49%, we're going to retain 51%, and you open and run and manage and grow those stores."

So it took Joe a couple of years, but he managed to open all of them and he opened another one, a seventh store, which was 100%, his own store. Those stores were called Pronto markets, pronto meaning fast. And it's a place you could just run in and get something that you need very quickly and run back out again, so Joe started and ran those, and by 1958, they were open, they were doing well, and Joe had a good plan for them. So Joe went back to Rexall and said, "Hey guys, if you let me buy out your 51% at market cost, I would like to be the owner of 100% of Pronto Markets." And Pronto responded, "You pay us 10% over the market and they're yours." Well, now Joe really didn't have any money, he didn't have two nickels to rub together at the time.

And so he went to his employees, he used very creative financing, he got some loans for part of it, bank loans, part of it, he got from his employees where Joe had created tremendous loyalty with his employees. So when Joe went back to his employees and said, "Hey guys, we have the ability to maybe own this company, all of these stores, would you guys like to buy in as my partners?" And he got a lot of partners to step up and put up the money and it was wonderful, because creative financing and employee loyalty is huge. He also got money from a company, a dairy called Adohr Farms. Adohr Farms was a dairy company. Back then the dairy companies had milk trucks and the milk trucks would come to your home and deliver all the dairy products, milk, eggs, cheeses, those kinds of things, and they would deliver them to your home once a week or however often you wanted them to deliver.

And one of the major brands back then was called Adohr Farms, which was run by a guy named Merritt Adamson Jr. And Merritt had been trying to get Joe's business for several years, he wanted the Pronto Market business, he wanted Joe to carry Adohr Farms on the shelves in Pronto Markets. So when Joe needed this money to buy out Rexall for the Pronto Markets, he went to Merritt and said, "Hey, I need some extra money. I'll tell you what, let's make a deal. If you give me a loan I will carry all of your dairy products, so that we can grow together. As my company grows, I'll be paying back the loans and I'll be buying your milk products from you."

And they shook on it, they shook hands and made a deal. And so Joe was able through these various ways to bring the money in to buy out Rexall, which was really great. So now Joe has seven stores. He has seven Pronto Markets, they're healthy and they're young and he has a plan. So over the next few years he grows them and grows them more, and in the 1960s he now has 16 stores, this is the late 1960s. He's up to 16 stores and he's got a lot of his own blood, sweat, and tears invested in the growth of the company. One day he and Merritt were sitting down having a cocktail and Merritt told Joe that he had bad news for Joe, that the company in Texas that had all of those variety stores found a way to change their policy to be able to open stores in California.

Well, that brought a chill up Joe's spine because he knew that that company had a giant, giant bank account and a giant marketing budget. And that this company was going to come to California and roll over Joe like a truck and Joe didn't know what to do, he knew with his little 16 stores that there was no way he could stand up to those stores. So he felt he had two choices, he could either try to stand up to those stores but eventually die a slow, painful death, or he could close his business on Monday morning and call it a day.

Gennaro:

Yeah. And that would've been an easy solution also because just to remind the audience, the company that you're talking about was 7-Eleven, which at the time-

Patty Civalleri:

Yes.

Gennaro:

7-Eleven was a giant. Compared to the Pronto Markets, which was just a bunch of stores, a few stores that of course were successful, and they had grown into also successful customer clients for the company owned by Merritt, which was the first real partnership that Trader Joe... actually Joe Coulombe had in place. But what happened next? Because, okay, as you said we went from the '50s to the '60s, there was this idea of Joe Coulombe to start a set of markets based on the idea of 7-Eleven, which was in Texas and other states, but was not yet in California.

Also, it's important to remember the context we are in after a Second World War period, where there were still a lot of regulations that limited the supply of some of the goods that many retail would be able to sell. So there were a lot of barriers to entering this industry, and this definitely helped initially Joe to get started.

But what was the evolution from Pronto Markets to Trader Joe’s? And What happened next and how did he eventually manage to succeed, even though he experienced many near-death and bankruptcies in the company?

