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ABOUT THIS EPISODE

The quirky little grocery chain with California roots and German ownership has a lot to teach all of us about choice architecture, efficiency, frugality, collaboration, and team spirit.

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United States

TRANSCRIPT

00:00:08let's play shark tank today here the investors shark tank if you don't know is the TV show where people pitch business ideas to famous investors like the mark Cuban or Mister wonderful you're trying to side would you invest and that is Michael Roberta he's a business professor at
00:00:25Bryant university formerly of the Harvard Business School is one lecture he likes to start by giving his students this fictional shark tank pitch I'd like to open a new kind of grocery store %HESITATION we're not gonna have any branded items it's all gonna be private label we're gonna
00:00:41have a no television advertising and no social media whatsoever we're never gonna have anything on sale we're not going to accept coupons will have no loyalty card we won't have a circular that appears in the Sunday newspaper will have no self check out we won't have wide aisles
00:00:58are big parking lots %HESITATION would you invest in my company and of course you're supposed to think there is no way I'd invest in that company that sounds like the stupidest company ever and of course in a lot of consternation that's when we're burning reveals that not only
00:01:15does such a grocery store already exist but they're crushing the competition there at the top by a wide wide margin the sales per square footage estimates barring unbelievable means three and four times better than some of the leading players in the industry so it sounds like customers love
00:01:31this place but you might think a store like this would be brutal to work for and yet it's ranked among the hundred best American companies to work for so what's it called trader Joes trader Joes trader Joes trader Joes trader Joes I do love trader Joe's there is
00:01:51a good chance you have never shopped at trader Joe's maybe never even heard of it fewer than five hundred stores the big chains like Kroger and Albertsons have well over two thousand Walmart sells groceries in more than four thousand fits stores and as Michael Roberto told us trader
00:02:09Joe's doesn't advertise or do a lot of things the typical grocery store does that typical grocery store has a skew count %HESITATION skews stance for stock keeping units that's a number of different items carried a store what's been the grocery store or supermarket might have thirty five thousand
00:02:24skews right a tremendous selection of writing you go to trader Joe's and they only have say three thousand stock keeping units of the typical trader Joe's the grocery business is famous for low profit margins lots of competition in lately an even bigger problem for the first time in
00:02:41history American consumers are spending more money in restaurants and bars and grocery stores trader Joe's seems to be bucking this downward trend it doesn't just have customers it has fans the first thing I do it when I know I'm going somewhere is get on the internet and find
00:02:59where the closest trader Joe's is it's never been easy to run a grocery chain trader Joe's makes it look easy end weirdly fun I don't walk in the trader Joe's with the eight strong to do last it's not a chore when I walk in the trader Joe's it's
00:03:18a variety seeking exercise so how do they do it that's the question we'll try to answer today question made more difficult by the fact the trader Joe's is a fairly secretive company I think that some of the secrecy is probably due to who owns them so we put
00:03:35on our Freakonomics goggles in an attempt to reverse engineer the secrets of trader Joe's which it turns out are incredibly for economical things like choice architecture decision theory things like nudging and an embrace of experimentation in fact if Freakonomics were grocery store it might be a trader Joe's
00:03:58or at least try to be it's like a real life case study behavioral economics at work so here's the big question if trader Joe's is really so good should their philosophy be applied elsewhere to trader Joe's can't leave and say this but should trader Joe's be running America
00:04:33from stature and debonair productions this is Freakonomics radio the podcast that explores the hidden side of everything here's your host Stephen Upnor I first got interested in trader Joe's but ten years ago I've never been to one of their stores but I had a general impression cheap and
00:04:56cheerful relatively laid back and sort of groovy for grocery store apparently reflection of its Sir feet California roots also not aggressively health conscious but leaning in that direction and then I read the Wall Street journal article about a German grocery chain called all the that was ramping up
00:05:15its U. S. expansion all the is super cheap super generic grocery store ninety five percent of its products were house and it was beating even Walmart on price the article said the all the chain had two branches back in Germany separately owned by two wealthy brothers named Albrecht
00:05:35that one of those branches also owned trader Joe's I found this back surprising only because when I think of German business practices I don't think of a groovy earthy crunchy California surf the vibe but there it was I also learned that trader Joe's stores were much smaller than
