Former President of Trader Joe’s Doug Rauch on Vendor Relationships (Archival) | Big Think

A lot of the challenge was simply to reinvent a way to, uh, reinvent a way to buy. At that time, back in the 70s, private label was mostly generic or brand name where it was off price. You went into a store and if you got their own store label, you expected lower quality. Therefore, that's why you were the trade-off for paying, uh, less for it.

The angle that we wanted and we took at Trader Joe's was, let's find a way by buying direct, by cutting out, you know, the various steps and all the what we thought were unnecessary costs. Let's see if we can't get high quality at a lower price. So one of the obstacles was to make sure that manufacturers understood what the process was. The second was, you know, to make sure our customers understood when they walked in the store and suddenly there was Coca-Cola was gone or that whatever they were used to.

Trader Joe's was in a constant state of reinvention and was continually reinventing itself, which was both disorienting for existing customers and at times, you know, exciting and new and different for new and existing customers. I still remember this day that when we dropped cigarettes at Trader Joe's in the mid 80s, a number of people were very upset that we were now turning into a health food store.

That simply built that one act. They used to be able to come in and kind of use Trader Joe's as a convenience store to buy cigarettes. Territories have clearly moved away from that model, and they couldn't offer, not only did it not fit into sort of a health and wellness concept, but it also, you know, was just like, could not offer it any better price, any different. There was nothing distinctive about it.

So for us, it was that every item had to have a reason to be there. It started to create this concept that we're a store of stories and that every product has a story. Everything has a story. That was the fun—the storytelling—and the storytelling part of it was the part that really got to engage the parts of our customer, uh, that was just more than a transaction.

The magic, I think, to Trader Joe's as we move forward and what has engaged customers over the years with Trader Joe's is the fact that we've been able to create a context that transcends just the content. The context of the transaction is more important than the content that comes. A lot of it comes out of that storytelling, comes out of that mission that was very clear.

Now executing it had many stumbles, and you know, I, uh, had had more bad ideas and could fill an entire Walmart, uh, before we hit upon some of the things that, that really worked. Are you gonna come to Trader Joe's? You know, there's not just can you do the work, and you know, will you do the work, but is it a fit?

What makes it a fit with Trader Joe's? In this sense, I'd like to speak a little broader, if I could. I think that in general, if you're an entrepreneur coming out of, uh, school or you're young and you want to get into business, I think the key thing is to make sure that you are creating a value to a customer.

This was the key thing I got in my education from Peter Drucker: the only valid definition of a business is to create and keep a customer. So that customer focus is really critical, and I think that particular Trader Joe's, those employees that understand that they're there to create a magnificent shopping experience.

I like to say about Trader Joe's that certainly from the retail end, Trader Joe's is a customer experience company that happens to sell food. When they're doing things right, it's impossible for the customer to come into the store, interact with employees, leave, and not feel in some way a little better.

It's that sort of boomerang experience where they want to come back that creates that magic. So whatever you're doing, whatever role, whatever field, whatever profession you take on, it's clear you've got to identify who your customer is and make sure that you're creating real value for them that’s sustainable long term and has in mind their benefit.