Online Exclusives

Transactional or Transformational?

By Tom Branna, Editorial Director | December 9, 2013

Retailers and their suppliers can always do better to serve the customer. The former CEO of Trader Joe’s explains how everyone in the supply chain can aim higher.

Why are companies in business—to make money? Or maybe it’s to maximize shareholder return? Not really, maintained John Shields. Profits may make it possible to conduct business, but profits aren’t purpose anymore than breathing is the reason for living. Yes, profits and air are vital for living, but people don’t exist to breathe, and companies don’t exist solely to make money. Companies need a purpose, explained the former CEO of Trader Joe’s. Business exists to serve customers.
 
“Start with a purpose,” he told the audience at Private Label Manufacturers Association’s Private Label Trade Show. “It doesn’t make things easier, but it can make things clearer. Why do you exist? Who would miss your company if it was gone tomorrow?”
 
But purpose needs focus; companies can’t be all things to all people, he warned.
 
“I call it E2 = 0. When you try to be everything to everyone, you end up being nothing,” he explained.
 
Shields recalled how Tesco’s announcement more than a decade ago that it was setting up stores in California sent a ripple through the US retail system. After all, Tesco had clobbered venerable Marks & Spencer in the UK, so observers were left to wonder, what was in store for the US. No one needed to worry. Shields stopped worrying when the UK Wunderkind said it was going offer low prices, convenience and quality…a case of all things to all people.
 
“Know your audience,” Shields cautioned.
 
Know yourself, your co-workers and company too, because a company’s culture is the secret to success, he observed.
 
“Culture is the one thing that can’t be copied,” he reminded the audience. “It determines how decisions are made, how promotions are given. Culture is a company’s destiny and it eats strategy for breakfast. If your culture isn’t in sync with your strategy, forget it.”
 
Culture is so important that Shields said companies must view it five years out, just as they do a strategic plan, because the right culture fosters innovation. According to Shields, employees and companies will only take risks in a culture of trust, and when people take risks, they innovate.
 
As an example, Shields recalled Nordstrom’s employee handbook was really just an index card that read:
 
“Rule No. 1. Under all circumstances, use your best judgment. There are no other rules.”
 
That freedom to innovate helped Shields create Trader Joe’s. Back in 1977, when he was 26 years old, the company asked Shields to create a private label business that would complement its successful own label wine business.
 
“We were competing against Goliaths,” he recalled. “We had to look for the gaps.”
 
To create critical mass, Trader Joe’s worked closely with its suppliers; as Shields noted, it takes teamwork, commitment and a strong culture to creative innovative products. Thirty-five years ago, the company took a major risk when management decided that if product didn’t have a story, a reason to exist, Trader Joe’s was going to drop it. That move had a big impact on inventory and today, the retailer still runs a tight ship, stocking just 4,000 or so items—vs. 36,000 SKUs for most food retailers.
 
By the mid-1980s, Trader Joe’s executives realized that dual-income families had become the norm and, as a result, convenience became king. Frozen food started to drive sales and the retailer continues to cater to time-strapped consumers. To uncover such insights, it is imperative for retailers to tap into the knowledge base of their suppliers to deliver value to their customers. Unfortunately, today, too many retailers use their vendors as piggy banks.
 
“Too many grocery chains look to vendors for revenue,” Shields charged. “Some get more revenue from slotting fees than EBITDA. That violates the reason to exist rule and that’s why the grocery industry is struggling.”
 
Today, customers demand to know what a company stands for; they hunger for relationships with retailers, which is why issues such as GMO-free and Free Trade resonate with consumers. Social media is driving the movement.
 
“It’s context, not just content anymore,” he insisted.
 
Private Brands
 
The same rules for retailers apply to their suppliers, too. Shields says he prefers the term private brand over private label, pointing out that it’s not about sticking a label on a can anymore. But to grow the brand, companies must engage the consumer and tell a good story.
 
“If you’re not customer-focused, they won’t get it,” he explained.
 
To achieve that goal, it is imperative to engage employees by giving them a voice in the decision-process and a workplace that has real meaning for them.  Make sure that employees know the products and are proud of them, Shields said.
 
“Rope is cheaper than rocket fuel,” he mused. “It’s easier to hold back eager employees than to try to light a fire under them.”
 
 
 
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