tj's cafe extension of trader joe's

A Tastier Day At TJ’s Cafe

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Table of Contents

Executive Summary .............................................................................................................................. 3 Background ............................................................................................................................................................ 4

Introduction ....................................................................................................................................................... 4 External Environment ................................................................................................................................... 5 Industry Analysis ............................................................................................................................................. 6 Competitive Analysis ..................................................................................................................................... 7 Customer Analysis ....................................................................................................................................... 11 Identification of Needs .............................................................................................................................. 13

Corporate Research Assessment .................................................................................................. 14

Extension Objectives ......................................................................................................................... 17

Tactics and Strategies ....................................................................................................................... 17 Risk Assessment ................................................................................................................................. 19

Contingency Plan .......................................................................................................................................... 20 Financials .............................................................................................................................................. 20

Timeline ................................................................................................................................................ 22

Appendices ........................................................................................................................................... 23 Appendix A ...................................................................................................................................................... 23 Appendix B ...................................................................................................................................................... 24 Appendix C ...................................................................................................................................................... 25 Appendix D ...................................................................................................................................................... 26 Appendix E ...................................................................................................................................................... 28 Appendix F ....................................................................................................................................................... 30

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Executive Summary

Background Trader Joe’s specialty grocery stores are a privately held retail chain, established in 1967 by Joe Coulombe. With Joe came Hawaiian shirts, innovative packaging, and low-‐cost great-‐tasting food. Our unorthodox company culture not only promotes employee loyalty, but also captures customer favorability for the Trader Joe’s brand. We will continue to improve daily business practice operations in order to pass savings from efficient production to our customers. Ultimately, Trader Joe’s has spearheaded efforts to capture consumer power by building sustainable, direct relationships with our suppliers because Trader Joe’s mission isn’t to solely increase our bottom line, but to increase yours. Focus With 418 locations across the United States and annual revenues of $12 billion dollars, the Trader Joe’s grocery chain has received substantial market feedback to support further expansion. With the core values we take pride in, Trader Joe’s intends to attract new customers and recommit current fans to the company brand. Target Objectives Extend brand attributes, therefore increasing annual sales revenue in 6 years

• Establish TJ’s Cafe in 200 existing Trader Joe’s locations in year 1 • Establish TJ’s Cafe in all 418 Trader Joe’s locations in year 3 • Establish the first three TJ’s Cafe brick & mortar restaurants in Seattle, Portland, and San

Francisco in year 5 Concept We will achieve these goals by expanding the existing in-‐store sample kitchen to create a larger space for cooking. Now customers can shop at Trader Joe’s and order menu items all made using products found within our store. Customers can watch chefs prepare their order, showing our customers that they can purchase the same ingredients to prepare the same dishes at home. We will leverage the Trader Joe’s brand to attract customers to TJ’s Cafe, as it will represent an extension of the fun and healthy lifestyle our brand image portrays. By opening a small-‐service restaurant within the grocery store, TJ’s Cafe will serve as both a demonstration and sales platform for the Trader Joe’s brand. We will incorporate a rotating selection of menu options throughout the year to demonstrate how to create tasty dishes regardless of the produce available in any given season. Customers can now interact with our products, instead of being overwhelmed by various labels that mundanely sit on the shelves. TJ’s Cafe will show customers the value a product has to offer, while also benefitting Trader Joe’s overall by moving inventory or promoting new product lines. The Trader Joe’s brand has attracted a large and interactive customer base, capable of capitalizing on an investment for growth from the board of directors.

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Introduction

Our plan to open a Trader Joe’s Cafe comes from analyzing the existing industry of the cafe and coffee shop industry. The TJ’s Cafe business model is similar to small dining venues located inside grocery stores, like delis or Starbucks. Our mission to provide people with simple, yet delicious, recipes will add another asset to the Trader Joe’s brand. Our diverse menu will include organic teas, all natural fruit smoothies, paninis, flatbreads, yogurt, and fruit. The geographical scope of TJ’s Cafe will focus on cities with existing Trader Joe’s locations, meaning close to 400 unique cities will serve as perfect locations for a TJ’s Cafe. We plan to slowly incorporate TJ’s Cafe into all Trader Joe’s locations by the end of year three, along with building three brick-‐and-‐mortar locations by the end of year five. The products sold in Trader Joe’s range from fresh produce, breads, frozen foods, snacks, beverages, wines, and ethnic food choices. Our products are healthier by nature without the high prices of similar healthy grocery stores. To further separate our products and prices from competitors, our Trader Joe’s in-‐house brands account for 75% of sold products. We constantly bring in new products to match the variety-‐seeking needs of our customers. Experimenting with new recipes and ingredients is important to expand the Trader Joe’s product selection for our passionate following of customers. We hope to achieve multiple objectives by opening TJ’s Cafe, as we expect to increase Trader Joe’s Company’s sales revenue, increase customer engagement, and expand brand attributes. These objectives will be met by providing customers with a healthy dining venue, relaxing outdoor seating, as well as new recipe ideas to prepare everyday snacks and meals at home. The outdoor seating will make Trader Joe’s even more attractive to visit, while sharing recipes will lead to more positive interactions with customers. TJ’s Cafe will give the Trader Joe’s team opportunities to promote creativity, using our products in different ways to see what customers like to eat and subsequently purchase many times in the future. Through these efforts, we will be able to increase the amount of products being sold by expanding in store samples to promote new or less popular items. Since people tend to be variety seeking when faced with a decision to try something new, TJ’s Cafe will also give customers who don’t normally shop at Trader Joe’s a way to try store products through menu items. We hope to encourage first time visitors to become lifelong loyal members of the Trader Joe’s family.

