Business Retention and Development Committee Agenda and Packet 2010 09 07

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shopper might have purchased instead of 39. Having a wide selection may help get customers in the store, but it won't increase the chances they'll buy. (It also explains why so often people are on their cellphones at the supermarket asking their significant other which detergent to get.) "It takes them out of the purchasing process and puts them into a decision-making process," explains Stew Leonard Jr., CEO of grocer Stew Leonard's, which also subscribes to the "less is more" mantra. Customers accept that Trader Joe's has only two kinds of pudding or one kind of polenta because they trust that those few items will be very good. "If they're going to get behind only one jar of Greek olives, then they're sure as heck going to make sure it's the most fabulous jar of Greek olives they can find for the price," explains one former employee. To ferret out those wow items, Trader Joe's has four top buyers, called product developers, do some serious globetrotting. A former senior executive told me that Trader Joe's biggest R&D expense is travel for those product-finding missions. Trade shows that feature the flavor of the moment "are for rookies," a former buyer said. Trader Joe's doesn't pick up on trends -- it sets them. The other dozen or so buyers, or category leaders, spend more time in the office, fielding hundreds of cold calls a week from vendors tripping over themselves to make Trader Joe's a customer. Trader Joe's is a supplier's dream account: It pays on time and doesn't mess with extra charges for advertising, couponing, or slotting fees that traditional supermarkets charge suppliers to get their products onto the shelves. "It's all transparent -- no BS," says a former executive. In exchange, suppliers have to agree to operate under Trader Joe's cloak of secrecy. Fortune obtained a copy of a standard vendor agreement, which states, "Vendor shall not publicize its business relationship with TJ's in any manner." Why the lockdown? Former executives say that Trader Joe's wants neither its shoppers nor its competitors to know who's making its products. And many suppliers aren't that keen on consumers knowing that they produce a lower-cost version for Trader Joe's either. Take Tasty Bite, which makes much of Trader Joe's Indian food. The Tasty Bite Punjab Eggplant ran $3.39 at a Whole Foods in Manhattan. The seemingly identical Punjab Eggplant that the Stamford, Conn., company makes for Trader Joe's is more than $1 cheaper. Over the years Trader Joe's has improved the way it distributes Joe's-branded goodies to its stores. Management has sought to minimize the number of hands that touch a product; whenever possible, Trader Joe's purchases directly from the manufacturers, which then ship their wares straight to Trader Joe's distribution centers. A U.S.-made cheese, for example, is sent to distribution centers nationwide, where it's sometimes cut and wrapped, taking another cost out of the equation. At a traditional supermarket, that same cheese would probably go through a distributor first, tacking on another cost. Trucks leave the distribution centers daily for the stores. Trader Joe's small stores don't have much of a back room, so ordering from the distribution centers has to be precise. This distribution process helps determine where the company opens its stores. Texas and Florida have cities that boast consumers Trader Joe's covets, but insiders say the current distribution infrastructure makes it difficult for the company to efficiently get products to those states. To pick