#188 Joe Coulombe Founder of Trader Joes

Summary Notes


In "Becoming Trader Joe," Joe Coulombe shares the entrepreneurial journey of transforming Pronto Markets into the iconic Trader Joe's, emphasizing high wages, innovative management, and product knowledge as keys to success. Coulombe candidly discusses his strategic choices, such as partnering with Rexall Drug Company, buying out Rexall's shares, and ultimately focusing on private label products to avoid direct price competition. His decision to sell Trader Joe's, driven by financial fears and regulatory changes, was one he later regretted, wishing he had the courage to ride out the uncertainties. Coulombe's reflections offer invaluable insights into the mindset and decisions that shaped Trader Joe's into a differentiated, value-driven retailer, and the emotional weight of selling one's life's work.

Summary Notes

Introduction to Joe Colomb's Entrepreneurial Journey

  • Joe Colomb wrote a book to assist entrepreneurs by sharing detailed marketing strategies.
  • He discussed his experience with Pronto Markets and the transition into Trader Joe's.
  • Joe emphasized the importance of high wages in building a successful business.
  • He highlighted the financial growth of his company, including impressive compound rates for sales and net worth.
  • The absence of fixed interest-bearing debt in later years is mentioned.
  • Joe acknowledges that despite success, some may view his achievements as failures.

"I wrote this book to help entrepreneurs and would-be entrepreneurs. That's why there's a lack of miracles and a surplus of marketing details. Including buying, advertising, distributing and running stores. And lots of discussion on how we built a successful business on high wages."

The quote explains Joe's intention behind writing the book, focusing on practical marketing strategies and the role of fair wages in his business success.

The Philosophy of Profit and Wealth Creation

  • Joe Colomb cites a favorite quote from a management book emphasizing profit as a byproduct of excellence.
  • He believes that money should be a measure of performance, not the sole objective.
  • The book discusses the trials of entrepreneurship and the impact of fortune, both good and bad.

"The general theme in winning corporations is a view of profit and wealth creation. As inevitable byproducts of doing other things well."

This quote reflects Joe's philosophy that profit and wealth naturally follow when a business focuses on performing other aspects well, rather than making money the primary goal.

Insights from "Becoming Trader Joe"

  • Joe Colomb's book "Becoming Trader Joe" is praised for its valuable lessons for entrepreneurs.
  • It provides a narrative of how Joe challenged industry norms and innovated within the grocery business.
  • The book is noted for its discussion on creative problem-solving and targeting niche markets.

"Joe's amazing book on how he built Trader Joe's is a master class for entrepreneurs."

This endorsement highlights the book's value as an educational resource for entrepreneurs, emphasizing Joe's innovative approach to business.

The Origin of Trader Joe's

  • Trader Joe's inception occurred during a crisis in a bar in 1965.
  • Joe Colomb was facing financial difficulties and competition from the Southland Corporation.
  • The situation prompted Joe to strategize and eventually led to the creation of Trader Joe's.

"Trader Joe's got its start in a bar in Los Angeles where a crisis broke out over my head on a Friday afternoon in October 1965."

The quote marks the pivotal moment that led to the birth of Trader Joe's, emphasizing how challenges can lead to significant business opportunities.

Early Career and the Influence of Mentors

  • Joe Colomb discusses his early career and the influence of his mentor, Wayne Bud Fisher Jr.
  • He credits Fisher with teaching him essential CEO skills and attributes his success to their partnership.
  • Joe also humorously notes the importance of being left-handed in his hiring practices.

"I was very lucky to get hired for $325 a month. I was even luckier in the man who hired me, who put up with me, who encouraged me, and who taught me everything I know about being a CEO."

This quote captures Joe's appreciation for his mentor and the significance of mentorship in his professional development.

The Transition from Pronto to Trader Joe's

  • Joe Colomb narrates the transition from Pronto Markets to Trader Joe's.
  • He describes the acquisition of Pronto and the financial risks he took, including leveraging personal assets.
  • Joe emphasizes the importance of seizing opportunities and the role of strategic decision-making in business growth.