Patty Civalleri:

It's funny, Joe is a very visual man, when you would sit down to have a conversation with Joe, you can see him, he would always look up and you can see that he was envisioning whatever topic you were talking about, you could see that he was watching it in his head, he was a very visual human being and so he would always see pictures and images in his head. Well, this particular weekend when he just didn't know what to do, and he felt very threatened, and should he close down or die a slow lingering death, he felt those were his two choices. He gathered his wife and children and they got in the car and drove up to a mountain in Southern California for the weekend, and he just closed the door just to think, he just wanted to think.

He was scared to death. He knew he was going to leave everything and he was going to lose his loyal employees, he was going to lose his vendors, he was going to lose everything that he worked so hard for over the last 10, 12, 15 years, and so he was very scared. And as he sat there, he started thinking about a ride that he took at Disneyland with his family. And it was a Pirates of the Caribbean ride, for anybody that's ever been to Disneyland I'm sure you might have experienced that ride. But that memory came back into his head and he started to think about a movie that he had recently seen about these old ships, these old sailing ships from the 1700s that would travel around the world with their big beautiful sales.

And they would go from port to port buying goods and selling goods and trading food and goods everywhere that they went. And he looked down at the drink that he had in his hand, his wife had made him a Mai Tai and back then Mai Tai's were very popular, they were this little tropical drink with an umbrella in it. He started thinking that these drinks, which were very popular and everybody was drinking them in the United States, but were created by a bar called Trader Vic's. But all of these images were floating through the air in his head when it hit him, it hit him like a shopping basket in a parking lot, it hit him hard. He got this idea and he went running back down the mountain and gathered all of his troops together in the stores and said, "Guys, I know we talked about two options," he said, "but I have a third option. So the two options we discussed on Friday were either to stay alive and fight it out and die a long slow, bloody death or to close down on Monday morning."

He said, "I came up with a third option. Here's what we're going to do." He said, "We're going to change everything. We're just going to change all the rules, that's what we're going to do, we're going to change the playing field, and we're going to change our name to Trader Joe's. All of our employees, we're going to act like those old trading ships, that go around the world and buy and sell foods and groceries and items from all the different countries in the world. We're going to dress like Hawaiian shirts, and we're going to adopt a Tiki Polynesian theme in all of our stores."

And he said, "We're going to change our name to Trader Joe's, and we're going to completely go away from the variety store model and we're going to go into a Trader Joe model, and we're going to create our own model as we go." And that's what they did, they did it. So with the 17th store, which was going to become the 17th Pronto Market, that became the first Trader Joe's. And then one by one, he converted the old 16 stores, one by one, the old Pronto stores into Trader Joe's and that's how that part of the story happened.

Gennaro:

Yeah. And he managed eventually to buy out his first partner, which as you would account in the book actually inherited such an incredible piece of land in California that would eventually be Malibu in Los Angeles, so the whole story seems like a movie. Trader Joe went through a few phases that made the company evolve, this was not... The whole period for a little bit of context, we're in a time where there are not really private brands in the retail space, and we are in a time in which both radio and TV are actually gaining traction, and therefore they're becoming a sort of mass media, which for the first time enables companies to communicate at scale and produce a single message for many people, and gives the ability to whoever can leverage this message to build a brand which before was something that didn't exist.

What were those phases that Trader Joe went through and how did the company evolve throughout the years?

Patty Civalleri:

Oh, okay. Trader Joe's went through several phases, but as you said, radio and television in the '50s and '60s were really coming online strong. And most of the major brands owned a lot of the advertising space, which allowed them to grow to phenomenal, phenomenal brand sizes, just huge. Well, that was again a huge obstacle for Joe because he didn't have that kind of budget. So he had to come up with a philosophy of how can he compete with these giant grocery brands and product brands? How could he compete against them with no advertising budget? How could he be the little guy and how can he attract people and gain trust, to get people to come in his door rather than going into the large trusted brands on the corners, the large supermarkets that were popping up everywhere at the time and that was a huge question.