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External Environment Key Trends Impacting the Industry TJ’s Cafe will compete in the cafe and coffee shop industry, targeting health conscious consumers. Trader Joe’s offers healthier foods compared to normal grocery stores, such as Safeway, Albertsons, or Costco. They carry fresh produce and products that use all natural ingredients at reasonable prices. Consumers have shifted from big-‐box stores to healthy grocery stores, creating demand for healthy restaurants and eating venues. Economic There are a number of economic variables that impact this industry. The United States’ birthrate has stagnated slightly and there are more people entering the workforce.1 Since food is a necessity, consumers will always use income on groceries. With higher incomes, consumers are price insensitive to slightly higher prices for healthier foods from places like Trader Joe’s. Seasonality also affects economic factors within the industry, as healthy cafes endorse the use of solely fresh produce when making food. Supplier power increases and prices can increase dramatically for out of season produce. Sociocultural As a whole, people are leaning towards adopting healthier lifestyles. This trend impacts the cafe industry because consumers will carefully choose the food they eat and the grocery stores they frequently purchase from. The media also plays a huge role in shaping ideas of living healthy lifestyles. With commercials about rapid weight loss and diet programs, American society praises athleticism and criticizes unhealthy habits. Nutrition stories about celebrities and public figures can sway individuals to shop at certain grocery stores and buy products they use.2 Technological With the immense amount of knowledge available through the Internet and smartphones, consumers can instantaneously find accurate information. Technology impacts the cafe industry because cafes need to research the health risks and benefits of each menu item offered to customers. Technology will also develop more efficient operations to run a cafe while reducing wasteful spending. Environmental Related to seasonality as an economic trend, climate change can negatively affect this industry. Climate change and unruly weather conditions can greatly reduce the amount of produce coming into the stores. A lack of quality would also decrease revenues, as products prices must

1 Stobbe, Mike. "U.S. Birth Rate Increases For First Time In 5 Years, Report Says." The Huffington

Post. The Associated Press, 29 May 2014. Web. <http://www.huffingtonpost.com /2014/05/29/us-‐birth-‐rate-‐increases_n_5413030.html>.

2 Blickley, Leigh. "How Celebrities Are Using Social Media In A More Positive & Passionate Way." The Huffington Post. N.p., 2 Apr. 2015. Web. <http://www.huffingtonpost.com/2015/04/02/celebrities-‐social-‐media-‐for-‐good_n_6979790.html>.

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fall to attract customers. A lack of fresh produce and food products in Trader Joe’s would deter people from going to Trader Joe’s Cafe, while creating a negative association with the brand image. Green consumption is an important trend that cafes have also adopted.3 Napkins and cups made from recycled materials and biodegradable utensils have become very common in cafes. Waste bins have also become more eco-‐friendly, allow customers to separate their trash from recyclables and compost. These measures help healthy grocery stores and cafes portray a more authentic image by showing customers that healthy eating intertwines with creating a healthy environment in which wasteful consumption is reduced. Industry Analysis Buyer Power In the healthy cafe industry, the consumers have medium to high buying power. When evaluating where they want to purchase their food, an ordinary consumer has several options for healthy foods. Their power is limited when it comes to cost. A consumer who wants to buy healthier food, but has a low budget, will have high switching costs. People will buy from cafes that fit their tastes and preferences, as well as their economic means.4 Supplier Power In the healthy cafe industry, suppliers play an important role in bringing inputs for the healthy food and drink menu items. In the case of Trader Joe’s, they already make and produce most of their products, so supplier power is lower because they aren’t as influential in the necessary operations for the supply chain. Opening up a Trader Joe’s Cafe will increase the amount of existing products coming into the store. The rise in purchased inventory will be used for the cafe or surplus units can stock shelves. Overall, supplier power is low to medium in the cafe industry.4 Threat of Entry In order to enter the cafe industry, there is moderate capital investment needed to open. This barrier of entry is the essential obstacle for new cafes to overcome, as a need for a premiere location and an affordable retail space will determine long-‐term success. With low to medium supplier power, as well as strong rivalry among existing competitors, new businesses need to distinctly position themselves from competitors. Developing relationships with suppliers will establish a cost-‐saving avenue for the cafe, rather than inconsistently purchasing products from multiple producers.5 Healthy foods already have higher costs due to higher quality, so opening a healthy cafe will require slightly more capital than low quality dining venues. The threat of entry into the healthy grocery store industry is medium.

3 Breene, Sophia. "News: New Report Names 10 Most Health-‐Conscious Cities." Greatist. N.p., 4 Dec. 2012. Web. <http://greatist.com/health/health-‐conscious-‐cities-‐120412> 4 "Catering to Health-‐Conscious Consumer Cravings." National Restaurant Association. N.p., n.d.

Web. <http://www.restaurant.org/Industry-‐Impact/Food-‐Healthy-‐Living/Trending-‐Healthy>. 5 "U.S. Grocery Shopping Trends 2014." Food Marketing Institute. Hartman Group, 2014. Web.

<http%3A%2F%2Fwww.fmi.org%2Fdocs%2Fdefault -‐source%2Fresearch%2Fpresentation.pdf%3Fsfvrsn%3D0>.

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Rivalry Among Existing Competitors There are several competitors in the healthy grocery/cafe industry. Market of Choice and Whole Foods are direct competitors, both following the organic and fresh grocery store model while also operating in-‐store cafes. Healthy cafe chains like Veggie Grill and Cafe Yumm and small cafes within local communities rival dining venues located inside a national grocery market chain. Overall, each healthy cafe sells similar products such as, sandwiches, flatbreads, smoothies, coffee, and teas. Customers have medium buying power in this industry, so each cafe must target a more specific demographic based on factors like income and lifestyle to better segment their customer base.6 Cafes need to differentiate themselves from each other by offering food and beverage options that are unique to their brand identity in order to capture customer loyalty. There is a high rivalry among existing competitors in the healthy cafe industry. Substitutes In the cafe industry, there are many substitutes because food can be bought in many different places. With respect to the healthy cafe industry, there are fewer substitutes because healthy food cafes are not as widespread as quick service restaurants. Supplement stores serve as an approach to maintaining a healthy diet, so consumers could pair unhealthy restaurant choices with the health benefits of vitamins. Substitutes are a low to medium force in this industry. Competitive Analysis Trader Joe’s Strategic Factors

Grocery Restaurants

• Grocery stores are more successful when they open up a deli, cafe, and or restaurant within the store7

• More food selection for customers to choose from and provides customers with a better selection of healthier foods

• TJ’s Cafe will allow customers to buy and eat food while they shop or after shopping • There is a constant need to intrigue customers by bringing in new foods and drinks by

using creative combinations of products and ingredients

6 Barclay, Eliza. "Grocery Stores Are Losing You. Here's How They Plan To Win You Back." The Salt. NPR, 30 Mar. 2015. Web.

