Trader Joe’s risks outgrowing niche

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Carts are lined up at a Trader Joe’s store in La Crescenta, Calif., last week before it closed.
(Full-size photo)

LOS ANGELES – In the foothills of La Crescenta, Calif., a small Trader Joe’s grocery store was nestled in a strip mall of tiny shops and self-serve laundries, a neighborhood institution for 43 years – and the second-oldest location for the popular Southern California-based grocery chain.

But taped on its doors in October were handwritten signs noting the end of its reign: “We’re moving!”

When the location closed its doors last week, most of its crew transitioned to a built-from-scratch store in nearby Montrose that boasts more spacious aisles, higher ceilings and a trim brick-and-glass exterior.

After decades cultivating an image as the cozy neighborhood grocer, the 14,670-square-foot store highlights the conundrum facing the Monrovia, Calif., company: how to maintain the eclectic, friendly vibe that has garnered it legions of faithful shoppers, while expanding at a brisk pace.

The chain has grown from more than 20 locations in Southern California in the 1970s to more than 360 shops in far-flung places such as New York, Chicago and Des Moines, Iowa. Its smallest shop, at 5,500 square feet, is in Boston. A 12,000-square-foot store opened Oct. 28 on Spokane’s South Hill.

Last year, the company pulled in an estimated $8 billion in sales, roughly on par with rival Whole Foods Market, based in Austin, Texas.

“Their mission is to be a nationwide chain of neighborhood specialty grocery stores,” said Mark Mallinger, a Pepperdine University business professor who has done research on the company. “But there’s a dichotomy there.”

Industry experts say the Montrose store is a harbinger of where Trader Joe’s is headed as it grows in the coming years and competes head-to-head with upscale grocers such as Whole Foods and Bristol Farms.

The private company has been on an expansion binge the past three years, opening about 40 new stores a year and expanding well beyond Southern California, said Burt Flickinger, managing director of retail consulting firm Strategic Resource Group in New York.

The quirky roots of the company stretch back to the original Joe Coulombe, who opened the first Trader Joe’s – still standing today – in Pasadena, Calif., in 1967. He made a name for the store by selling leftover cases of fine wine bought at California vineyards for a low price, and later added health food to the shelves. He sold the chain in 1979 to the Albrecht family in Germany.

But Flickinger, who has followed the chain for decades, said the company seeks to expand the size of its shops by building new stores and renting bigger retail spaces in new markets.

The average Trader Joe’s store probably will increase from between 10,000 square feet and 15,000 square feet now to 15,000 square feet and bigger, Flickinger predicts.

“Trader Joe’s can make double or triple the sales volume per week at a bigger store than at a small store, while checkmating competitors,” he said.

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