And what he realized very early on in the process was that he needed to come up with a strategy of differentiation. In other words, he thought, "People are not going to come into my store because I'm going to carry all the same products that the large supermarkets carry. People are going to come into my store because I'm different, but how can I take that concept and make it truly different?" And he came up with what he called his pillars of differentiation. And so this is the underlying philosophy that happened behind the three phases that you were talking about, so if you don't mind for one second, I'd like to go into those pillars of differentiation-

... that sort of underlies all the phases. He says, "Okay, how can you differentiate your products from somebody else? If I have to carry milk, how can my milk be different? Or if I have to carry eggs or cheese or bread, how can I make my products different to make people come into my store rather than go to the supermarket, the major brand supermarkets." So he came up with these pillars of differentiation, he decided that you can differentiate your products, assuming you're carrying similar lines of products, you can differentiate based on price, that's the most obvious one, you can just lower your price.

Well, that's all fine and good, but Joe didn't become known as the cheap store brand, the discount cheap store brand, he wanted to still be able to... He wanted customers, consumers to perceive a quality about him, so how could he lower his prices and still have quality? So his next area of differentiation is about packaging, you can change the packaging. And by changing packaging, it's not just about changing the labels which he did, but also by changing quantity. See back then most of the stores carried 50-pound bags of flour. Well, a lot of people at this point were moving into apartments, post World War II college graduates were moving into apartments, they weren't buying homes. So they didn't have room for things like 50-pound bag of potatoes and a 50-pound bag of flour and a 50-pound bag of rice, they needed to buy things in smaller quantities. So Joe got the idea of taking a lot of the staples that the grocery stores carried and creating small packages for them so that people would come back to his store often, but they were able to buy smaller more manageable quantities.

Another area is ingredients, so what if he was able to slightly change the ingredients of some of the products, maybe make them a little bit more wholesome, a little bit more natural. He had an advantage in that back in the '70s, '60s, and '70s, the big brands were touting science as being the reason why people should buy their products. And there were large companies like Monsanto and huge giant brands like Swanson frozen TV dinners, which were just horrible, my mother would never buy them, but these were the big brands. The Big Swanson frozen food brands, the Del Monte canned vegetable brands with hormones and preservatives, all of these big brands were scientifically created, and those in America at the time were considered the trusted brand.

And Joe was thinking, "No, what if I came up with a way to can corn without hormones and preservatives. And what if I came up with a way to flash freeze products so that they didn't have a lot of preservatives and would be just really disgusting foods in the freezer." And so over time, he came up with these, so again, his pillars of differentiation were pricing, packaging, ingredients, and of course uniqueness. And that's where he would send his buyers around the world to find you unique products that Americans had not seen yet, so those were Joe's pillars of differentiation, pricing, packaging, ingredients, uniqueness. Now talking about the three phases, the growth phases that he went through, he first went through something that he called his Good Time Charlie phase, which was the original phase of Trader Joe's.

And originally coming out of Pronto, he was thinking in terms of he'd like this to be where every man could go to the grocery store, where back then grocery stores were really for women, so he wanted to carry things that would attract men into the store. Things like girly magazines or bullets for guns, or cigarettes, whatever, things that guys would buy, in addition to all the groceries. And then the phase in the United States came in the late '60s and early '70s, we sort of call it the hippy-dippy period, where everybody went back... they started to realize they didn't want to eat these preserved foods, they didn't want to have hormones and chemicals in their foods, they felt it was important to go back to the earth.

And so going from the first phase, which Joe called his Good Time Charlie phase, that was the story that he wanted to attract men, it sort of evolved into the second phase, which he called his Whole earth Harry phase, and this was Joe's hippie-dippy phase. So Joe started growing squash and pumpkins in his backyard, and he started creating relationships with farmers around California. Now California is a very similar ecosystem to Italy, so California and Italy have a fresh farmed environments in common.

