Not Your Average Joe!
I was doing some research on grocery stores recently. I’m fascinated at how different grocery stores operate. I grew up in the supermarket era. When I was a boy, we’d drive to Brockton from Easton to go to BPM (now called Shaw’s). When I was in high school, the big deal was a new Shaw’s opening up in town. Instead of a 30-minute drive to Brockton, the supermarket was less than 10 minutes away.
For years, whether you were shopping at Shaw’s, Stop & Shop or Star, it was pretty much the same experience. The stores were laid out similarly, with your perishables near the door, the meat and refrigerated sections at the back and sides and your grocery items and other non-perishables in the middle. It’s the way most of us understand a supermarket today and it allows us to enter one from Bangor to Bakersfield and find what we need in an efficient and effective manner.
But there are some stores that have bucked the trend. Whole Foods focuses on, well, whole foods. It’s “earthy-crunchy.” It’s marketed as planet-friendly and better for you.
You also have higher-end stores like Wegman’s. Wegman’s specializes in higher-end prepared foods. The experience is very up-scale. Quality and service are very high and priced accordingly.
On the opposite side, you have mega-discounters, led by Walmart, Sam’s Club (owned by Walmart), Costco and BJ’s Wholesale. Here service is mostly non-existent. Price is the ultimate goal. And people flock to these stores because of it.
In fact, these super-discount stores have changed how we buy many products today. I recall grocery shopping with my mother “back in the day.” If we bought more than 2 rolls of paper towels (always Scott, never Bounty), it was a banner week. In fact, my dad would get mad if we used too many paper towels. Today? My folks buy the big 16-roll packs either in BJ’s or even at the normal grocery store. I’m not sure you can even buy single packs of paper towels anymore.
A Cut Above
Despite all of the specialty stores, one has got all of them beat: Trader Joe’s. People don’t just shop at Trader Joe’s. They make pilgrimages. It’s almost a religious experience.
Trader Joe’s is owned by the private firm Aldi Nord. That name might sound familiar. Aldi is also the name for a discount grocery store in the States. Although that one is owned by Aldi Sud. Amazingly enough, Aldi Nord and Aldi Sud are owned by two brothers who split the company when their dad passed away.
Both stores are committed to low low prices and a reliance on house brands. But Trader Joe’s takes it to the next level.
How effective are they? On a per-square-foot basis, Trader Joe’s sells 2-5 times more groceries than all other major players. They have less space (most TJ’s stores are fairly small) and sell more product.
Aldi Nord did not invent Trader Joe’s. They purchased the Southern California grocery store from the original owner. And much like Ray Kroc and McDonald's, Aldi Nord took what made Trader Joe’s great and multiplied it.
If you’ve never been to a Trader Joe’s, it truly is an experience. Their hiring practices are... well, unusual. They target gregarious, outgoing people almost exclusively. Training is more focused on customer engagement than actual store practices such as operating a cash register and how to stock shelves. Every employee is there to interact with customers first.
Trader Joe’s internal marketing is amazing as well. You’ll rarely, if ever, see a TJ’s circular in your mailbox or the local newspaper. They don’t do sales. They don’t do coupons. But the marketing within the store borders on sublime. They don’t carry honey mustard. They carry Honey Pale Ale Mustard that is described as crisp and frosty. I’m not sure my mustard has ever been frosty before.
If you want something sweet, perhaps you want a popsicle. No such luck at Trader Joe’s. Instead, you can have a Cold Brew Latte Dessert Bar. Tell me that doesn’t sound better than a fudgesicle or an ice cream sandwich!
What Trader Joe’s does best is to utilize scientific methods to help customers make fast satisfying choices and buy more products because of it.
More Is Better, Right?
We’d all agree that more is better. A gallon of ice cream is far better than a pint. A million dollars is better than $100,000.
But what about choice?
We’ve been taught that more choice is better than less choice. If we get more options, we can make better decisions and leave more fulfilled.