00:05:53typical supermarkets that they had their own way of doing things and the places without trader Joes often started petitions to bring one to their town it was a sort of loony devotion usually reserved for sports teams or your favorite band kind of grocery store has a following like
00:06:09that and then when I learned that trader Joe's outsells all other grocery stores per square foot I really started paying attention then one opened up near my office here in New York started shopping there and for the most part loving it I realize it's not for everyone in
00:06:26fact part of their strategy is trying not to be for everyone but I did want to know the secret to their success we reached out to the trader Joe's headquarters in Monrovia California and were politely told to get lost as we mentioned earlier the company is known for
00:06:43its secrecy the two brothers who founded Ollie north and all the south in Germany you know have a record of that Michael Roberto again I was kind of the family heritage of really being pretty secretive about their business operations and really they weren't even you can even find
00:06:58photos of them like on the internet for years you know I mean they were very secretive it's a strange combination affirm that prides itself on user friendliness while also keeping its distance which means that a lot of what's known about it comes from industry analysts and other secondary
00:07:14source let's start here in the very beginning there really was a Joe behind trader Joe's Joe Cologne he opened the first store in nineteen sixty seven in Pasadena California he went with a south seas theme be cheap shots because Hawaiian shirts calling employees captains and crew members in
00:07:35nineteen seventy nine Cologne sold the chain to one of the secretive Albrecht brothers feel feel Albrecht was a recluse perhaps it was said because he had once been kidnapped and held for ransom for seventeen days in Germany Albrecht died in two thousand ten the trader Joe's remains notoriously
00:07:56press shy it's also a privately held company so no earnings calls with investment analysts no public proclamations of any sort really about how it does business and so to figure out how it works will rely on a few people who spent a lot of time thinking about trader
00:08:13Joe's including the business school professor Michael Roberto me very met correct also the Columbia business school professor sheen I Angar whose research specialty is particularly relevant here said been studying choice why do we want choice what are the things that affect how and what we choose and what
00:08:33are some things we can do to improve our choice making abilities will also talk to a trader Joe's super fan my name is Curtis are met I reside in Seward Alaska Seward by the way does not have a trader Joe's nor does the state of Alaska the closest
00:08:50store from discern his house two thousand two hundred ninety five miles away by car in Bellingham Washington to Serbia is the guy who we heard earlier say this the first thing I do it when I know I'm going somewhere is get on the internet and find where the
00:09:04clothes trader Joe's is and we'll hear from a spy in the house of trader Joe's a former advertising executive named Martin Gardner who became obsessed with the chain and that I just had this thought like you know what if I just went and worked there what what I
00:09:22learned about this company %HESITATION garner learned about the company is it just that everything trader Joe's does outside of exchanging food for money unorthodox for modern grocery store there's a lot to talk about the products of course the economics of the business model they're very homemade do it
00:09:46yourself a static including the hand painted murals that reflect the neighborhood of every store but let's start with one of the first things I noticed when I started shopping their employees yes they are friendly and helpful and didn't do the aspect that you're Joe's what they want as
00:10:03employees the aisles who have sampled the product you know the product you can say have you tried this wine or that she's what really caught my eye was the sheer number of employees there are so many of them if you go in during slow time you can easily
00:10:18be outnumbered by employees in there TJ's tee shirts and Hawaiian prints one reason is that rather than stocking shelves overnight like most grocery stores trader Joe's stocks them during business hours why it's mark Gardner learned when he went to work there the priority is to maximize customer interaction
00:10:39so they would tell us you're gonna be looking for customers who seem like they can't find something that they want or just seemed curious about something you're gonna initiate conversations with these people and that we want you to be friendly we want you to be shoddy we want
00:10:55you to be empathetic and more than anything else we want you to do what it takes to make customers feel appreciated and wanted so that explains why there's so many employees in the aisles but they're also a ton of employees staffing the checkout on one level this makes
00:11:13sense makes the long checkout line move fast and check go after all is where a store takes the customers money lesson number one in sales don't make it hard for people to give you their money but trader Joe's also has employees directing traffic at the checkout line one
