Trader Joe’s Revealed! The TFT Reader Investigation Continues…

About TFT Reader Investigations: First we asked you to vote on the topic you wanted to investigate together with our reporter. It was a new experiment in journalism, which caught the attention of the Columbia Journalism Review. Now the voting is over and we have a winner: generic and private label foods. To track our progress, pleas check out the earlier installments of the investigation series.

We need your help. Tips can be sent to investigations@thefastertimes.com – And please sign up on The Faster Times e-mail list (see sign-up box to the right) to make sure that you receive updates on the investigation as it progresses.

Nobody wants to hear anything bad about Trader Joe’s, and in a lot of ways it’s a great store. But it’s also a business that operates in the shadows. About 80 percent of Trader Joe’s food is private label, a trick it picked up when it was purchased by German superstore Aldi in the late 1970s.

Aldi is Germany’s equivalent of Wal-Mart, and has helped to deliver some of the lowest grocery prices in the world to Germany, mostly by mastering the private-label system. The company was started by two brothers Theo and Karl Albrecht. In 1979, Aldi bought Trader Joe’s, but the brothers had a big falling out and now Theo owns Aldi Nord, which controls all the stores in Germany, and Karl owns Aldi Sud, which controls Aldi stores in North America. Trader Joe’s is owned by Aldi North and although TJ’s remains relatively autonomous within this arrangement, it’s clear that the store began getting into the private-label grocery game in a big way once Aldi got involved.

By keeping its inventory low and its percentage of private-label foods high, Trader Joe’s is one of the most profitable grocery retailers in the country. And it’s not just about price: The store has done an amazing job of branding itself as your friendly neighborhood store, despite the fact that it’s owned by a giant multinational company. When pressured by Greenpeace recently to stop stocking fish on its red list, the store responded repeatedly that it listens to its customers.

The problem was that Trader Joe’s wasn’t giving its customers the information they needed to make informed decisions. In fact, in one store, one of those famous hand-written signs, reading “All the Fish in This Cooler Is Sustainable” hung right above a smaller sign that read “Orange Roughy, $8/pound.” Orange roughy is a red-listed fish. It is also on Australia’s list of endangered species, and is considered by the Marine Conservation Society to be “vulnerable to exploitation.” The orange roughy got into trouble when commercial fishermen started bottom trawling, picking up large batches of the fish. Since orange roughy live up to 150 years, once their stocks were depleted, that was basically that. Now several environmental groups are pushing for a ban on orange roughy fishing to give the species a chance to replenish.

But Trader Joe’s stayed true to its mantra. When Greenpeace launched a campaign to inform consumers, and those consumers started complaining to the store, it got rid of orange roughy and announced in March a plan to phase all unsustainable fish out of its stores by 2012.

On the private-label front, in most cases, the store starts out working with a branded product, then works out a private-label deal with the producer. One reader mentioned to us that they hint at these conversions in weekly staff memos, so we asked him to get us some examples and he did. The bulletins are long, so I’m not going to post both of them here, but any reader interested in seeing them can email investigations@thefastertimes.com, and I’ll send them to you.

In the meantime, here’s a great example from the April 29th bulletin of an announcement of a branded product (Poland Springs water) going private label:

The bulletin also reveals the other side of private label: how it works from the producer side of things. In this chart, for example, notice how the Niman Ranch baby-back pork ribs are being discontinued to make room for new TJ babyback ribs:

In some cases, that means the brand producer is going private label, but in this case, another source told us, the order with Niman–a large one that constituted the majority of the ranch’s rib supply–was unceremoniously canceled.

Niman is a fairly large enterprise, so while a shift like that could throw it for a loop, it’s probably going to bounce back alright. Small producers are not so lucky.

“You’d hear stories about it all the time, this small producer who was basically putting all their eggs in the Trader Joe’s basket and then they wouldn’t be able to shave another penny or two off their price and the order would be pulled and the company would be ruined,” says Jeff Porter, a former buyer for Andronico’s Markets [a local chain of gourmet food stores in Northern California] and current Wine Director for Mario Battali’s Osteria Mozza in L.A.

“But it’s hard for companies to sell to Trader Joe’s and anybody else,” Porter continues. “First, Trader Joe’s doesn’t like them to, and second, other stores didn’t like them to either. They know they can’t compete with Trader Joe’s prices.”

Quality food at a cheaper price is okay by me. As I’ve written in previous investigation posts, though, what doesn’t sit quite right is the lack of transparency — the fact that it’s next to impossible for consumers to figure out where their food is coming from. Moreover, Trader Joe’s has cultivated a following of consumers who would seem to care about things like putting small businesses out of business, or compensating producers fairly or being owned by a giant discount retailer.

Then again, people need to eat, and no one has extra money to burn. Our way around the issue is to try to figure out where all the TJ’s products come from. So far we’re off to a decent start (see list below), but we need your help to get more information. Know something or know someone who might know something? Please comment here or email us at: investigations@thefastertimes.com.

• Trader Joe’s Green Goddess Dressing – Annie’s
• Trader Joe’s French Vanilla nonfat yogurt- Springfield Creamery
• Trader Joe’s organic yogurt – Straus Creamery
• Trader Joe’s organic cream-top milk – Straus Creamery
• Trader Joe’s Spinach and Cheese Frozen Pizza (and the other three
  varieties in the same size box) – Amy’s Kitchen

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