Becoming Trader Joe: How I Did Business My Way and Still Beat the Big Guys

The top thirteen people were in the Central Management Bonus Pool. They voted each year how it would be divided among themselves and they usually voted to split the pool evenly, so Leroy got the same bonus as Doug Rauch or our Controller, Mary Genest. Like the Captains’ bonus pool, the bonus pool was determined by profit before taxes, and after the

Human Use of Human Beings,

During the next twelve years under Mac the Knife, we not only radically changed the composition of what we sold; we totally centralized the distribution into our own system, ending all direct store deliveries by vendors!

Each SKU would stand on its own two feet as a profit center. We would earn a gross profit on each SKU that was justified by the cost of handling that item. There would be no “loss leaders.”

My cash policy was this: we would always have cash at least equal to two weeks’ sales. (I think this is called an “heuristic” decision in business school.) Any month we didn’t meet the test, I would borrow from Bank of America on a five-year term loan ostensibly secured by store fixtures. But I wasn’t borrowing for fixtures and inventory, as I took

Thus, at the time, I was willing to make only 13 percent on a $20 bottle of champagne, because that was a $2.60 profit. For a $2.00 item, however, I wanted to make a much greater percentage. Actually, we persistently got rid of anything that sold for less than a dollar.

We never had “closeout” sales. What a terrible practice! You train your customers to wait for the “sale.” Any product that failed to sell was given to charity. We were developing new products all the time; sometimes they didn’t pan out. So we gave them away. I do not believe in “market testing” new products.

If all the facts could be known, idiots could make the decisions. —Tex Thornton, cofounder of Litton Industries, quoted in the Los Angeles Times in the mid-1960s. This is my favorite of all managerial quotes.

I began the transition of Pronto into Trader Joe’s. I resigned at the end of 1988. During those twenty-six years, our sales grew at a compound rate of 19 percent per year. During the same twenty-six years, our net worth grew at a compound rate of 26 percent per year. Furthermore, during the last thirteen years of that period, we had no fixed, inter

David Ogilvy’s Confessions of an Advertising Man. The numbered paragraphs, the boxes drawn around the articles, are all Ogilvy’s ideas. I still think his books are the best on advertising that I’ve ever read and I recommend them.