00:11:32telling you which register to go to one pulling out of the big queue and into the final Q. and one or two holding up handmade signs marking the middle of the queue and the beginning that's three or four employees to do the job that most stores use zero
00:11:48employees to do maybe they use some software trader Joe's seems to be aggressively low tech no self checkout aisles no online ordering and pick up no customer loyalty programs and apparently trader Joe's gathers no significant data on customers at all in the modern business world this is heresy
00:12:11if you shop at whole foods which is owned by Amazon you can be sure the company has an algorithmic target on your back trader Joe's meanwhile really didn't matter if it was a little old lady that was looking for one five dollar bottle of wine and if if
00:12:28the wind shipment it just come in the back and I would go and look and look through a hundred different cases and see if I could find the one that she wanted and get her that one bottle of wine if I spent fifteen minutes doing that and that
00:12:41mean that customer really happy then the managers were happy and the store was happy so this is a riddle here's a company that doesn't harness big data and doesn't generally seem to embrace a lot of technology it employs a lot of real life people and pays them above
00:13:00the industry standard as of two thousand thirteen full time trader Joe's crew members about fifty thousand dollars a year while captains made more than a hundred thousand also with better than average benefits but this is also a company that sells its products at very low prices according to
00:13:17one of those investigations comparing basket of items at a bunch of different grocery stores this one was done in two thousand sixteen by the market watch website in the San Francisco Bay Area trader Joe's is easily the cheapest compared to say for a target and whole foods was
00:13:33thirty two percent cheaper than whole foods so how on earth can trader Joe's as Mike or bird %HESITATION told us taken the most revenue per square foot in the industry there at the top by a wide wide margin two thousand twelve analysis estimated the trader Joe's sells just
00:13:50over two thousand dollars of groceries per square foot whole foods about twelve hundred dollars Walmart six hundred dollars how is this happening we should probably start with the product trader Joe's cells here let me read off some of what they say are the most popular items dispatch cocked
00:14:10lemon Rosemary chicken and carne asada tend to go call Robbie salad bland and cold pressed matcha green tea lemonade sea salt and turban auto sugar chocolate almonds and go to John almond's Butterfield pretzels and five seed almond bars from the freezer section chicken tikka masala and gluten free
00:14:32cheese pizza the cauliflower crest these are the sort of foods that later Instagram accounts and Facebook pages that inspire fanatical devotion even among people who don't have a trader Joe's within twenty three hundred miles like Kirk to Serbia who works as a facilities manager for the National Park
00:14:52Service in Alaska whenever I leave the state I usually buy a couple hundred dollars worth of %HESITATION goods and I have an extra suitcase or duffel bag with me in my luggage to Serbia and his duffel bag have been all over I've been I know to some in
00:15:11Portland Oregon %HESITATION Reno Nevada all over southern California there's a number of them my wife is from Kentucky and so we've been to they have one in Louisville now as well as Indianapolis %HESITATION I got %HESITATION DC ever about once a year for work and I love to
00:15:32go to the trader Joe's in Georgetown what is it about trader Joe's foods that create such a lost let's put aside for a moment the question of how good the food is specially since taste is subjective at least to some degree but there are a few things to
00:15:51say about how trader Joe's is at least different from typical grocery store first there is a sense of globetrotting adventure the tikka masala carne asada go to John almonds that's why Sheena I anger thinks of shopping there as a variety seeking exercise all let's see what kind of
00:16:12candy bars half these have cool can't let's see what kind of deal they might have on wine %HESITATION cheeses are they're prepared food sections kind of cool what might they have that could add some more variety to the house they also offer a rather unsubtle blend of healthy
00:16:28released healthy seeming and hedonistic yes you can buy coal Robbie salad and cauliflower crust pizza but you've also got your peanut butter filled pretzels and sea salt and turbine auto sugar chocolate almonds speaking of which turban auto sugar also known as natural brown sugar still sugar why add
00:16:52the turbine nada I have a few guesses one to say you're just adding sugar you're already chocolate covered almonds doesn't sound very healthy but true but not a shocker intrigue possibly even sophisticated additionally trader Joe's seems to understand what everyone in sales understands especially real estate agents adjectives
00:17:18inexpensive and often useful specially when the actual virtues are limited charming house is often in fact small house trader Joe's reportedly puts a great deal of effort into scouting sourcing and producing food that their customers truly love but they also pay a lot of attention to package design