And California was bursting with freshness and fresh fruits and vegetables and meat and produce and dairy products that Americans weren't used to eating, they were used to buying the convenient frozen preserved foods from the big major "trusted brands." So Joe felt that no, no, no, no, he wanted to create what he called his Whole Earth Harry phase, which would introduce the public to much more natural brands and more fresh farm to table philosophy and products. At the time it didn't go well, most of America looked at this philosophy as being the hippy sandal-wearing store down on the corner, this Trader Joe's that never carried the big trust in brands. But Joe stuck to it, he was on the right track, slowly over time people started getting educated about what they were eating on the scientific side and started wanting to feed their family more natural foods, and that really did help Joe grow his Whole Earth Harry phase.

As he grew through the '70s, Joe sort of got older and sort of outgrew his own Whole Earth Harry phase and grew more into his business phase. Now, this is the phase that Joe really started taking a close look at the bottom line where every product on the shelf had to earn its own profit, each product on the shelf had to be profitable. He refused to carry products because the vendors were telling him that they were the big brands and they could dictate to him what to carry like grocery stores did. If he said, "Hey, I only want one product. I'm going to carry only one product. I'm not going to carry 30 products or 40 products that aren't profitable to me. I want every square inch on my shelves to be profitable."

And that's where he sharpened his pencil, and that's the phase of his store that he called Mac the Knife, it was a very aggressive business approach to groceries, now that he had defined his market, defined his customer base. Now his pencil was sharp, this was called Mac the Knife and that was his real sharp business phase of Trader Joe's.

Gennaro:

Wow. And this is so contemporary also because a few like a couple of key points based on what you said so far. First of all, of course, there was this evolution where Trader Joe's started to invest a lot on creating a new category of retail, which was completely opposite with what existed at the time where you had those huge brands, which were completely let's say artificial and they leveraged primarily mass media extremely well, and they had a huge budget and they can reach a lot of people. And then there was the Trader Joe side where Joe said, "Okay, I want to create something which is based on quality, where I'm going to be able to create my own also brands within my offering." And he actually started from a niche that eventually would end up becoming quite a huge market, which was what he called over educated and underpaid.

Can you tell us a little bit more about the target market of Trader Joe’s what Joe Coulombe called overeducated and underpaid?

Patty Civalleri:

Yes. Going back again to the early days, we were coming out of World War II, the United States had a veteran's plan where if you were a veteran, a military veteran in the United States, one of your benefits would be that you were able to get a college education, very, very inexpensively. And for the first time, the education level in the United States, if you look back to the 1930s during the Great Depression, the education, the number of people that were getting college degrees was very low, it was under 10%. And because of this what was called the GI Bill, the veterans were able and their families were able to get a much higher education and get college degrees. What this meant was now in the '60s, you now had 70%, 80% of Americans with the ability to get college degrees, which was it changed everything.

And it created a whole new brand of consumers as a direct result and these consumers because they were educated, they were getting better jobs, they were getting better pay, they were traveling now, it created the first line of travelers. During this period, Boeing, the airplane manufacturer, Boeing was releasing it's 747, and with that, they were severely dropping the price of international travel. Well, guess who was the first crowd to be able to step aboard the 747s to travel the world, it was these educated people. And Joe had a term for these people, he called them the over-educated and underpaid because all these people were getting an education, but the United States wasn't set up yet to accept... they didn't have a lot of high-paying jobs for educated people yet.

So you had all these people that could be orchestra conductors or college professors or teachers or executives, but they weren't getting paid a lot of money, but they had great taste, they were experimenters, they wanted to know more, they read about what people were eating and doing and how they were living in other parts of the world, they didn't want these preservatives that Americans were eating and all of this today we call junk food, they wanted getter foods, they had a better appetite.

Joe saw this group as a growing group that he identified as his overeducated and underpaid, and these were the people that Joe decided he wanted to create Trader Joe's for. He didn't care much about families that had kids, he didn't care much about pets, he didn't care much about anything. What he cared about is he wanted this educated group of people to be the ones that walk into his store, because they were dissatisfied with what they were getting in the major grocery brand stores on the corner and that was his market. And what a great choice, because what he was identifying was what we now call the middle class. Well, back then there was very little middle class, and as you know it was that burgeoning middle class that grew into a giant that was America in the 20th century, so he was right on when he saw that.

