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Detailed assessment of the Trader Joe’s environment P.E.S.T. analysis and the five forces analysis

Discuss about the Trader Joe Case Analysis for PEST Analysis.

All types of organizations need to analyze their external environment through the identification of the external factors that affect their operations. The PEST analysis is used as a popular tool to clarify the Political, Economic, Social and Technological issues (FME, 2018). According to Martrous (2016), the PEST analysis of the food retailing industry in the USA could be discussed as follows:

  • The political issues: The USA has issued the Organic Food Production Act in 1990 that stated the national standards for the products grown organically in the United States. The act was based mainly on the consumer interest in the organic food.
  • The economic issues: The American consumer is able to afford the purchasing cost of the organic foods which means a positive market outlook.
  • Social issues: The increase in senior population is likely to cause an increase in consumption of the organic food as it is widely accepted among the population and more people are willing to spend on healthy food.
  • Technological issues: The advancement in technology has positively affected the foods market and improved the end to end shopping experience. Many ways of digital food consumption were developed, including, the online shopping, shopping applications and shopping through the social media channels

Porters' five forces of competitive analysis could be applied to Trader Joe's as follows:

  • The bargaining power of buyers: About 80% of the customers are highly educated. The company describes its target market as intelligent and enjoy shopping at Joe's (Ager & Roberto, 2013).
  • Bargaining power of suppliers: Trader Joe's deals directly with suppliers without middlemen. It takes the goods at 25% to 40% lower prices than the wholesale prices and it asks the merchants to keep the prices as secret. About 20-25% of its suppliers are overseas (Coriolis Research Ltd., 2006).
  • Threat of new entrants: The potential entrants are low as it is difficult to enter the grocery market. The small and medium-size grocery stores account for about 70% of the industry. The local suppliers make entry restrictions to the market. The product freshness accounts for higher costs for small and medium business size (Martrous, 2016).
  • Threat of substitute products: The threat of substitute product is high in the USA market as the prices of organic foods are generally higher compared to the regular grocery items (Martrous, 2016). Trader Joe’s does not offer a deduct strategy, but it offers lower prices organic food and it is the cheapest place in the USA to buy vitamins with 50 different types (Coriolis Research Ltd., 2006).
  • Intensity of rivalry: The grocery industry is characterized as a competitive environment. There are four dominating companies; Walmart, Kroger, Safeway and Supervalu that accounts for 30% of the industry revenues and the rest goes to the small and medium-sized The market concentration is low and the wholesale companies provide groceries with 25% lower prices compared to the organic food (Martrous, 2016). Trader Joe’s offers a big range of ethnic cuisines for the food savvy customers. These products are promoted through flyers with recipes and information about the product to create a source of differentiation among rivals (Coriolis Research Ltd., 2006).

Organizations can create a strategic position through the production of a subset of the industry products, called variety based position. The second strategy is the needs-based positioning, it is based on fulfilling the different needs of some groups of customers with varying amount of information. The third strategy is the access-based positioning through segmenting customers and accessing them through different ways (Porter, 1996). Trader Joe's conduct the first two strategies as it aims to offer a variety of industrial products including organic food, wine, vitamins and music products. Also, it fulfills the complex needs of a certain group of customers who are well educated, love to travel and discover new thing. It is intelligent of him to select the store locations beside the educational institutes. Not conducting the third strategy creates a source of risk to Trader Joe's as it has to excel towards achieving its targeted customers with all of the possible means.

Trader Joe's core competencies could be discussed according to MITSloan Management (2010), as follows:

  • Its HRM: Trader Joe's policy towards its staff makes them love to work. It offers them training and pays them above the average market salaries. Also, the staff is very friendly and well educated and loved by the customers.
  • Purchasing of large quantities of products driving the prices down for the customer: It offers high-quality products at low cost and follows the JIT process. It limits its stock for specific product items that could be sold at very low prices. 
  • Sourcing products globally and asking vendors to be secretive about the agreed upon prices: It works with a variety of suppliers who make interesting products especially for Trader Joe's.
  • Offering 80% of the traded goods with private label items: It offers about 2000 unique grocery items, with every day reduced prices, moreover, it offers about 15 new products every week.
  • Small size shops allow for low rental cost, or purchase price: It can control its costs. Also, it limits the number of hands that can touch the product by dealing directly with the producers. Also, it keeps its financial results as a secret.