"I either had to buy pronto or find a new job."

This quote illustrates the decisive moment Joe faced, highlighting the entrepreneurial spirit of taking risks to seize business opportunities.

Entrepreneurial Insights and Writing Style

  • Joe Colomb reflects on the clarity and directness of entrepreneurial writing.
  • He believes entrepreneurs are effective communicators and teachers, which is evident in their autobiographical books.
  • Joe's writing style is praised for being straightforward and highlighting key lessons and decisions.

"Entrepreneurs write better books than writers do."

The quote suggests that entrepreneurs' books provide valuable insights due to their firsthand experience and ability to communicate essential lessons directly.

Personal Curriculum and Application to Business

  • Joe Colomb discusses how the subject of the book he's reading has developed a personal curriculum from various sources.
  • The curriculum is applied to the individual's business and writing.
  • The book in question begins with a quote from Tex Thornton, co-founder of Litton Industries.

"If all the facts could be known, idiots could make the decisions."

This quote is highlighted as Joe's favorite managerial quote, emphasizing that decision-making in business can be straightforward if all information is available.

Henry Singleton's Influence and Investment Philosophy

  • Henry Singleton, who worked for Tex Thornton at Litton, is compared to Warren Buffett.
  • Singleton's investment strategies included a concentrated portfolio with significant investment in Litton Industries.
  • Singleton's business and investment success is praised by Buffett and Munger.

"Buffett said something like, he had the single best record in American business history, that if you took the hundred best graduates of business schools and you combine their record, they still wouldn't be as good as Singleton's, Munger said, in the most succinct way possible."

This quote highlights the exceptional business and investment acumen of Henry Singleton, as recognized by notable figures like Buffett and Munger.

Sol Price's Influence on Retail

  • Sol Price is recognized as a significant influence on notable retailers such as Sam Walton and Jeff Bezos.
  • Jim Senegal, founder of Costco, was mentored by Sol Price.
  • Joe Colomb mentions the impact of Sol Price's ideas on the retail industry and their prevalence in the book.

"There's only one biography I found on Sol Price, and the forward is written by Jim Senegal. And he's like, people would ask him, he's like, oh, did you learn something from. He's like, no, I learned everything from him."

This quote demonstrates the profound influence Sol Price had on other retailers, highlighting the importance of learning from predecessors.

The Importance of a Reasonable Strategy and Tenacity

  • Joe Colomb emphasizes the importance of adopting a reasonable strategy and sticking with it, rather than waiting for an optimal one.
  • Tenacity is deemed as crucial as brilliance in achieving success.

"The most basic conclusion I drew from her book was that if you adopt a reasonable strategy as opposed to waiting for an optimum strategy and stick with it, you'll probably succeed. Tenacity is as important as brilliance."

This quote encapsulates the lesson learned from "The Guns of August" about the effectiveness of commitment to a reasonable strategy and the value of persistence.

Acknowledging the Value of Predecessors

  • Joe Colomb stresses the importance of respecting and learning from those who came before in any complex endeavor.
  • A tweet from investor Bill Gurley is used to reinforce the idea that the most successful individuals study and admire their predecessors.

"This modern finance world where loud voices are disrespecting and dismissing people like Howard Marks and Warren Buffett is unsettling to me."

This quote from Bill Gurley's tweet expresses concern over the lack of respect shown to accomplished figures in the finance world, highlighting the value of learning from successful predecessors.

Compensation Policies and Employee Relations

  • Joe Colomb discusses the significance of high compensation policies and their role as the most important business decision he made.
  • The practice of interviewing every full-time employee every six months is mentioned as a key strategy for addressing grievances and avoiding unionization.

"Good people pay for their extra productivity. You can't afford to have cheap employees."

This quote underscores Joe's belief in the value of paying employees well, as it leads to better productivity and reduces costly turnover.

Differentiation and Product Knowledge

  • Joe Colomb discusses the differentiation of Trader Joe's through product knowledge and avoiding branded merchandise.
  • The story of extra large eggs is used as an example of how product knowledge and differentiation helped Trader Joe's stand out and succeed.