Gennaro:

Wow, so for a bit of context, as we said, the evolution of Trader Joe's was quite interesting because he eventually managed to actually target a market that initially was niche, which was the market of the overeducated and the underpaid, which as you explained, that this would become the U.S. middle class. But going forward what happened next? I think there is an interesting aspect actually, which is an evergreen aspect that I found in the book also as a digital entrepreneur. There's one thing that Trader Joe's used over the years to grow its own brand, which was the Fearless Flyer, which was sort of a publication or a newsletter if you wish that Trader Joe's was sending out to its audience.

What were some of the things and the main things that made Trader Joe's unique and differentiated on the market?

Patty Civalleri:

Oh gosh, those are some great stories. I'll tell you some of my favorites, how to differentiate, these are great examples when you have to carry something that somebody else is carrying, how to make it different. So eggs, we're going to take eggs because eggs are one of those items that are impossible to differentiate because an egg is an egg. But Joe being Joe, see Joe see the world differently, he had to still find a way to make an egg different. And of course, he did consider square eggs, but he couldn't get the chickens to cooperate. Hi there. And so he did consider square eggs. But what he did is he realized that at the time eggs were regulated by the government, by the dairy consortiums. And so being regulated meant that all stores had to sell eggs of a certain size, they had to be packaged in cartons a certain way, and they were priced at a certain price and that's what regulation is.

Well, Joe is thinking, how can I get out of that because my customers need me to carry eggs. So he found a farmer that had different eggs of all things, not square eggs, but eggs that were a different size of eggs. And because they were a different size, they were not regulated, they didn't have to be regulated. And there was not enough volume of these eggs to supply the entire grocery industry, but there was certainly plenty enough to provide for Trader Joe's. Well, guess what that allowed Joe to carry eggs differently. And the eggs, what was different is they were not what's called medium size eggs that the rest of the grocery industry was carrying, these were extra-large eggs. And Joe was able to negotiate such a price that he could sell extra-large eggs for the same price that the rest of the grocery industry was selling regular-sized eggs, or medium-sized eggs.

And that was enough to get moms to step foot in his door, but again, that was Joe thinking a little bit differently. Another area was cheese, his customers wanted cheese, everybody wants cheese, but again, the dairy industry had regulated cheese. So you would carry a cheddar cheese and maybe a Jack cheese, a Swiss cheese, but how do you make those different, when the dairy industry is telling you what cheese you can carry, how to package them, how to price them, where to get them from, et cetera. So again, Joe had to think of this differently, so he sent his buyer, Mr. Leroy Watson to Europe to go find cheese and Leroy found Brie in France and brought it back to the United States. And what they did is they negotiated Brie at such a wonderful price and it came by the trainloads out to California.

And Joe was able to sell Brie at the same price that the grocery stores were selling, well, it wasn't even cheese, it was called Velveeta and it was a processed cheese food, they couldn't actually call it cheese. Today Brie is such a loved brand and Trader Joe's became the biggest seller of Brie cheese. Another one of those stories, again, in the cheese category is Swiss cheese. Again, he was told how to carry it, how to package it, whatever, and he didn't want to have anything to do with that, so he sends Mr. Watson back to a Swiss cheese factory. And as the guy was cooking in this big vat of cheese, the heat is coming up from the middle of the bottom of the vet, so the middle cheese in the vet was bubbling, but around the edge it wasn't bubbling. And the man would take this bubbly cheese and he would pour it into a cold mold that would set the cheese quickly while the bubbles were still in the cheese, and that's why Swiss cheese has holes in it.