00:17:40and descriptive salesmanship their marketing director is called director of words and phrases and clauses published an old fashion news print below the fearless flyer with in depth descriptions of new products when you walk into a trader Joe's there's a playful five as if to say Hey you just
00:18:01buying food food is delicious so enjoy yourself there's also an artsy by a writer the five more so oddly enough than in a typical bookstore these details as casual as they might see him would also appear to be strategic in two thousand eleven interview with the LA times
00:18:23gio Cologne said that when he started trader Joe's in the nineteen sixties he was inspired by an article he read in Scientific American about the huge spike in Americans attending college I felt this newly educated class of people would want something different he recalled and that was the
00:18:40genesis of trader Joe's Lee choose Pasadena as the first store location because he said Pasadena is the epitome of a well educated town trader Joe's is for over educated and under paid people for all the classical musicians museum curators and %HESITATION journalists he said this suggests the from
00:19:04the very beginning trader Joe's understood cream skimming targeting a certain kind of customer and letting the rest slide by as for the underpaid part of colognes equation that would appear to be outdated an analysis by the research firm AG data from the trader Joe's stories today are located
00:19:23in counties with higher household median income than any other grocery chain including whole foods and about ten thousand dollars higher than the US median income but and this seems to be another key component of trader Joe's success they also value for gallery is Mike or bird %HESITATION found
00:19:41the usually set up shop in the cheaper parts of the expensive areas frankly and in many cases are in some old strip mall so they've save money on the real estate the real estate firm Zillow found homes near trader Joe's stores appreciate more quickly than homes in the
00:19:57city as a whole concluding that either trader Joe's is really good at picking areas that are on the rise or that they are in part causing the rise so how about a new store in Seward Alaska that is correct discern muse dream so I started a Facebook page
00:20:17called bring trader Joe's to Alaska this was in two thousand twelve I thought man these guys maybe they just don't know what they're missing yet %HESITATION if I can create this Facebook page and I can get people %HESITATION around the state to start liking it and sending trader
00:20:33Joe's %HESITATION an email to say Hey we would really love to see your store here then maybe trader Joe's will actually listen to us so after one of his out of town trader Joe's shopping binges when I come home with a suitcase full I like to throw it
00:20:48on the kitchen table and take a picture of it and put it out there hopefully to motivate people to send that email to trader Joe's and let them know we're we're out here his Facebook page got some traction about twelve hundred lakes I would say most of my
00:21:04friends in Seward are where that %HESITATION this is something that I would like to see happen and lest you think disturb me is one of those guys who makes a Facebook page for everything now %HESITATION some of my friends might say I'm fairly politically active but %HESITATION you
00:21:20know I honestly can't think of any other store that I might think to start a page to bring up here Seward Alaska does have a relatively high median household income but the population is a problem fewer than three thousand people Mr mia concedes that encourage a few hours
00:21:37away would be more sensible site for the first trader Joe's in Alaska and he'd happily make the drive he just really wants a trader Joe's every time I go to a trader Joe's in the lower forty eight and they always look sideways at me when I when I'm
00:21:50getting two to three hundred dollars worth of goods but then I tell them you know it's because we live in Alaska and we can't get you guys come up here and since I started this page in two thousand twelve and they've never responded to a single email %HESITATION
00:22:06it seems a little unlikely but hopefully they're going to listen to this interview and then all my percentage will go out coming up after the break we'll get into the economic details of trader Joe's success we'll hear how they flipped the script on customer relations just imagine if
00:22:27you would what if you changed the rules what if you guys were both on the same side and will answer the question we know you've been thinking what does trader Joe's have in common with Michelangelo coming up right after this as a jet car racer Alain Larson has
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00:24:45slash flagship for more information navy federal is insured by NCUA but all the mysteries concerning the success of trader Joe's here's what strikes me as the most interesting one their stores as we've learned are generally quite small roughly a third the size of a typical supermarket Michael Roberto
00:25:11again were all acclimated to every other supermarket looks the same minutes thirty five thousand items is seven million varieties of toothpaste and tomato sauce every other player has all those things trader Joe's they only have say three thousand stock keeping units of the typical trader Joes are four