"The ads that we began running for these extra large eggs revolutionized pronto markets and they helped to generate the profits that I needed to stay afloat."

This quote illustrates how a simple product differentiation strategy, such as promoting extra large eggs, can have a significant impact on a business's success.

Real Estate Decisions and Reversibility of Choices

  • Joe Colomb learned the importance of distinguishing between reversible and irreversible decisions.
  • He maintained control over real estate decisions due to their long-term impact.

"Early in my career, I learned that there are two kinds of decisions, the ones that are easily reversible and the ones that aren't."

This quote highlights the critical business insight that some decisions have long-lasting consequences and must be approached with caution.

Capitalizing on Demographic Opportunities

  • Joe Colomb identified a demographic of well-educated, adventurous consumers as an opportunity for Trader Joe's.
  • He observed the homogenization of American culture and saw potential in catering to those seeking differentiation.

"Television was the most powerful advertising medium ever invented, and it began to homogenize American culture to a startling degree."

This quote reflects on the impact of television on consumer culture and the opportunity it presented for businesses like Trader Joe's to offer unique products.

The Evolution of Trader Joe's

  • Joe Colomb outlines the three stages in the evolution of Trader Joe's: Good Time Charlie, Whole Earth Harry, and Mac the Knife.
  • Each stage represents a shift in the store's focus and offerings, culminating in the unique shopping experience Trader Joe's is known for today.

"The second version was Whole Earth Harry. A serious recession forces me to marry the health food store to the party store, and I got whole earth religion in the process."

This quote describes one of the transitional phases of Trader Joe's, where economic conditions prompted a fusion of different store concepts, leading to the brand's evolution.

Evolution of Trader Joe's: From Pronto Markets to Mac the Knife

  • Joe Colomb discusses the transformation of Trader Joe's through various iterations, with the final form being "Mac the knife."
  • The transformation was influenced by the end of fair trade on milk and alcohol in 1977.
  • The Brook brothers strategy is mentioned, comparing Trader Joe's to a chain that only sells its own products.
  • Joe highlights the gradual development of Trader Joe's, likening it to assembling body parts over eleven years.

"Good time Charlie makes sense. Whole earth Harry makes sense. I have no idea what the hell Mac the knife means." This quote expresses Joe's confusion about the nickname "Mac the knife" for the final version of Trader Joe's, as it lacks an obvious connection to the store's concept.

"Trader Joe's final form. Took a while to discover." Joe emphasizes that the final and successful concept of Trader Joe's was not an immediate realization but a discovery that took time to unfold.

Influence of Philosophy on Entrepreneurship

  • Joe Colomb draws inspiration for entrepreneurship from the book "The Revolt of the Masses" by José Ortega.
  • Ortega's philosophy provides a blueprint for entrepreneurs with limited resources and reputation.
  • The book uses Julius Caesar's career as an analogy for starting an enterprise, emphasizing the need for a plan of action and program of collaboration.

"Most of my ideas about how to act as an entrepreneur are derived from the revolt of the masses by Jose Ortega, the greatest Spanish philosopher of the 20th century." Joe credits José Ortega's book as the primary source of his entrepreneurial philosophy.

"Most of my career has been spent selling plans of action and programs of collaboration, whether to Rexall to start up Pronto Markets or Bank of America to buy out Pronto, or landlords or vendors, many of whom were skeptical, if not hostile to my plans, and above all, to my employees." Joe explains that his career involved convincing various stakeholders of his business plans, often facing skepticism.

Strategic Business Insights

  • Joe Colomb emphasizes the importance of understanding and leveraging regulations to succeed in business.
  • He compares his approach to Kobe Bryant's strategy of reading the referee's handbook to exploit dead zones on the basketball court.
  • Joe applies similar principles in his business, particularly in the wine trade, where understanding regulations allowed Trader Joe's to gain advantages.

"Success in business often rests on a minute reading of the regulations that impact your business." Joe highlights the critical role of understanding regulations in achieving business success.