But Leroy says, "Gee, what about the cheese that's around the edge, what do you do with that?" And he says, "Well, we call it grade B cheese and we sell it to schools and anybody else that wants it." And Leroy said, "Is there anything wrong with the cheese?" And the man said, "No, it's perfectly good cheese, it just doesn't have air bubbles in it and Americans want bubbles in there's Swiss cheese." So Leroy said, "Would you mind if we bought it?" And so they sent this cheese back by the tray loads to California and Trader Joe's packaged it in small packages and they renamed it, they called it Trader Joe's Closed Eye Baby Swiss and it sold like crazy.

But these are ways that Joe could carry the same products as everybody else, but still, be different. And if your business is a product-driven business or a service-driven business, it doesn't matter, if you can think of ways to make each of your individual products or services slightly different than your competition, you will very quickly, if you can stick to that, that philosophy all by itself is what created Trader Joe's because of that differentiation. And then of course he private labeled, he private-labeled because as Joe used to say, you could hide a myriad of secrets behind a private label.

His competitors couldn't tell what the ingredients were, what the recipe was, his competitors couldn't tell where he bought the product from, who the vendors were. So therefore they couldn't tell him what price to put on his products, so he would have products that were equivalent, if not healthier than the grocery stores selling for less expensive and a much better variety. So he really liked the idea of private labeling because you can hide all of your company secrets behind that label.

Gennaro:

Yeah. That's the incredible aspect of that, he managed to actually build a different kind of business, and the way it was done at the time it was completely different. And there was a way to differentiate which was much easier, which was about distribution and lowering the price, but this is not what Trader Joe's did, he did quite the opposite. So they found ways to bring high-quality products on the U.S. market and make them very, very affordable, so there was a perspective that was not easy to build over the years, but Trader Joe's managed to do it. So those are some of the things and the stories that you told us that are very, very interesting. And there was also another aspect of Trader Joe's, which was intensive buying coupled with what he calls virtual distribution.

Can you tell us a little bit more about intensive buying and virtual distribution and how they shaped Trader Joe's?

Patty Civalleri:

Yes. Intensive buying was a philosophy that Joe created and it housed several aspects, the first one is what he called honor thy vendor. And by that, instead of treating vendors badly, many stores really do treat their vendors badly and they dictate everything to the poor vendor, who's trying to figure out how to get products and how to pay their own bills and pay their own employees. Joe felt the opposite, he felt that taking good care of your vendors, visiting them often was really a big deal. Visiting their plants, understanding their products really well. He felt that his buyers in the house should be extremely well paid, that his buyers shouldn't be there shopping on a computer for their products, they should be out in the field testing the product, discovering the products, traveling, finding, exploring, trying things new ways was very important to Joe, that his buyers were out in the field and he paid them well to travel around the world, to find new products, new foods and build new relationships with new vendors and build small companies.

Joe never liked doing business with large vendors and large companies, he felt that they were cold and impersonal, and if he couldn't look you in the eye and shake your hand, he wasn't interested in doing business with you. Joe loved finding small businesses, entrepreneurs, farmers that he could build new relationships with, but he cherished watching them grow because he felt they allowed him to experiment with his business and find new avenues of differentiation, and his gratitude was expressed by helping them grow. So he felt that level of intensive buying also intensive intervention, by intervention he wanted his chefs and his buyers let's say the product was, oh, I don't know, cereal, come up with some product. He wanted to know every ingredient that was in it, he wanted his chefs to make sure that every product was clean, every product was pure, clean, organic, no preservatives, no processing, but be able to shift things according to maybe how Californians like things or because everybody around the world has a different palette, Joe realized this, he wanted to be able to make sure that they can shift their ingredients just a little bit.

So he called that intensive participation in the manufacturing of the products and this created really great relationships because he was also providing new products for a lot of his vendors to sell to other stores and markets as well. In terms of this virtual distribution, the classic way that products came from manufacturers back then is that manufacturers would ship products via truck or train to individual stores, Joe did not find that to be a very practical way of distributing products, because there was a lot of trucks going into a lot of different directions. He also didn't want his store personnel to have to work with the vendors all day long, he wanted his store personnel to be dealing with the customers all day long, not the vendors.

