4 Things You Didn't Know About Trader Joe's

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Source: Trader Joe's.

Trader Joe's is as close as you can get to a cult favorite in the world of specialty supermarkets. The eclectic collection of items that you can't seem to find anywhere else and the refreshingly low prices on many items have hooked shoppers. 

However, you probably don't know everything about the chain. Let's look at a few things that may surprise you.

1. Trader Joe's was originally a convenience store chain called Pronto Markets
Long before Trader Joe's became a grocery playground where every turn treats shoppers to unexpected culinary surprises, it was a convenience-store chain.

Trader Joe's got its start in 1958 as Pronto markets. It wasn't until 1967 when its founder -- yes, there really was a Trader Joe -- embraced the Trader Joe's moniker and expanded its store footprint to become an actual supermarket. 

2. It's not a bad thing to be privately held
There are certainly benefits to being publicly traded, as many of Trader Joe's rivals are these days. You have easier access to financing, and loyal customers can have a deeper relationship through outright ownership. However, it's no fun to be public when you're out of favor.

It's been a rough earnings season for premium grocers. Shares of The Fresh Market plunged 19% on Friday after the company posted disappointing quarterly results. Revenue and earnings fell short of expectations, and the boutique grocer's guidance was also well below where Wall Street was stocking its projections. 

Earlier this month it was Whole Foods Market's turn to tumble. The top dog among organic grocery store chains saw its stock drop 11% the day after posting its fresh financials. Whole Foods Market did beat analyst targets, but a weak outlook for the holiday quarter and decelerating comps spooked investors who had been bidding up the market darling in recent years.

We don't know if Trader Joe's would be performing any better than The Fresh Market or Whole Foods, but even as a sympathy play it probably wouldn't have worked out this month. 

3. Trader Joe's doesn't engage in slotting fees
A popular practice in the supermarket industry is to get suppliers to pay for shelf space. Suppliers pay what's known as slotting fees to have a presence in stores, and the fees vary based on several factors. For example, if a vendor is putting out a new product, the slotting fee will probably be higher than usual because the grocery store owner risks sacrificing sales by giving that space to an unproven item.

Trader Joe's doesn't engage in this practice, and while it boasts that it passes on these savings to customers -- since suppliers don't have to inflate prices as a result of slotting costs -- that's not entirely fair. After all, Trader Joe's relies largely on its own private-label products. It is its own supplier, in a sense. It's not at the mercy of a litany of recognized brands vying for space.

The other point is that traditional supermarkets do pass on the money they make in slotting fees, since they help offset their own overhead and employee salaries. There's no free lunch. Grocery store operators work on pretty lean margins for the most part.  

However, a definite benefit of Trader Joe's decision not to engage in slotting fees is that it has the freedom to move in and out of products. It introduces 10 to 15 new products every week, and that means that it also has to discontinue 10 to 15 products every week. It wouldn't have the kind of freedom if it was at the mercy of slotting fees. 

4. Those bells mean something
Instead of summoning employees around the store through a crackling PA system, Trader Joe's prefers to let bells communicate staff instructions. 

It's a pretty simple process.

  • One ring -- the checkout lines are getting long, so it's time to open another register.
  • Two rings -- there's an unresolved matter at one of the registers, and the cashier can use some assistance. 
  • Three rings -- the situation's escalated to the point where a manager needs to be called in to remedy a situation. 

If you're hearing more rings than that, then you're probably either suffering a hangover or you happen to be near a church. Regardless of the extreme, those rings aren't coming from Trader Joe's.

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The article 4 Things You Didn't Know About Trader Joe's originally appeared on Fool.com.

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends The Fresh Market and Whole Foods Market and owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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