00:25:29thousand most in one of our larger stores moreover as we've learned trader Joe's prices are relatively low and yet they also take in much higher revenues and stores that have more variety and more expensive items so how remember trader Joe's doesn't sell a lot of brand name groceries
00:25:51roughly eighty percent of their products are private label items also known as store brands what that means is trader Joe's has mitigated the power the suppliers might have over them so while they're not nearly as big as Kroger's they can get great purchasing power because they're condensing all
00:26:06they're buying into made a sauce to one vendor for a very limited number of items the end when you're selling something that you also manufacture or at least sourced directly you obviously stand make more money than if you're buying from a middle man that said even store branded
00:26:24products the taste good judging from the chain success they do in fact some trader Joe's branded items may taste identical to brand name foods why because it appears are identical an investigation by the food website eater using freedom of information act requests from the many trader Joe's items
00:26:48are in fact manufactured by the same companies that make the brand name versions of products you can buy many other grocery stores usually for significantly more money for instance those trader Joe's pita chips with sea salt they appear to be exactly the same as Stacy's simply naked pita
00:27:06chips trader Joe's gluten free chocolate chip cookies according to the investigation are quote nearly identical in taste packaging and ingredients to Tate's bake shop cookies nothing wrong with this since hardly unusual for brand name manufacturers to run a side business selling to private labels but most places that
00:27:26sell a lot of house brands are seen as down market discounters not up market superstars like trader Joe's so why are they different some of the credit must go to the clever packaging and the artful product descriptions but to get to the real secret of trader Joe's what
00:27:46I think might be the single biggest reason for its success you have to go back to Sheena I anger I have been at the Columbia business school since nineteen ninety eight and I started to study choice way back in nineteen ninety I angers PhD is in social psychology
00:28:09as an undergrad she double majored in psychology and economics she's born in Toronto to parents who emigrated from India her background she believes gave her a different perspective on decision making when she started working in the field and I got very interested in the kinds of questions that
00:28:26we would never ordinarily axed like well to all cultures C. choice in the same way we had assumed that it was an eight we had assumed that everybody saw it the same way that was somehow universal and I I think because I was an Asian American I didn't
00:28:43see it as that obvious she want to explore this question with kids from different backgrounds her theory with the Asian American kids and white American kids might think differently about choice before comparing the two groups she wanted to establish a baseline to confirm that for the wait kids
00:29:01choice indeed had a positive effect this baseline experiment turned out to be pretty interesting on its own here's how it worked she brought a bunch of three year olds one by one into a room full of choice half of them were allowed to choose any toy they could
00:29:19switch as they please the other half would be given just one toy with no option to switch I started by looking at white American kids because I had to first show that I'm capable of actually replicating what prior scientists would say what prior scientists would say and had
00:29:36been saying for decades is that choice is motivating that having choice or even the illusion of choice is associated with increased satisfaction and feeling more control over your life there for the kids who could choose their toy should be happier for having the options and more likely to
00:29:55play longer these ideas about choice were prominent not just in psychology they were baked into the foundation of economic thinking at the time that more choice is almost always better than less choice but when I anger started her study and brought in the kids who could choose from
00:30:12an entire room full of toys the white kids would come in and they would look at all these toys and stare outside the window and then when I would just give them like as they were really happy and they're playing and I was like wait this goes cold
00:30:28weekends when I'm supposed to find this something wrong here so I anger went back and examine some of those earlier studies about choice and decision making to realize that when those researchers described giving people lots of choice in reality that meant something like two to six options not
00:30:46a roomful like she had tried so I anger ran a different study this time limiting the number of choices and now she confirmed what her predecessors had found but she kept thinking about what happened in that first study with the room full of toys why would they staring
00:31:03out the window I don't get it I gave them really really cool toys I gave them all the most modern toys at the same time I was going to this upscale grocery store the store is called drinkers market it's a northern California institution I anger was at Stanford