Despite the success of the Trader Joe's business, it has to develop certain skills, capabilities and competencies to be able to sustain its competitive advantage. Acting in the same way while not considering the environmental changes are expected to provide a chance to rivals to grow and at the same time, it creates a gap in the organizational skills that should be filled. For example, Wall-mart and other rivals expanded through small locations throughout the market. Also, Tesco has launched a chain of stores in the neighborhood and borrowed the process of the fresh and easy store from Joe's. Moreover, Amazon could utilize the technological advance to attract the consumers and shift their preferences. Trader Joe's lacks the capabilities that enable it from accessing consumer with a variety of means, including technological and even the traditional television advertisements. The company is against this thinking, but it cannot stay for a long time away as it has become a must (Ager & Roberto, 2013; Coriolis Research Ltd., 2006).  

The Five Forces of competition

On the other hand, consumers have been changing their shopping behavior for food. They tend to divide their spending across a variety of choices as hypermarkets, supermarkets convenience stores and online services. Trader Joe's shops' locations are small, offer certain types of goods and achieve customers called the value seekers through the indoor printed flyers only. It lacks the skills of marketing and promotion. It does not have a large distribution network, it depends only on expansion by opening more stores in certain areas. Despite the Facebook page created by people, the company neither responds to them nor create a marketing activity on the social media channels.  It needs a technology-driven staff to join the work who clearly realize the fact that the digital technology is embedded now in the consumers' lifestyles.

Moreover, during the period (2007-2012), 150 million square feet were added to the grocery retail industry. None of them represented a traditional supermarket format with its hard discounts and quite significant that led to lower operating costs. The Dollar stores enable the consumers to access hundreds of food and non-food items at the lowest prices. This rival expansion creates a threat to Trader Joe's traditional way of marketing as many competitors are imitating it and quickly respond to the consumer changing needs. The company has to obtain the skills that enables it from responding to the changing and customized consumer preferences (Hodson, Egol, & Blischok, 2012; Hartman Group, 2017).

Being an innovative organization in one area does not mean to be innovative for only one part of the business model. Trader Joe' needs to focus its innovative resources on the threatening areas. Also, it needs to move faster as time is considered as a competitive weapon in the complex business environment (Zook & Allen, 2011).

Having a value network, including the upstream suppliers and the downstream customers as Trader Joe's is not enough to sustain its competitive advantage in the future. The company needs to acquire highly skilled staff aware of technology to create a freestanding value network. They are expected to market for the company products on a large scale and benefit from the customer orientation towards technology. Also, the company could adopt a new delivery strategy that allows the customers to select the products online to be delivered to the destination of their choice (Christensen, Anthony, & Roth, 2004).

In order to sustain its high performance in the future, companies need to develop a new generation of leaders. As Trader Joe's need a transformation plan, a new style of leaders needs to be encouraged to implement new business models. The company also has to adopt a new policy of cultivating new skills to join its staff to bring new blood to the organization (Johnson, Yip, & Hensmans, 2012).

As it is expected that the consumer habits over the next five years will change more towards healthier eating habits as a result of media awareness. Also, it is expected that consumer change will shift from grocery shopping of necessary goods to shopping for experience. As a result, Trader Joe's is likely to face growing competition and if we considered that Joe's company depends on the lower prices we will find that Wall-mart also knows very well (Bellona, Breivik, Cannon, & Yap, 2010).

References

Ager, D., & Roberto, M. (2013). Trader Joe’s. USA: Harvard Business Review.

Bellona, D., Breivik, K., Cannon, C., & Yap, M. (2010). Industry analysis: Retail grocery industry analysis, value creation & Best practices. USA: Strategic Innovation in Product & Service Design.

Christensen, C., Anthony, S., & Roth, E. (2004). Strategic choices. In Using the theories of innovation to predict industry change. Boston: Harvard Business School Press.

Coriolis Research Ltd. (2006). Understanding Trader Joe’s. New Zealand: Coriolis Research Ltd.

FME. (2018, April 08). PESTLE analysis: Strategy skills. Retrieved from Free Management ebooks: https://www.free-management-ebooks.com

Hartman Group. (2017). U.S. grocery shopper trends. USA: FMI the Voice of Food Retailer.

Hodson, N., Egol, N., & Blischok, T. (2012). Four factors shaping competition in grocery retailing. USA: PWC.

Johnson, G., Yip, G., & Hensmans, M. (2012). Achieving successful strategic transformation. MIT Salon Management Review, 53(2), 25-32.

Martrous, B. (2016). Whole foods market case analysis. USA: California State University.

MITSloan Management. (2010). Trader Joe’s vs. whole foods market: A comparison of operational management. USA: Massachusetts Institute of Technology.

Porter, M. (1996). What is strategy? USA: Harvard Business Review.

Zook , C., & Allen, J. (2011). The great repeatable business model. USA: Harvard Business Review.

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