"A close reading of the regulations is a main theme of this book." This quote reinforces the idea that meticulous attention to regulations is a recurring theme in Joe's business philosophy.

Innovation in Wine Sales

  • Joe Colomb discusses the strategic decision to acquire a master wine grower license with grandfather privileges.
  • The license allowed Trader Joe's to host wine tastings, act as a wholesaler, and rebrand wines under their own label.
  • Trader Joe's capitalized on the unique advantages of an old wine license, despite the higher cost compared to a new license.

"With that license we could legally hold wine tastings of any wine even if we didn't have our own label on it." Joe explains the benefits of the old wine license, which permitted wine tastings for any wine, expanding their market reach.

"The wholesaling privilege was internally valuable to us too. For tax reasons, we operated the stores under eight separate corporations." Joe details how the wine license played a strategic role in the company's operations and tax planning.

Target Market and Growth Philosophy

  • Joe Colomb identifies the target market for Trader Joe's as overeducated and underpaid Californians.
  • He expresses discomfort with growth for the sake of growth, preferring small teams and stores.
  • Joe references advertising principles from Samuel Johnson and Claude Hopkins, emphasizing the importance of informative advertising.

"Being king of the low price, high value wine trade in California was one of the greatest satisfactions of my career." Joe expresses pride in Trader Joe's position in the wine market, targeting a specific demographic.

"Growth for the sake of growth still troubles me. It seems unnatural. Even perverted." Joe shares his personal philosophy on business growth, favoring a more organic and sustainable approach.

The Fearless Flyer: A Marketing Innovation

  • The creation of the Fearless Flyer was a significant driver of growth for Trader Joe's.
  • It began as an educational tool on wines and evolved into an informative advertising medium.
  • Joe Colomb drew inspiration from David Ogilvy's advertising principles and Paul Hawken's informative texts to differentiate their products.

"We assumed that our readers had a thirst for knowledge." Joe describes the underlying assumption about Trader Joe's customers that shaped their advertising strategy.

"By mailing to addresses rather than individuals, we were able to blanket entire zip codes." Joe explains a pivotal marketing strategy that expanded the reach of the Fearless Flyer without the hassle of individual mailings.

Cult Status and Customer Loyalty

  • Joe Colomb intentionally cultivated a cult-like following for Trader Joe's among a specific demographic.
  • He underscores the importance of maintaining implicit promises to retain cult status over time.
  • Joe warns against betraying the true believers, as customer loyalty is crucial for sustained success.

"I have been known to say that there's no better business to run than a cult." Joe acknowledges the power of a cult following in business and Trader Joe's deliberate efforts to become one.

"Beware of ever betraying the true believers." Joe stresses the significance of maintaining trust with the store's core customer base to preserve its unique market position.

Embracing and Solving Business Problems

  • Joe Colomb views problems as inherent to business and believes success comes from effective problem-solving.
  • He shares insights from Danny Meyer and Stanley Marcus on handling mistakes and problems in business.
  • Joe emphasizes that the ability to solve problems creatively and profitably is what distinguishes great companies.

"The road to success is paved with mistakes, well handled." Joe shares wisdom from Stanley Marcus, highlighting the importance of managing mistakes effectively in business.

"Businesses problems and companies are just effective problem solving machines." Joe distills his philosophy on business, viewing companies as entities that excel at solving problems.

The Creation of Mac the Knife

  • The chapter on Mac the knife details the act of will and innovation required to transform Trader Joe's.
  • Joe Colomb and his team were motivated by the need to survive amidst rapid deregulation in their industry.
  • The concept of "retailer" is redefined, focusing on buying goods whole, cutting them into pieces, and selling the pieces to consumers.

"The creation of Mac the knife was, above all, an act of will by my colleagues and me to survive." Joe explains that the development of the Mac the knife concept was driven by a determination to overcome industry challenges.

"The fundamental job of a retailer is to buy goods whole, cut them into pieces, and sell the pieces to the ultimate consumers." Joe reiterates the core function of a retailer, which guided Trader Joe's strategy to focus on selling their own products.