00:31:21at the time that they had like two hundred and fifty different kinds of mustard and vinegar the name mazes and five hundred different kinds of fruits and vegetables and one hundred different kinds of olive oils and all my god it was amazing and I would go to all
00:31:34these little tasting sessions and try out like ten different kinds of vinegars and I also then thought to myself well how can you never buy any of those things you taste and I then went to the store manager and I asked him whether his model of offering people
00:31:51all this choice was working now he said he did and he pointed to the traffic and the store did have a lot of traffic but it was still an empirical question was it helping or was it not so I anger designed an experiment at drinkers to answer the
00:32:07question she set up a tasting booth for jams and she alternated the choice that sometimes the booth would feature six different jams sometimes twenty four and we look to two things first we looked at in which case did more people stop the samples and jam and we found
00:32:25that more people stopped when they were twenty four and display sixty percent stopped when they were twenty four on display verses when they were six on display only forty percent of the people stopped and then when people stopped we gave everybody a coupon giving them one dollar off
00:32:42if they bought a jar of jam in the back of the coupon was a code that told us if they saw six versus twenty four and what we found was that of the people who stopped when there were twenty foreign display only three percent of those coupons were
00:32:58reading where is of the people who stopped when they were six on display thirty percent of the coupons were repeat interesting a larger choice that generates more interest the smaller choice that generates more action Sheena I angers jam study very simple but very powerful would go on to
00:33:24become one the most famous studies in decision science because it illustrates what a lot of us feel when we enter for instance gigantic supermarket with the finding illustrated we said we want more choice presumably because of all the opportunities it provides us but when it comes down to
00:33:42making a choice we don't want that choice to be true harder to conflict ridden or too burdensome I anger followed up her jam study with a look at employee participation in retirement savings plans and essentially what we found was that the planes that offered their employees more options
00:34:02you saw real decrease in participation rates so if you had a plan that offered people less than five options on the likelihood to participate was roughly around seventy five percent and by the time you got to plans that offered people around sixty options now participation rates had dropped
00:34:21the below sixty percent this phenomenon has come to be called the paradox of choice but I anger doesn't think that's quite right it's not that more choices always worsen that less is always better she argues that choice is both a limiting and a powerful tool every context is
00:34:41different you can imagine the huge choice that is particularly welcome in the digital realm where you can search for exactly what you want with a few keystrokes assuming that is you know what you want but in the analog world in the world of the grocery store for instance
00:34:58the size of a choice set matters not just because of the cost of real estate and transportation storage in labor to stock the shelves but because of how we people make decisions envision a shelf in a typical supermarket is seven million varieties a toothpaste in a tomato sauce
00:35:17and a trader Joe's shelf it doesn't overwhelm me it usually gives me just a few choices per domain and having just a few choices per domain is more likely to lead to action imagine yourself standing in an aisle and trader Joe's you come across there five seed almond
00:35:37bars and your lizard brain says well there are no foresee Domon bars are sixty Domon bars I don't even know why I need seeds in my Hamann bars but sure I think I'll get some of those trader Joe's understands less is more it understands to use a word
00:35:56of the moment curation they don't overwhelm me with choice which is why you're more willing to examine each novel choice there is a story probably not true about Michelangelo someone supposedly asked him how difficult it had been to sculpt his famous David and he said it's easy just
00:36:19chip away the stone that doesn't look like David I am not saying trader Joe's is quite a Michelangelo's level but you get the idea there is great value in clearing away the clutter which is one reason Sheena I Angar personally loves shopping at trader Joe's it doesn't give
00:36:38me the boring stuff right it keeps me excited because I wanna see what and a half and what do they have that might get me thinking about something I don't ordinarily think about so they also maintain the mystery of novelty for me novelty is also a powerful tool
00:36:54in sales and this to trader Joe's understands it is famous for constantly introducing new products experimenting with them really which means old products have to go maybe they'll come back maybe they won't this strategy would appear to be risky normally in a typical grocery store if the item