So Joe changed things out, which made things a lot easier for the vendors and it gave Joe a lot of control over product distribution, and that was to create a centralized distribution, where he had one warehouse, where all of the goods came into one central warehouse and then Joe's own trucks, his own truckers would then go out on established routes to each of the stores bringing the trucks and this freed up his store personnel. But that also meant that the truck drivers they were also because they were part of Trader Joe's, they could go into the stores, they knew where to put things, they knew exactly where to put the pallets, where to put the cartons and the crates, that would make it easy for the store personnel to grab them and load them onto the shelves. So that was sort of a very fluid, very practical way to handle things within the store, and it freed up the store personnel to work directly with the customers, and that was kind of a really big deal to Joe.

Gennaro:

It's impressive because still today, one of the given-for-granted principles of business is that over time as you go through the process of vertical integration, you sort of create a monopoly in the market and this is towards in technology or digital business. And what happens is that you squeeze out your suppliers and this was not how Joe conducted business, this is impressive because it's so contemporary. And he was not looking to actually build a monopoly, he just wanted to build something extremely valuable for people, but he was also balancing out the value that he was creating for employees on the one side and for suppliers on the other side, which is something that today in a customer-obsessed digital business world is not very common, because as you scale you tend to focus too much on customers but then you squeeze out everyone else.

So it's very important to highlight that Joe was against management, at least for the sake of management he was pro-management if it could help to actually improve the product, but otherwise, he was not a fan of having too many layers of management between him and the main people and all the other stores. And also he didn't appreciate vertical integration also for the sake of it, because as you explain he added this concept of visual distribution that was one of the key elements of Trader Joe. So to get to the end of the story and thanks for taking the time you were very, very kind. Eventually, he sold the company.

Can you give us a little bit of context as to why he sold the company and whether he had some regrets?

Patty Civalleri:

Yes. Joe saw a couple of things coming at the time he saw a... and he was very good, he was very forward-thinking, it's almost like he could see the future at least for a couple of years, so he was always on trend and on the mark. But one of the things he saw was inflation coming and it was something that he felt was going to be almost catastrophic financially in size and he felt he needed help, that he couldn't do it alone, that he would not be able to handle alone. And that he had had Trader Joe's for 20 years, and he had had Pronto Markets for 10 beyond that, he was getting tired and he felt like it was time maybe he should move on a little bit and slow down and spend more time with his family.

So he found Aldi, Aldi Markets, he didn't sell to Aldi, he sold of the Albrecht family, which owned Aldi Markets, but he sold to the Albrecht family. And Joe ended up staying with Trader Joe's 10 years after the Albrechts purchased Trader Joe's. And he stayed on for another 10 years as president and general manager of the company and saw it through many more changes in evolution all the way through the '80s before he actually finally retired from Trader Joe's. He didn't write these memoirs until the 2000s, his journal. And as he looked back, he asked himself, he said people ask him all the time does he ever regret selling the store?

And he says, yes, looking back, he did regret it very much, but he didn't know how to see past that big financial hill that he saw in front of him at the time. Wow. He ended up on the board of directors for many large American national retailers and influenced the way they buy, the way they sell, the way they pay their employees, the way they handle distribution. And a lot of these companies to this day, still, when you walk through the stores you could see Joe's touches in their stores. Really neat.

Gennaro:

Nice. And I was looking at an article from last year just to see at which stage is Trader Joe's, and of course, it's very interesting that in 2020 most probably the company passed 16.5 billion in revenue by 2020.

Patty Civalleri:

Yes.

Gennaro:

Which is an incredible number. The scale of the company is incredible and is part of the Aldi Group, as we said, which in Europe is a giant that probably makes more than 100 billion per year or something-

Patty Civalleri:

Sure.

Gennaro:

... like that. But it was such a great story. Thanks again, for making sure that the book came to life and this is inspiring and so contemporary, so thanks for taking the time, Patty.

Patty Civalleri:

Oh, Gennaro, it's been my pleasure, and thank you so much for inviting me, this has-

Gennaro:

Absolutely.

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