<http://www.npr.org/sections/thesalt/2015/03/30/395774725/grocery-‐stores-‐are-‐losing-‐you-‐heres-‐how-‐they -‐plan-‐to-‐win-‐you-‐back>.

7 "U.S. Grocery Shopping Trends 2014." Food Marketing Institute. Hartman Group, 2014. Web. <http%3A%2F%2Fwww.fmi.org%2Fdocs%2Fdefault-‐source%2Fresearch%2Fpresentation.pdf%3Fsfvrsn%3D0>.

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Smaller Stores

• Trader Joe’s maximizes retail floor space, generating $1,750 per square foot (double Whole Foods)8

• Economies of scope allows for a inexpensive expansion of the existing kitchen • Smaller stores need to employ lean processes in order to minimize the amount of waste

from day to day business • Trader Joe’s would benefit from minimizing waste because as a healthier grocery store,

this coincides with the values of living a more environmentally friendly lifestyle

Catering to Millennials

• Customers don’t have to go to a restaurant after spending time grocery shopping 9f they can grab food from an in-‐store cafe

• Young and fun employees create an energetic shopping experience9 • Social media sweepstakes on Facebook, Twitter, and Instagram using #JoesJourney • There is an upward trend of Millennials preferring to eat at cafes and grabbing coffee

and tea for the social aspect of connecting with friends and family

Unique Culture

• Each grocery store has a unique culture relative to the surrounding environment and the customers who shop there9

• Creating a unique culture is important to creating loyalty and making customers want to return for great shopping experiences

• Trader Joe’s has a fun, family-‐oriented environment that allows adults to bring their children and shop together

• Trader Joe’s Cafe would further enhance this unique company culture because it will allow people to eat together in a warm environment

8 Kowitt, Beth. "Inside the Secret World of Trader Joe's." Fortune. N.p., 23 Aug. 2010. Web.

<http://archive.fortune.com/2010/08/20/news/companies/inside_trader_joes_full_version.fortune/index.htm>. 9 Anderson, George. "Why Are Trader Joe's Customers The Most Satisfied In America?" Forbes.

Forbes Magazine, 30 July 2013. Web. <http://www.forbes.com/sites/retailwire/2013/07/30/why-‐are-‐trader-‐joes-‐customers-‐the-‐most-‐satisfied-‐in-‐america/>.

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Competitors’ Key Advantages

Whole Foods10

• Highest quality natural and organic products available • Beautifully designed store interiors -‐ airy, open, bright, accessible, and welcoming • High Corporate Social Responsibility -‐ ranked as the third most green company by the

U.S. EPA and donates at least 5% of net profits to charitable organizations • National Affinity Program -‐ earn rewards through a loyalty card or the Whole Foods app • Customers can interact with innovative devices like Square cash registers and Apple Pay

Vons/Safeway11

• Large selection and big brand variety • National chain of stores, creating more brand recognition • High bargaining power with suppliers • Sufficient capital to offer lower prices

Local Grocery Chains11

• Increased opportunities for locally sourced products • More personal relationship with consumers and the community • Smaller number of stores -‐ easier to manage small scale operations, allowing more time

to create a close knit community to actively listen to customer input • Brand perception is more favorable, as customers are more willing to spend money at

retail stores that invest in the surrounding community • Store identity is relative to the community’s culture, hiring employees and managers

who are rooted in the local neighborhoods

10 "Core Values." Whole Foods Market. N.p., n.d. Web. <http://www.wholefoodsmarket

.com/mission-‐values/core-‐values>. 11 "U.S. Grocery Shopping Trends 2014." Food Marketing Institute. Hartman Group, 2014. Web.

<http%3A%2F%2Fwww.fmi.org%2Fdocs%2Fdefault-‐source%2Fresearch%2Fpresentation.pdf%3Fsfvrsn%3D0>.

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Indirect Competitors

Grocery Store Cafe Extensions12

• Delis and eateries in large grocery chains primarily serve consumers who shop in these stores and subsequently visit the in-‐store cafe

o Consumers rarely visit a deli or hot bar cafe inside a large grocery chain for a quick meal

• Healthy grocery store cafes attract people who want a healthy meal, even at higher prices than a quick service alternative

o Consumers are more likely to visit an in-‐store dining venue of a healthy grocery market

Vons/Safeway Starbucks

• Starbucks might attract and influence people to shop at Vons or Safeway because they

want to buy Starbucks specialty drinks food items • Starbucks in Safeway will pull customers away from shopping at Trader Joe’s and eating

at Trader Joe’s Cafe • Starbucks is an established brand that many people like to be associated with for their

coffee and specialty drink consuming habits

Local Cafes

• Consumers can shop at a grocery store without a cafe/deli and go to a cafe near the grocery store

• Small cafes’ ties with the local community may attract a consumer away from the convenience of ordering lunch from an eatery within the grocery store

• Local cafes have a more enjoyable and unique ambiance than eating inside a grocery store

12 "IT in the Supermarket." (2009): n. pag. Web. <https://kerryturner.files.wordpress.com/2009/05/ict_in_supermarkets.pdf>.

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Customer Analysis

Founder Joe Coulombe believes in giving his customers one thing, value. Trader Joe’s is committed to offering great everyday prices on great products, while sacrificing promotional “gimmicks” like sales discounts, customer clubs, or special credit cards13. Organic specialty brands have generally been most purchased by wealthy and sophisticated customer segments. However, Trader Joe’s special prices and an increase in customer purchasing power has made healthy products more affordable for average consumers. Grocery store chains are broken into three broad categories:

1. High-‐income consumers (specialty store shoppers) 2. Middle-‐income consumers (wholesale shoppers) 3. Low-‐income consumers (big box store shoppers)

With many grocery store competitors in the United States, consumers expect the best quality products and at the most reasonable prices possible. As each grocery store competes to offer the lowest prices, companies must promote other brand attributes to attract customers from competitors. Each income level customer segment has different preferences when deciding which grocery store to visit.