00:37:13that you typically bought isn't there you're really passed right your Matt Michael Roberto again the trader Joe's customers have come to understand that that's part of the trade off you might see your peach mango salsa disappear but they'll be something new to try that you can offer at
00:37:28your next cocktail party and while people with I anger notes this strategy also gives every trip to trader Joe's a sense of a treasure hunt but that our appetite for novelty is domain specific I deliberately go into that venue that venue being trader Joe's because I want to
00:37:49learn about some choices I'm trying to update my brain on choices but when I go into my coffee shop in the morning I do not engage in any act of updating I don't wanna know I walk into my coffee shop every morning I don't even say anything they
00:38:09just bring me out exactly what they bring me every other day and it's made exactly the same and I have no interest in engaging in any kind of variety seek discover trader Joe's totally by accident that's mark Gardner again the former advertising executive who end up working at
00:38:33trader Joe's he was living in California at the time I thought it was a local store had a kind of a surf theme and I didn't know any better because they don't do any advertising I only was exposed to it doesn't happen to be in my neighborhood then
00:38:49Gardner moved to Kansas city yes and that's when I really learned about trader Joe's as a company because there was no trader Joe's but there were these rumors about we're gonna get a trader Joe's and there was so much excitement there's a Facebook page called bring trader Joe's
00:39:07to Kansas city that has five thousand friends as a former advertising guy Gardner was impressed I think the number one thing that struck me about trader Joe's is that they almost don't advertise at all they don't market they they have a a pretty good website now but but
00:39:28for years that a rudimentary website they had almost no social media presence today had almost no kind of public relations so they they didn't do a whole bunch of the things that I had spent my entire working life thinking well you know these are the things that you
00:39:47do when you build a brand so that was really striking to me and that I just had this thought like you know what if I went and worked there what what I learned about this company Gardner learned enough about the company by working there the wrote a book
00:40:04about it called build a brand like trader Joe's how did trader Joe's respond well as you know there's very very secretive company so they responded at exactly the way I expected which was with utter silence what initially impressed Gardner was how trader Joe's had grown so much without
00:40:25spending all the money that most firms spend on marketing advertising and so on but what impressed him once he got inside working as a crew member for twelve dollars an hour was the company's culture well before the new Kansas city store had opened on the first or second
00:40:41day of training a trader Joe's executive came in to meet with the roughly fifty new hires including Gardner proceedings began with that standard horrifying request to say your name and tell a story about yourself and I am not kidding you fifty hands went up it was like all
00:41:01these people were I to pick me I want to be the first I want to start I want to tell you my story and I looked around at that that group of hands going up and mine was up to you know because I am that because I love
00:41:14talking about myself but but most people don't at least not to a group of strangers and I thought wow this is not an ordinary group of people and what I realized pretty quickly is oh my god this is what they hire for they hire for this kind of
00:41:31extroverted naturally Chad econ a person as the training progressed these guys really weren't too worried about teaching me how to operate a grocery store right I mean there was some discussion about you know keeping the cold things cold and how important that is and %HESITATION and there was
00:41:52a little bit of discussion about this is how a cash register works about you know when you're bagging groceries this is how you do it there was some discussion of process but actually there was a lot of discussion of trader Joe's valley there was a tremendous amount of
00:42:12discussion about how are you going to be with the customers and then once the store opened no matter how crazy the store was no matter how much pressure there was to do something else if you were doing something for a customer that trumps everything seeing how trader Joe's
00:42:32encouraged its employees to interact with customers to partner up with them then just makes sense the gardener inspired him to wonder why this theoretically obvious approach is in fact quite rare consider he says standard trip to the department of motor vehicles but what happens when you go to
00:42:53the DMV what happens is you stand on one side of the counter and then there's your opponent on the other side of the counter and it's as if you're in sort of a game or a sport where you are trying to get your license plate or driver's license
00:43:09and they're going to say oh yeah but you don't have a an up to date inspection certificate for your cars so get out of here right it's like a volleyball game practically and it's and it's you against them now what if you change the rules and what he