Behavioral economists have found the exact opposite is the case. In one groundbreaking study – involving grocery stores no less – researchers offered samples of jams and jellies. They had 2 different booths. In the first, there were 24 different choices. In the second, there were only 6.
By far, more people stopped when there were more choices. 60% of customers passing by the 24-choice booth stopped for a sample versus only 40% for the 6-choice sample.
But to determine the effectiveness of choice, a coupon was given to shoppers that sampled in both the 6 and 24 option booths. This allowed researchers to determine the effectiveness of each booth.
While many more people stopped for the larger number of samples, ten times as many people redeemed the coupon when they only sampled 6 varieties versus 24.
It turns out that having more choice actually vapor-locks our brains. It seems logical. Again, a million dollars is better than one hundred thousand dollars. But ten choices are not better than three.
It probably explains the exasperation of most parents at a local ice cream parlor. At home, you might have 2 or 3 varieties of ice cream, if you are lucky. Children choose rather quickly. At Baskin Robbins, with 31 (million?) flavors, the choice seems overwhelming.
Think of it this way: Let’s say you had a multiple-choice question on a subject you were aware of but were not well-educated in. You have three choices, A, B, and C. It isn’t a subject you are 100% comfortable with, but you might be able to answer it. Maybe. At worst, you’ve got a 1-in-3 chance of a right answer.
But let’s say I wanted to help you. I wanted to help you make the right choice. Instead of 3 possible answers, we now have 20. In place of A, B, and C, you’ve got A, B, C, D, all the way to T.
Does that help you make a good decision? Or is it just getting in the way?
At Trader Joe’s, the majority of the items for sale are “house brands.” In my day, we called those “generics.”
Take the cereal aisle in your regular mega-mart. Forget the sheer number of cereals. How many are flakes of corn? Maybe 5 or 6? Even if I get my decision down to a “corn flake” cereal, do I pick Kellogg’s Corn Flakes or Post Toasties or a generic or an organic?
At Trader Joe’s, you might get two choices. In many items, you’ll only get one.
Does that make TJ’s customers unhappy? They didn’t get a choice! How could they be happy?
Trader Joe customers barely notice the lack of choice and just enjoy the products at a low price. The mental time and effort spent on “which brand” is then focused on the next item that TJ’s is hawking with their hand-made signs and unusual overly descriptive product names.
How can we apply this to our regular lives? Well, if we know that more choice is bad for us, we can do things to minimize our choices and maximize our enjoyment.
Treat yourself like you were talking to your 4-year-old self. You don’t ask a 4-year-old what he wants for dinner or you’ll be up until breakfast deciding. “Do you want pasta or chicken nuggets?” You minimize choices before a decision has to be made.
Our brains aren’t wired any differently at 60 than at 4. Narrow down your choices quickly, eliminating obvious options that you would never pick. This is true whether you’re deciding what movie to watch or what to eat at a new restaurant.
The same goes with your investments. There are literally millions of investment choices out there. Trying to understand and evaluate all of them is dizzying. It can cause you to stop making decisions altogether.
And when it comes to investments, not making a decision IS a decision. Even if you leave all of your money in cash, it’s still a decision and has consequences.
Just like at the restaurant or the movies, you need to pare down your choices. Figure out which categories and vehicles don’t fit for you and throw them out of the mix.
Certainly, investing is more complicated than that, but starting by paring down choices will help you make better decisions in your retirement planning from entertainment to investment to tax planning. And once you start utilizing the process, it will begin to become second nature, reducing your stress and allowing you to enjoy the choices you do make.
Thanks for taking the time to read our blog this week. If you have any questions or concerns, please don’t hesitate to email us at firstname.lastname@example.org or call us at (800) 453-3209. If you don’t already have a copy of my book, The Biggest Financial Mistakes Retirees Make, you can order it on Amazon or click here and we will get a copy out to you, free of charge!
To receive blog updates via email, click here.