15.11.2021

ENTREPRENEURSHIP: HOW DID A BATCH OF BIG EGGS TURN INTO AN EMPIRE OF GROCERY STORES?

Sixty years ago, Joe Colom was a young entrepreneur who ran a chain of stores called Pronto Markets, which was not doing very well.

Today he is known as Trader Joe - the founder of an empire of grocery stores in the United States.

The chain has more than 530 stores in the United States with 10,000 employees and revenue of $ 16.5 billion by 2020, according to Supermarket News and IGD.

According to Colom's memoirs published earlier in the year, this would never have happened without a small number of large eggs.

Colom, who died in February 2020 at the age of 89, tells his story in his book, which was published posthumously in June this year. It all started in 1962, when Pronto Markets was a small chain of about 10 stores in California and was experiencing difficulties in the face of competition from larger companies such as 7-Eleven, writes CNBC.

One day a farmer comes to Colom with an offer. "A man selling eggs came into my small office. He had a problem. He had too many large AA eggs."

The desperate farmer offered to sell the eggs to Colom for the same price as the regular ones, even though they were 12% bigger. The farmer had a limited quantity, which was not enough for the big supermarkets, but he would still report a significant loss if he did not sell them.

Colom willingly agreed to the deal and immediately placed ads for the discounted eggs, which he sold at the same price as regular eggs. The business has started, but more importantly, this scenario has led Colom to consider other ways in which he can exploit loopholes and market failures in terms of pricing.

"The ads we started running revolutionized Pronto Markets," Colom wrote. "They helped us generate the profits I needed, first to keep from sinking, and then to build Trader Joe's."

One such loophole, for example, was the import of wine. In 1970 - three years after opening the first store under the name Trader Joe's in Pasadena, California, Colom found a friendly importer who could import wines from the famous French region of Bordeaux at a lower price than most wholesalers who stocked other retail stores.

The petitioner allowed Colom to determine the prices at which to sell the wine to his customers. This meant that Trader Joe’s could undercut the prices of other retailers, which were set by wholesalers under the California Fair Trade Act.

"We had found a loophole in the law and passed it by truck," Colom wrote.

As Trader Joe's grew over the years, the egg experiment became "one of the cornerstones of Trader Joe's marketing," he wrote, helping him create four tests to determine which products to sell.

The items were supposed to have "high value per cubic inch, high levels of consumption, easy to handle, and something we could stand out in terms of price or range."

At some point, Colom and his team realized that US regulators had imposed severe restrictions on imports of most cheeses in order to keep local producers competitive, but there were no such restrictions on Brie cheese.

Trader Joe’s quickly became Brie’s largest importer in the U.S. and at one point even sold it at a lower price than Velveeta cheese. At a later stage, the company used the same principles with products such as coffee beans and maple syrup, buying the syrup in cans of 50 gallons (190 liters) from a cooperative in Quebec.

In his memoir, Colom describes the large eggs he sells at Pronto Market as "our first breakthrough in product knowledge."

It definitely turns out that he was not the last.