00:43:24said you guys are both on the same side your goal is to get them that driver's license or that license plate that they need and so instead of just saying like you don't have the right inspection what if you told them look this is what's wrong with the
00:43:41certificate that you've got it's either out of date or it's from the wrong state or whatever and this is where you would go to get the inspection that you need right and let me look at all your other things while I've got you here and if there's anything
00:43:53else you need I'll tell you what you need so that the next time you come it's gonna be a slam dunk for you what if that was what if it wasn't adversarial what if you guys were both on the same side what if you guys were both on
00:44:15the same side good question don't you think look I'm not saying mark gardener's example is necessarily fair to the DMV nor am I saying that trader Joe's should win the Nobel Peace Prize but it does strike me that a lot of interactions in the modern world are set
00:44:33up to be more competitive than the need and the benefits of collaboration are often undervalued think back to an interview we did with Microsoft CEO Satya Nadella has been reversing Microsoft long standing policy of treating tech rivals like Google and apple as you were rivals and instead sometimes
00:44:56partnering with them nothing can be taken for granted that and there's no such thing as a perpetual motion machine what you have to do is be good at being able to refresh yourself at the crucial time so if you have the choice would you have trader Joe's run
00:45:17the department of motor vehicles and maybe even I'm not serious here except maybe I am would you have them run America release would you try to export some of their collaborative frugal don't take yourself so seriously methodologies Michael Roberto the business school professor whose analyze trader Joe's warns
00:45:40it's not so easy that would even be easy for another grocery store to replicate the trader Joe's experience to do what they do you can't just hire the same people they hire you have to emulate the private label strategy the real estate strategy the pricing the quirky culture
00:45:58and it's often the soft things not just the kind of people you hire but we train them and the culture you create and we can build a store that looks like a trader Joe's but when we have people walk in can have the same experience well that's very
00:46:11hard to replicate fair enough and again I don't mean to keep undue praise on a grocery chain just because they found a way to make their appealing food cheap and treat people pretty well along the way but I will say this we spend a lot of time on
00:46:28this show and in modern society at large pointing out problems and failures and sundry idiocy is it's nice once in awhile to come across an institution even if it's just a grocery store this seems to work well for several constituencies on several dimensions and to see what can
00:46:50be learned from it if you have an idea for a future episode about something else that's working well and what we can learn from it let us know widget we're at radio at Freakonomics dot com meanwhile coming up next time on Freakonomics radio this is one of the
00:47:08most influential feces in the social sciences but also one of the most controversial we take a look at the Protestant work ethic and what sort of effect religion has on people today people where religion is a bigger part of their life tend to drink less to fewer drugs
00:47:27%HESITATION it live longer before higher levels of happiness do less crime so lots of correlations correlations yes but causality that's next time on Freakonomics radio and if you're dying to learn a bit more about how trader Joe's works check out the episode the podcast household name did about
00:47:46two Buck Chuck the famous cheap wine beloved by trader Joe's fans you can find it where ever you get your podcasts again that's the household name podcasts Freakonomics radio is produced by stitcher and W. productions this episode was produced by Alvin Mel if our staff also includes housing
00:48:03Craig low Greg ribbon Harry Huggins and Zack the Penske our theme song as Mr fortune by the hitchhiker's all the other music was composed by we scare you can subscribe to Freakonomics radio on apple podcast store every get your podcast the entire archive is available on stitcher app
00:48:19or at Freakonomics dot com where we also publish transcripts and show notes and much more if you want the entire archive ad free plus lots of bonus episodes go to state your premium dot com slash Freakonomics we can also be found on Twitter Facebook and linked in or
00:48:36via email at radio at Freakonomics dot com Freakonomics radio also plays a most of your better NPR stations check your local station for details as always thanks for listening stitcher Hey this is Andreas Lenzi I host the longer shortest time Burr podcast all about the drama absurdities and
00:49:04surprises that happen when you're in a family like maybe you have a sister and you're a little too involved in her pregnancy listen it's my niece or nephew I will not have you eating nothing but little sample is or maybe you've been forced to compete for your mom's
00:49:20love and I was so afraid of the Mongols the mind is did not like maybe your kids won't stop impersonating a crow at three in the morning family filter is a comedy to be a parent in general that is all I hear every week on this subscribe to
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