Business Retention and Development Committee Agenda and Packet 2010 09 07

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South Seas. He stocked it with convenience-store items and good booze, and at one time his shop boasted the world's largest assortment of California wine. (Decades later Trader Joe's would again become famous for wine, specifically its $1.99 Charles Shaw label, better known as "Two-Buck Chuck.") Coulombe then added health food -- a seemingly odd combination that totally worked in 1970s California. By the late 1970s he was operating more than 20 locations. The company's success did not go unnoticed. German grocery mogul Theo Albrecht, who died in July at age 88, coveted Trader Joe's -- not as part of a major U.S. expansion but as a smart financial investment. Even in the early days, Trader Joe's appeal was its narrow but zany selection and loyal customers, recalls Dieter Brandes, who did due diligence on the company for Albrecht. "It was fantastic. It was different," he says. In 1979, Coulombe sold his company to Albrecht. Coulombe tells Fortune he "can't remember" the selling price. The Albrechts, who own Trader Joe's through a family trust, have generally stayed out of the business. They visit the U.S. operation about once a year, and word around the office spreads that "the Germans" are coming. Coulombe stayed on without a management contract for a decade; in 1987 he hired John Shields, a fraternity brother from his undergraduate days at Stanford, who was CEO until 2001. Under Shields' reign, Trader Joe's expanded outside California to Arizona in 1993 and to the Pacific Northwest in 1995. Although executives worried that Northeastern shoppers wouldn't "get" Trader Joe's, the company in 1996 leapfrogged the country and opened two stores in places crawling with college professors and other bargain-hunting elites: Brookline and Cambridge, both outside Boston. Push your way into the bustling Trader Joe's in Manhattan's Union Square neighborhood, and it's hard to believe that executives ever worried that East Coasters wouldn't groove on the experience. Make no mistake: A typical family couldn't do all its shopping at the store. There's no baby food, toothpicks, or other necessities. But for this crowd of urbanites and college kids, Trader Joe's is nirvana. A closer look at its selection of items underscores the brilliance of Coulombe's limited-selection, high-turnover model. Take peanut butter. Trader Joe's sells 10 varieties. That might sound like a lot, but most supermarkets sell about 40 SKUs. For simplicity's sake, say both a typical supermarket and a Trader Joe's sell 40 jars a week. Trader Joe's would sell an average of four of each type, while the supermarket might sell only one. With the greater turnover on a smaller number of items, Trader Joe's can buy large quantities and secure deep discounts. And it makes the whole business -- from stocking shelves to checking out customers -- much simpler. Swapping selection for value turns out not to be much of a tradeoff. Customers may think they want variety, but in reality too many options can lead to shopping paralysis. "People are worried they'll regret the choice they made," says Barry Schwartz, a Swarthmore professor and author of The Paradox of Choice. "People don't want to feel they made a mistake." Studies have found that buyers enjoy purchases more if they know the pool of options isn't quite so large. Trader Joe's organic creamy unsalted peanut butter will be more satisfying if there are only nine other peanut butters a