1. High-‐income consumers In the United States, high-‐income consumers ($100,000 and above) are insensitive to the prices of daily essential products. These consumers are more concerned of intangible grocery store attributes such as the store's atmosphere, fresh/organic products, and friendliness of staff members. Fresh and organic products are most important to these customers. Buying the healthiest products available are long-‐term investments for a customer and his/her family, so price has little to no effect on the demand of the high-‐income market segment.14 High-‐income consumers’ emphasis on quality over short-‐term cost savings can be attributed to their high levels of education, as most of these consumers have college degrees (APPENDIX A). With 56% of high-‐income consumers purchasing most of their groceries at health conscious grocery store chains, this customer segment has high purchasing power and will quickly switch brands for the best products available.14

2. Middle-‐income consumers Middle-‐income consumers have high purchasing power in buying groceries. With various stores to choose from, consumers can choose the grocery store that is most favorable to their income level. 51% of middle-‐income consumers purchase their groceries from traditional grocery chains like Vons/Safeway, Albertsons, and Ralphs.14 Middle-‐income consumers tend to favor lower priced products of slightly less quality instead of high quality products at premium prices.

13 Mallinger, Mark, and Gerry Rossy. "The Trader Joe's Experience." Graziadio Business

Review Graziadio School of Business and Management Pepperdine University RSS. N.p., 2007. Web. <http://gbr.pepperdine.edu/2010/08/the-‐trader-‐joes-‐experience/>.

14 "Price Is Important, But Shoppers Want More Than Low Prices From Grocers, According to AlixPartners Survey." Alix Partners. N.p., 08 Aug. 2011. Web.

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3. Low-‐income consumers Low-‐income consumers have the least amount of purchasing power, as location and prices are their most desired attributes. 47% of low-‐income consumers ranked Walmart either first, second, or third on their list of favorite places to shop for groceries. Target and Kroger followed behind as the next most popular stores, while healthy grocery chains like Whole Foods and Trader Joe’s had negligible impact on this market segment.14 Low-‐income consumers sacrifice most quality for the lowest grocery prices possible. Low-‐income consumers also do not have the power to compare prices from multiple stores, as a single multinational company may force competitors out of the market. Multiple traditional grocery stores usually don’t exist in lower income neighborhoods, much less a health conscious store that exerts a high-‐price perception to consumers. Corporations like Wal-‐Mart and Target become rooted as the only company within a small community to stave off competition.15 Size & Scope Trader Joe’s is a specialty brand, revolutionizing the grocery store business model by offering a variety of in-‐house branded products. Trader Joe’s earned total revenue of $12 billion last year from 418 locations across the United States. The total number of Trader Joe’s locations are typical for a healthy grocery chain, as Whole Foods has 410 locations across 42 states and a few in the United Kingdom/Canada. Trader Joe’s locations extend to 38 of the United States; however, half of all locations reside within the state of California, which is home to almost 40 million residents. Brand Positioning In the United States, women are more likely than men to purchase from Trader Joe’s markets, since women typically do the shopping for family households. Trader Joe’s positions it products towards household mothers, promoting high quality organic products as the perfect way to provide children with wholesome ingredients.15 Trader Joe’s also shares many recipes through website discussion forums, actively listening to customer input. Women and mothers pose questions and recommendations that help Trader Joe’s develop improved products. To compete within the densely concentrated grocery industry, Trader Joe’s must justify the value of specialty product pricing by clearly establishing brand values like “healthy,” “affordable, not cheap” and “long term benefits” within the minds of target customers. Currently, Trader Joe’s relies heavily on word-‐of-‐mouth advertising; however, a national investment into the TJ’s Cafe concept creates the following goals for Trader Joe’s Company:

1. Regain highest market share in the United States 2. Reconnect with American consumers interested in price rather than quality

15 Anderson, George. "Why Are Trader Joe's Customers The Most Satisfied In America?" Forbes.

Forbes Magazine, 30 July 2013. Web. <http://www.forbes.com/sites/retailwire/2013/07/30/ why-‐are-‐trader-‐joes-‐customers-‐the-‐most-‐satisfied-‐in-‐america/>.

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Identification of Unmet Needs or Opportunities When considering where to establish the first wave of TJ Café locations, we are targeting geographic areas with an upward trend of health conscious residents. Specifically identifying locations with a growing demand for healthy dining options will attract customers who are beginning a major lifestyle change. With an already successful and established brand name, opening TJ’s Cafe will be easier to increase customer awareness, unlike opening a new healthy cafe that customers have never interacted with. The locations we are targeting for year 1 will be determined by sending out a strategic questionnaire to local residents near Trader Joe’s locations across the country, one year prior to opening. This will allow us to attain valuable information for identifying Trader Joe’s locations that will yield the most success for a TJ’s Cafe. The questionnaire will be closed after 6 months so we can analyze the data and begin building TJ’s Cafes in the selected 200 cities. A similar process will be followed in subsequent years when expanding the TJ’s Cafe division to other locations For the three brick and mortar location we plan on opening in year 5, we initially plan to establish one each in Portland, Seattle, and San Francisco. These three major cities epitomize the clean eating and organic ingredient movement. We chose these locations based on our generalizations of trends within each city, while also observing how each city constantly advocates for a communal change towards adopting healthier lifestyles. The questionnaire we send out in the first 6 months of year 1 will contribute to validating or refuting our decision to establish restaurants in Portland, Seattle, and San Francisco. We will officially determine the locations for the brick and mortar locations by the end of year 3. After three years of operating TJ’s Cafes within Trader Joe’s stores, we will determine which cities offer the highest potential for a brick and mortar TJ’s Cafe location. However, operating the in-‐store TJ’s Cafe for three consecutive years might provide evidence to not open three brick and mortar locations at all. We plan on building small brick and mortar TJ’s Cafes by year 4 in the three major Pacific Northwest cities, unless the first three years supply compelling evidence to halt implementation. George Anderson, contributor to RetailWire and Forbes Magazine, states