Evolution of Grocery Store Experience

  • Joe Colomb discusses the transformation of grocery stores, focusing on reducing stockkeeping units (SKUs) from 10,000 to between 1,000 and 1,500.
  • Central distribution systems replaced managers' buying discretion.
  • Full case discounts were eliminated, hours were shortened, and product variety was reduced, prioritizing value over variety.

"But by the time I left in 1989, we were down between 1000 101,500 skus, all of which were delivered through a central distribution system."

This quote emphasizes the significant reduction in product variety and the shift to a centralized distribution model, which streamlined operations and potentially improved efficiency.

Retail Wisdom and Value Proposition

  • Joe Colomb reflects on the "received wisdom of retailing," where Trader Joe's violated common practices except for delivering value.
  • He recounts a meeting between Jim Senegal of Costco and Jeff Bezos, highlighting Costco's strategy of reduced SKUs, marking up products uniformly, and relying on membership fees for profit.
  • The strategy demonstrates that offering exceptional value can lead to word-of-mouth promotion, eliminating the need for advertising.

"We violated every received wisdom of retailing except one. We delivered great value, which is where most retailers fail."

This quote underscores the importance of delivering value to customers as a strategy for retail success, suggesting that traditional retail wisdom may not always be the best approach.

Trader Joe's Differentiation Strategy

  • Trader Joe's differentiated itself by carrying individual items rather than entire product lines, focusing on Trader Joe's label or no-label products.
  • The store aimed for a lower SKU count and displayed merchandise in the shipping cartons, avoiding loss leaders and insisting on profitability for each item sold.
  • The strategy was designed to survive deregulation and create a unique shopping experience that avoided direct price comparisons.

"Depth of assortment now is of no interest."

Joe Colomb highlights the deliberate choice to avoid a wide assortment of products, which contrasts with traditional grocery stores that offer numerous options for each product category.

Private Label Focus and Avoiding Competition

  • Trader Joe's focused on private label products to differentiate from competitors and avoid direct price comparisons.
  • Joe Colomb believed in creating a store with no competition by offering unique products.
  • He admired Yvon Chouinard of Patagonia, who also sought to create products without competition.

"Products needed to be differentiated in order to avoid direct price comparison."

This quote captures the strategic decision to offer unique products that cannot be directly compared with those of competitors, thus avoiding price wars and fostering brand loyalty.

Sustainable Business Growth and Employment Stability

  • Joe Colomb preferred fewer, high-volume stores to avoid the pitfalls that led to the bankruptcy of other retail chains.
  • Trader Joe's boasted high sales per square foot and never had layoffs of full-time employees due to cautious store expansion and high store volumes.
  • Colomb viewed sustainable growth and employment stability as key to the company's success.

"In 30 years, we never had a layoff of full-time employees."

This quote reflects the company's commitment to employee stability and the effectiveness of its cautious approach to opening new stores.

Decision to Sell Trader Joe's and Subsequent Regret

  • Joe Colomb sold Trader Joe's in 1989 and later expressed regret, citing fear and economic uncertainty as factors in his decision.
  • He discussed the risks of selling versus not selling, including tax implications and economic security for his family.
  • Despite post-sale plans to continue working with the company, changes in management led to a loss of control and eventual departure.

"But do I regret having sold? Yes. I admit it to my own self. I was not true when I sold."

This quote reveals Colomb's deep regret over selling Trader Joe's, indicating that his decision was influenced by fear rather than a true desire to sell.

Entrepreneurial Lessons and Emotional Connection to Business

  • Joe Colomb emphasizes the emotional aspect of businesses and the importance of loving what you do.
  • He criticizes the concept of an "exit strategy" for entrepreneurs and expresses a preference for remaining actively involved in the business.
  • The book concludes with a powerful message about the potential regret of selling one's life's work and the importance of following one's instincts.

"I detest the term exit strategy."

This quote conveys Colomb's disdain for the idea of building a business with the intention of selling it off, suggesting a deeper, more personal connection to one's work.

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