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Former Trader Joe’s President Shares Views On Today’s Grocery Business

Rauch, Trader Joe's
Doug Rauch with ECRS’ Peter Catoe.

Doug Rauch drew a crowd for his opening keynote address at ECRS’ Retail Success Conference—Ignite 19—held July 29-31 in Nashville, Tennessee.

Rauch spent 31 years at Trader Joe’s, ultimately serving as national president of the California-based food retailer for a couple of years after serving as president of the company’s East division for more than a decade. In fact, he was responsible for introducing East Coast shoppers to the Trader Joe’s experience. (He said people over on this coast were relieved, telling him, “I don’t have to fill my suitcase with all those things from the West Coast anymore.”) Rauch joined the beloved, and growing, retailer when it had just nine stores. He “graduated” from Trader Joe’s in June 2008.

Shelby Publishing Co.’s Stephanie Reid had the opportunity to sit down with Rauch at the conference and ask him a range of questions about today’s grocery industry. Following are excerpts from that conversation.

 

In 11 years (since Rauch left Trader Joe’s), a lot has happened with online and digital and e-commerce. What’s your perspective on Trader Joe’s from 11 years ago to where they are now?

I think online is a challenge for all retail. I’m obviously not a genius in saying that. I think online represents a disruption in the way in which people shop. It doesn’t mean that brick and mortar is going to disappear. Amazon would not have spent $13, $14 billion to acquire all those brick-and-mortar (Whole Foods Market) stores if they thought they were about to die. So I think the first evidence that Amazon, of all people, thinks that brick and mortar is here to stay is the amount of money they ponied up for Whole Foods. I think, yes, online is a challenge to every retailer that isn’t clear as to what their purpose is and how they can differentiate themselves from a transactional experience. If all you’re doing is offering a product at a price, you’re probably doomed. Online will kill you. But if you can offer some distinctiveness, products they can’t get elsewhere, an experience…You’ve got to differentiate yourself in some manner. Just providing a human look and touch, for instance, for many people is really important.

 

If brick-and-mortar stores like Trader Joe’s that rely on people coming in to get their “treasures,” so to speak, are going to continue to thrive, how should they alter their business model?

If brick-and-mortar is going to continue to thrive, it needs to continue to serve the needs of its customers. All businesses exist, basically, to create and keep a customer. In this day and age, more and more people have less time. They have more access and more comfort with buying on the internet. So if you’re dealing with Millennials and Gen Z, then I think that as a food retailer, you’re more at risk of losing that population than ever if you don’t do something different. And that something different, as I mentioned, is to differentiate yourself. It’s to make your shopping experience worthy, to make sure that when someone comes into your store that they have an experience they can’t get online, whether that’s through additional products you can’t find, whether it’s through an experience. Trader Joe’s is famous for their staff, their “crew members,” as they call them, and making sure they deliver a customer experience that is warm, friendly, knowledgeable. So, in theory, whenever someone walks out, they feel a little better than when they walked in. That, I think, is a winning formula for any brick-and-mortar—to make sure you have a reason why they should go there. Because if you don’t, they won’t.

 

When you were steering the ship, did you rely on data for staying connected to the customer, and if so, how did you?

Trader Joe’s was light when it came to customer data and mining customer data. It did not have a loyalty program or card; it was one of the last retailers in America to put in, dare I say, a POS system. It literally came in in 2001 when they were billions in size. This could only be done because they are a limited-SKU company. It’s a pull system where people in the store order product…POS systems, while necessary, weren’t needed when it was a younger company. I think Trader Joe’s has just started to really experiment and get into the internet world. They’ve started doing podcasts and really sharing their “secrets,” which really aren’t secrets but stories. I think it’s about time, and way overdue, that Trader Joe’s extend in their relationship with the customers outside of the walls of their business. Up until now, they have wanted to drive people into the store to give them a unique experience, which is a winning strategy; it’s obviously extremely successful. However, I like the fact that they are reaching out and connecting with their customers outside those four walls. Because I do think that for retail today, if you want to succeed, you need to create seamless communication, seamless relationship, and you need to be able to have that data.

The term “Big Data,” which a lot of people use…feels cold, impersonal. If you look at ways that some organizations use Big Data, though, Netflix is a great example. If you watch a movie and rate it on Netflix, they’ll instantly tell you, hey, here’s seven other movies that people that rated that one well they also liked these. Since you pay a flat fee anyway, Netflix doesn’t in theory get any more money from you, but if your satisfaction goes up, then what happens is you have stickiness, you’re less likely to drop the service, less likely to go to Amazon’s Prime or something.

I do think that grocers have got to work, and Trader Joe’s has got to work hard, to make sure the stickiness is from using data in a way that is customer-focused, not as a way to drive revenue to your supply chain. It’s not about how can I sell my database to my supply chain, it’s about how can I truly give the customer a better experience?

 

It’s also engaging with the customer on different levels, especially Millennials and younger people. They’re far more cause-oriented; they want to align themselves with organizations that represent what they think and what they feel…I saw recently that Trader Joe’s said it is going to cut costs by removing the plastic packaging from the individual produce items. That’s almost like cause marketing in addition to cost savings.

I believe you’re right. That news that Trader Joe’s is going to look at reducing the amount of plastic…that, to me, highlights a really key thing. I think Trader Joe’s is really smart in that they have recognized for a long time that the relationship they have with the customer is more than just a transactional relationship. It is one where you really form bonds around values. It’s not just the value you’re getting by saving so many cents, but it’s the values you represent. When it’s like, “hey, you believe in the things, you treat me and others the way I’d like to be treated, my values and your values seem like they align,” that’s a type of relationship that can’t be formed just simply through a transaction.

 

What is a story in our industry right now that needs to be told?

A story that needs to be told now; that’s a great question. I think one is that retail is here to stay. And it’s here to stay as long as we’re human beings. Because we like interacting with other people. At the end of the day, simply, as we now know, the more connected you are on social media, the less you feel connected. The more you simply get all of your goods in a transactional relationship online, there will be something missing. I think the story is there’s a great opportunity for retail to step into and create that place where people can feel validated, they can feel seen, they can socialize, they can get things they can’t get on the internet, which is primarily a human experience. Retail anchors a human experience.

About the author

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Treva Bennett

After 32 years in the newspaper industry, she is enjoying her new career exploring the world of groceries at The Shelby Report.

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