“Interestingly, TJ’s was not in the top five in any of the following categories: convenient location, low prices, sales/promotions and one-‐stop shopping”

Flaws mentioned from the George Anderson excerpt hinder customers’ perception of the Trader Joe’s brand. Trader Joe’s Company can capitalize on these weaknesses to generate competitive opportunities. TJ’s Cafe will uplift our brand’s rank in both the convenient and one-‐stop shopping categories. If a consumer has to drive farther to reach a Trader Joe’s location, now a dining venue will be located inside, reducing the need to drive to another location to eat after grocery shopping. TJ’s Cafe will also promote products consumers aren’t aware of, which will increase the likelihood of Trader Joe’s customers finding all products they need at just one grocery store.

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Prominent product promotion will simultaneously elevate Trader Joe’s customer favorability in the “low prices” and “sales/promotions” categories. Trader Joe’s sets everyday low prices for high quality products without offering weekly discounts or exclusive promotions. Low to middle income customers are pulled away by competitors because of coupon advertisements and special customer club prices.16 TJ’s Cafe will promote featured products right in front of the cafe, encouraging customers to try a product by purchasing a menu item or trying a sample. A TJ’s Cafe chalkboard will draw attention to a boldly written price. This chalkboard will emphasize that Trader Joe’s has low prices, even though they aren’t prominently advertised on in-‐store signage or through television and radio commercials. Corporate Resource Assessment Strengths Analysis Trader Joe’s will leverage unique internal resources to successfully integrate TJ’s Cafe into stores around the nation. We have assessed the following benefits and weaknesses that contribute to the success of Trader Joe’s Company: Major Resource Groups

Marketing • Strength: Quality customer service and products increase word of mouth advertising • Strength: Any source of marketing typically promotes Trader Joe’s branded products • Weakness: Very little commercial advertising on radio/TV • Weakness: Most advertising is focused on high-‐end consumers

Operations

• Strength: The CEO talks about company values to employees of a new Trader Joe’s store • Strength: “Turnover among full-‐time crew is 4 percent yearly, substantially below that of

traditional supermarkets”17 • Strength: Trader Joe’s maximizes retail floor space, generating $1,750 per square foot • Weakness: The entry level “crew member” jobs are difficult because of the grueling

training process and workload

Financial Capital • Strength: Funding all of the cafes through Trader Joe’s headquarters, so no outside

investments will be needed for each cafe’s cost of $28,200 • Weakness: Some restrictions for the manager of the TJ’s Cafe division, as he/she must

abide by all directions of Trader Joe’s headquarters

16 Barclay, Eliza. "Grocery Stores Are Losing You. Here's How They Plan To Win You Back." The Salt.

NPR, 30 Mar. 2015. Web. <http://www.npr.org/sections/thesalt/2015/03/30/395774725/grocery-‐stores -‐are-‐losing-‐you-‐heres-‐how-‐they-‐plan-‐to-‐win-‐you-‐back>.

17 Mallinger, Mark, and Gerry Rossy. "The Trader Joe's Experience." Graziadio Business Review Graziadio School of Business and Management Pepperdine University RSS. N.p., 2007. Web. <http://gbr.pepperdine.edu/2010/08/the-‐trader-‐joes-‐experience/>.

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R&D • Strength: Trader Joe’s substantial investments into internal R&D

o This capability will give TJ’s Cafe direct access to differentiated products o TJ’s Cafe will receive opinions on products directly from customers. This type of

feedback will help Trader Joe’s Company focus R&D investments more efficiently • Weakness: Research and development of new food products have seasonal restrictions • Weakness: Directly liable for customers who experience ill-‐effects from Trader Joe’s

Company products

Human Resources • Strength: Gain and retain customers through highly engaging store employees • Strength: “Crew members handle a multitude of responsibilities including, cashier,

stocker, customer interface, and are evaluated on a quarterly basis”18 • Strength: Connection with kids (stickers, drawing contests, store scavenger hunts) • Weakness: Have to find employees who firmly believes in the Trader Joe’s culture

o Strict hiring guidelines can make it difficult to fill positions

Sales • Strength: With Trader Joe’s having a high volume of sales it will help Trader Joe’s Cafe

by bringing in customers to the store and being exposed to the cafe • Weakness: Price perception is “expensive” • Weakness: Smaller scale inventory warehouse compared to traditional groceries

o If shelf and stockroom runs out of products, TJ’s Cafe can’t offer a menu item until a new shipment comes in (up to a week of waiting time)

Information Systems

• Strength: Trader Joe’s does not share customer information/demographics with the public

o Strength: Trader Joe’s extensive database has information on customers of each unique city where a store is located. TJ’s Cafe has knowledge of food preferences to create a menu that best fits each specific location

• Strength: This expansive information system teaches us efficiency and cost effectiveness for distribution, stock control, pricing, and control systems such as refrigeration19

• Weakness: No customer feedback page on Trader Joe’s website, making it difficult to improve processes that customers actually want to see changed

Lastly, TJ’s Cafe is difficult to imitate for many of Trader Joe’s competitors. TJ’s Cafe will prepare menu items with Trader Joe’s branded products, which consumers already perceive as healthy and nutritious. Other grocery stores would have to overhaul their existing business models to 18 Mallinger, Mark, and Gerry Rossy. "The Trader Joe's Experience." Graziadio Business


19 "IT in the Supermarket." (2009): n. pag. Web. <https://kerryturner.files.wordpress.com /2009/05/ict_in_supermarkets.pdf>.

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create self-‐branded products. While R&D for competitors would be extremely costly, grocery markets would also have to fundamentally change the customer base perception of the brand identity. Most of these support activities within the value chain exemplify the importance of having a well-‐structured network of interconnected activities. Having differentiated internal capabilities will allow Trader Joe’s to be dynamic, creating market changes to sustain advantage over competitors. Our assessment provides sufficient evidence to move forward with implementation of the TJ’s Cafe division, utilizing the current assets and advantages of Trader Joe’s Company.

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Extension Objectives Overall Goal Increase total annual sales revenue in 6 years Goal #1

• Establish TJ’s Cafe in 200 existing Trader Joe’s locations in year 1. Goal #2

• Establish TJ’s Cafe in all 418 Trader Joe’s locations in year 3. Goal #3

• Establish first three TJ’s Cafe brick & mortar restaurants in Seattle, Portland, and San Francisco in year 5.

Tactics and Strategies To achieve these goals, our action plan will include both year long and seasonal strategies. The TJ’s Cafe strategies function as opportunities for visitors to enjoy a healthy meal, all while discovering new products or lifelong favorite recipes. These strategies align with our main objective, as customers will consistently return to Trader Joe’s throughout their lives for their favorite ingredients. Year Long Strategy In-‐Store Dining Our products may come in a box or a bag, but customers can still make amazing meals without investing too much time or money. TJ’s Cafe will prove it.

• Customers can enjoy a healthy meal before, after, or even while shopping • Tables for eating and relaxing will be located outside of the store to minimize use of

retail floor space, potentially attracting visitors intrigued by TJ Cafe’s casual ambiance Product Placement TJ’s Cafe doesn’t only extend the brand image into the restaurant industry; it will serve as additional avenue to connect customers with our products, creating renewed interest in the Trader Joe’s brand.

• The ingredients and products used will be listed in each dish’s short menu description • Products used to make the featured menu items of the week/month will sit on the

ordering counter in a prominent promotion position • Products Trader Joe’s wants to sell more of will be prepared for sampling

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Adventure (Loyalty) Program! Trader Joe’s believes in exploring culinary cultures from around the world, as our menu items will reflect this belief. Now customers can try tasting unique dishes throughout the year.

• Customers can present their TJ’s Cafe hole-‐punch card after purchasing a menu item that originates from a list of various countries

• After customers order items with flavors from 10 different countries, they are entitled to a free appetizer (APPENDIX C)

• TJ’s Cafe visitors can also join #JoesJourney on social media, sharing their favorite menu item recipes to be entered into contests for Trader Joe’s prizes

Seasonal Strategy Rotating Menu Selection Trader Joe’s wide-‐selection of products offers customers an endless number of possible recipes.

• TJ’s Cafe will host a constantly changing menu that uses different in-‐store ingredients to make a variety of dishes (APPENDIX D)

• We’ll show visitors that Trader Joe’s offers exciting, fresh products throughout the year Holiday Specials Menu items and samples of holiday themed meals will be prepared for visitors.

• Holidays from all cultures, including: Hanukkah, Chinese New Year, and Dia de los Muertos (APPENDIX D)

• Increases liquidity of inventory, as a more diverse spectrum of customers will be interested in buying products of other cultures

Community Outreach We believe everyone deserves healthy meals. TJ’s Cafe will host events to feed the less fortunate.

• Use TJ’s Cafe recipes and ingredients to serve meals throughout the year • Encourage Trader Joe’s customers to donate canned/boxed foods for a discount on their

next TJ’s Cafe order

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Risk Assessment Every investor wants opportunities with low risks and high returns. We believe TJ’s Cafe will yield these results, as we will focus our efforts on three major risks:

• First, we will assess the strengths of competitors. TJ’s Cafe will be similar to the Starbucks’ locations inside grocery stores; however, Starbucks wide brand presence attracts many consumers to the grocery store. This will pose a threat to TJ’s Cafe in the short-‐term future as TJ’s Cafe attempts to gain customer awareness by establishing a foothold in the market. We will create buzz through our constantly changing menu food and drinks, adding new items every quarter. One goal for TJ’s Cafe is to emphasize our belief in the farm to table movement, only using ingredients that are in season. The TJ’s Cafe menu will change dramatically depending on the season and the geographic region. Our constantly rotating menu selection might be risky in retaining customers who are averse to change and only want the same menu item every visit. If there is high demand to make a permanent item on the menu, TJ’s Cafe will evaluate the capability of providing those accommodations to customers. We will also have special flavored drinks and dishes for the holidays, such as Thanksgiving and Christmas. TJ’s Cafe is characterized by healthy food, so we want to make the best foods for our customers by using quality ingredients that are optimal for each season. By incorporating seasonality into our menu, we will attract more business to TJ’s Cafe while initiating positive change within the culinary community in promoting the farm to table lifestyle.

• Pricing is another risk for TJ’s Cafe. In Eugene, there are many cafes that operate in a similar way to TJ’s Cafe and have relatively low prices. Trader Joe’s provides healthy food that is slightly more expensive than average, so the degree of quality we offer reflects the value that customers perceive in our products’ price. To combat perception of high prices detracting potential customers from TJ’s Cafe, we have decided to offer discounts for customers. We also offer free Wi-‐Fi, newspapers, and magazines for customers so that they can enjoy their time at TJ’s Cafe.

• The last risk for TJ’s Cafe is location and floor space. Our plan is find a small area in

existing Trader Joe’s stores to open up the cafes. Giving customers a comfortable environment is vital, so we intend to design an efficient and feasible way to separate the market from the cafe kitchen and register area. If we don’t create a perfect design initially, we won’t have many opportunities to experiment and modify the store’s layout without annoying customers. To regulate flow and spacing of the store, customers will not eat at tables inside. Customers can eat small menu items while they are shopping and they can take menu items to go, for dining at home or at the Trader Joe’s patio outside of the store.

Our goal is to convince customers that TJ’s Cafe offers the best quality food, atmosphere, and service. We aim to be the only cafe that satisfies customers’ needs of providing healthy food and high quality products. TJ’s Cafe has the potential to be successful in the future if these risks are evaluated with effective strategic implementation.

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Contingency Plan With any new venture, evaluating the possibility of failure is critical prior to launching. Trader Joe’s Company takes into account this possibility without ignoring any information that goes against our management’s beliefs. Since we are expanding the already existing kitchen, it can be shut down or used for another purpose if TJ’s Cafe is not as successful as our forecasts predict. The kitchen’s primary asset that does not have a high level of liquidity is the oven. Before buying ovens for each TJ’s Cafe, Trader Joe’s Company can first assess consumer demand for TJ’s Cafe menu items. If demand for TJ’s Cafe exceeds the existing oven’s capable production output, then a new oven can be purchased. This will identify consumer demand within each unique city a TJ’s Cafe is located, while decreasing Trader Joe’s Company’s risk of investing into an excessive number of ovens. Secondly, to avoid unnecessary and risky investments into an oven, Trader Joe’s Company can purchase a second oven for Trader Joe’s stores that have an existing oven nearing the end of its product life cycle. This strategy offers an ideal situation for Trader Joe’s. If both ovens are needed to satisfy TJ’s Cafe’s demand, then installing a second investment is essential to quickly fulfill customer orders. If no demand exists, the newest oven will immediately replace the aging equipment when it becomes dysfunctional, mitigating the risk of random malfunction during store hours. Financials Expected Revenues Based on our research of the industry average revenues and the US market size, we have determined that the revenues for all TJ’s Café location combined would start at $80,350,000 for the first year of sales. These revenues include food and drink. For menu items, the average food price is $7 and $5 for drinks. In the first year, we predict our drink sales to accumulate $24,100,000 in revenue and food sales $56,250,000. Due to the seasonality of TJ’s Cafe, we predict a variable growth pattern for revenues. We plan that our revenue will grow by 10% per year. During holidays, TJ’s Cafe will experience a sales peak because of our special menu, exciting customers to taste new flavors and to purchase large quantities of product for a family gathering. In the first year, we will establish 200 TJ’s Cafes, and in the third year we plan on opening 418 TJ’s Cafes. In the third year, will see the obvious growth and we plan that we can increase to $194,447,000 for the total sales. In year 5, we plan the open three small brick and mortar restaurants in Seattle, Portland, and San Francisco. In this year, our net income will have a small increase, because we must spend more money on the rent and remodeling of each restaurant. In year 5, we expect total sales of $226,686,285. This number accounts for 418 TJ’s cafe and 3 TJ’s Cafe restaurants. For the 418 TJ’s Cafes, total sales will account for $224,586,585 of total sales and the 3 restaurants will generate $2,100,000 (APPENDIX E).

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Cost of Goods Sold Our cost of goods sold will vary depending on the type of products we sell. We divided our products into two major categories: drinks and food. On average, we expect that approximately 60% of our revenues will cover the costs of total product sold. Start-‐Up Cost To start TJ’s Cafe, we will be using the bootstrap method of financing. We do not require a substantial investment like other new restaurants because we only need some tables, chairs, and a minor expansion of an already existing kitchen. The largest startup cost, apart from working capital, will be the kitchen expansion. TJ’s Cafe will also purchase small coffee machines, kitchenware, and tableware. The total estimated cost for Trader Joe’s Company is $8,000,000, or $40,000 for each of the 200 TJ’s Cafe locations in the first year. Estimated startup costs are $5,640,000, but this number can be broken into 6 different areas: legal, equipment, renovation, licenses, insurance, and furniture. From year 1 to year 4, TJ’s Cafe will not pay rent since it is located inside of the grocery store. Rent expense is accounted for in year 5 when TJ’s Cafe becomes a small brick and mortar operation. For initial start-‐up and year 3, the income statement outlines money spent on remodeling, furniture, business licenses, and equipment. In year 2 and 4, we don’t open new TJ’s Cafe locations, so we will not be spending money. In year 5, we need to invest capital into three restaurant locations, primarily to pay rent, remodeling, employee wages, and inventory. In year 4, our net income increases to $98,246,429, and that means each TJ’s Cafe will have a $235,000 net income (APPENDIX E). Break-‐Even Analysis Analyzing our forecasted cash flow and income, we won’t be able to turn a profit in the first six months of business. After one whole year, TJ’s Cafe revenues will exceed costs, leading us to recognize that a break-‐even after just one year is unlikely, though highly encouraging for future years. In year two, we will see a large increase in profits and almost assuredly break-‐even if our predictions are not met in the first year. In year three, we will have larger profits and will have passed our break-‐even point. Prospects Given the numbers previously discussed, the forecasts for TJ’s Cafe indicates that it is a valuable investment to pursue. We expect revenues to continue improving in the future because of current and future market trends towards healthier lifestyles. Advocacy from government officials, athletic institutions, and various media outlets (blogging, health clubs) will continue society’s shift towards healthier restaurants and grocery products. Everyone wants to be healthy, but they may not have the resources to develop a nutritious and wholesome diet. TJ’s Cafe and Trader Joe’s intends to give individuals some of those resources, through educating consumers on healthy habits and by providing affordable prices on the best high quality organic products.

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Timeline for TJ’s Cafe Extension Prior to Year 1

• Email questionnaire to residents who receive the Trader Joe’s paper/electronic newsletter one year before building first TJ’s Cafe

• Evaluate results of customer surveys to establish first 200 TJ Cafe locations in cities with the most demand

• Expand 200 Trader Joe’s stores with TJ’s Cafe equipment, employees, etc. 6 months prior to year 1

Year 1

• Build menus specific to each TJ’s Cafe (products available, customer demographics) • Open first 200 TJ’s Cafe in existing Trader Joe’s (locations dependent on survey) • Experiment with product placement techniques around the cafe area • Implement first social media campaign with #JoesJourney, Award prizes at year-‐end

Year 2

• Evaluate success of first 200 TJ’s Cafes to determine if expansion to remaining Trader Joe’s locations has high potential

• Evaluate increase/decrease in product sales connected to TJ’s Cafe product promotion • Continue operations of first 200 TJ’s Cafe locations and collect customer feedback

Years 3 -‐ 4

• Establish TJ’s Cafe in all 418 Trader Joe’s locations • Unified Adventure Loyalty Program and Social Media Campaign with all TJ’s Cafes • Send out questionnaires midway through Year 3 to find city with greatest demand for a

TJ’s Cafe brick and mortar restaurant • Beginning of Year 4, build/lease three brick mortar locations in Portland, San Francisco,

and Seattle (unless questionnaires provide substantial evidence for other cities)

Year 5 • Open first three TJ’s Cafe brick and mortar locations • Evaluate TJ’s Cafe financial statements at year-‐end to measure strengths/weaknesses

after five years of operation

Post Five-‐Year Plan • Post-‐Communications: Send out mail/electronic newsletters thanking customers for

their support of TJ’s Cafe • Post-‐Strategy/Tactics: Analyze the change in sales revenue of Trader Joe’s Company

because of the TJ’s Cafe extension and observe if overall goal was achieved

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APPENDIX A: Competitive Analysis Exhibit 1: Grocery Store customers and education

The above image illustrates how specialized grocery stores are attracting “shoppers with college degrees and higher income” so TJ’s Cafe will most likely attract a similar clientele.

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APPENDIX B: Unmet needs and opportunities Exhibit 2: Sample Questionnaire to local residents in a Trader Joe’s city

the above image represents a few questions we would send to residents through email or mail. Customers who subscribe to the Trader Joe’s mailed and online newsletters will receive this survey. Other local residents can also take the survey if they’d like.

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APPENDIX C: Year Long Strategies Exhibit 3: “Adventure Loyalty Program!” Hole-‐Punch Card

This is a mockup of a TJ’s Cafe punch card to earn a free menu item after collecting 10 stamps. Each stamp must come from a menu item that originates from another country’s culinary culture

Exhibit 4: TJ’s Cafe creativity and menu development

These are some of the dishes that TJ’s Cafe will experiment with for new additions to the constantly rotating menu. All of these recipes will use products that are available to store visitors, meaning any of the recipes from the test kitchen can be replicated at home for you and your family to enjoy!

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APPENDIX D: Seasonal Strategies

Exhibit 5: Rotating Menu

Menu items are not permanently available to order, as TJ’s Cafe wants to show consumers how they can make great recipes no matter what season it is

Exhibit 6: Featured Recipes

TJ’s Cafe will promote recipes that use products Trader Joe’s wants to sell more of

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Exhibit 7: Holiday Specials

These images are examples of holiday themes that Trader Joe’s will adopt throughout the year. The above products will be offered for a limited time and in-‐store signage will promote TJ Cafe’s special holiday menu.

Exhibit 8: The Power of Chalk Chalk signs have always been unique to Trader Joe’s. Chalk is fun, versatile, and brings out the child in all of us. Chalk signs will be used in and out of the store to promote TJ’s Cafe seasonal specials and new menu items

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APPENDIX E: Financial Projections

Exhibit 9: Income Statement

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Exhibit 10: Balance Sheet

Exhibit 11: Cash Flow

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APPENDIX F: Works Cited Anderson, George. "Why Are Trader Joe's Customers The Most Satisfied In America?" Forbes.

Forbes Magazine, 30 July 2013. Web. <http://www.forbes.com/sites/retailwire/2013/07/30/ why-‐are-‐trader-‐joes-‐customers-‐the-‐most-‐satisfied-‐in-‐america/>.

Barclay, Eliza. "Grocery Stores Are Losing You. Here's How They Plan To Win You Back." The Salt. NPR, 30 Mar. 2015. Web. <http://www.npr.org/sections/thesalt/2015/03/30/395774725/grocery-‐stores-‐are-‐losing-‐you-‐heres-‐how-‐they-‐plan-‐to-‐win-‐you-‐back>.

Blickley, Leigh. "How Celebrities Are Using Social Media In A More Positive & Passionate Way."

The Huffington Post. N.p., 2 Apr. 2015. Web. <http://www.huffingtonpost.com/2015/04/02/celebrities-‐social-‐media-‐for-‐good_n_6979790.html>.

Breene, Sophia. "News: New Report Names 10 Most Health-‐Conscious Cities." Greatist. N.p., 4 Dec. 2012. Web. <http://greatist.com/health/health-‐conscious-‐cities-‐120412>.

"Catering to Health-‐Conscious Consumer Cravings." National Restaurant Association. N.p., n.d.

Web. <http://www.restaurant.org/Industry-‐Impact/Food-‐Healthy-‐Living/Trending-‐Healthy>. "Core Values." Whole Foods Market. N.p., n.d. Web. <http://www.wholefoodsmarket

.com/mission-‐values/core-‐values>. "IT in the Supermarket." (2009): n. pag. Web. <https://kerryturner.files.wordpress.com

/2009/05/ict_in_supermarkets.pdf>. Kowitt, Beth. "Inside the Secret World of Trader Joe's." Fortune. N.p., 23 Aug. 2010. Web.

<http://archive.fortune.com/2010/08/20/news/companies/inside_trader_joes_full_version.fortune/index.htm>.

Mallinger, Mark, and Gerry Rossy. "The Trader Joe's Experience." Graziadio Business


"Price Is Important, But Shoppers Want More Than Low Prices From Grocers, According

to AlixPartners Survey." Alix Partners. N.p., 08 Aug. 2011. Web. <http://www.alixpartners.com/en/MediaCenter/PressReleases/tabid/821/articleType/A rticleView/articleId/143/Price-‐is-‐Important-‐But-‐Shoppers-‐Want-‐More-‐Than-‐Low-‐Prices-‐ From-‐Grocers-‐According-‐to-‐AlixPartners-‐Survey.aspx#sthash.kxTrwowf.dpbs>.

Stobbe, Mike. "U.S. Birth Rate Increases For First Time In 5 Years, Report Says." The Huffington

Post. The Associated Press, 29 May 2014. Web. <http://www.huffingtonpost.com /2014/05/29/us-‐birth-‐rate-‐increases_n_5413030.html>.

"U.S. Grocery Shopping Trends 2014." Food Marketing Institute. Hartman Group, 2014.

Web.<http%3A%2F%2Fwww.fmi.org%2Fdocs%2Fdefaultsource%2Fresearch %2Fpresentation.pdf%3Fsfvrsn%3D0>.

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