As we look ahead to next week’s Groceryshop conference, we thought we’d take a closer look at one of the more disruptive players in the grocery category: Trader Joe’s. Consumers’ emphasis on disruptive value has been one of the major topics across the grocery store category in 2023--something we've spoken about several times this year--but with ripple effects across all of retail. We continued to see this trend play out in August when comparing visitation trends between conventional grocery chains and value-oriented grocery chains (below).
Against a constantly evolving consumer spending backdrop, Trader Joe’s has emerged as one of the breakthrough stories in retail in 2023. The grocer maintains a much higher private label mix (roughly 80%) than most grocers, which has allowed the company to keep pricing more competitive than conventional grocers and has certainly played a part in the company’s success (as it has for other grocers as well). We also attribute some of the company’s success to constant innovation among its private label products–there are several websites devoted to highlighting Trader Joe’s new products every season. Placer’s blog team also examined some of the reasons for Trader Joe’s success earlier in the year, but we thought we’d take a deeper dive and examine some additional reasons the chain has been outpacing the grocery category–both value and conventional grocers–in 2023.
When we adjust for store unit growth and look at visit per location trends, we see Trader Joe’s diverging from many of its competitors and posting year-over-year gains (below). As we recently shared in Placer’s TL;DR newsletter on LinkedIn, visit frequency for most grocery chains is down this year. Our data indicating that cross-shopping among grocery customers has also increased this year, suggesting that consumers are visiting a greater number of stores—not just value-oriented grocers, but dollar stores and convenience stores as well—as they seek out the best deals.
Going another layer deeper, the numbers get even more impressive when looking at Trader Joe’s visits per square foot over the past 12 months. The math checks out here–if Trader Joe’s has roughly the same visits per location as a conventional grocer, then it shouldn’t be a surprise that it averages 2.5x-3.0x visits per square foot than other grocers when the average Trader Joe’s location is around 15,000 square feet while the average conventional grocery store is between 40,000-60,000 square feet.
50 visits per square foot on a trailing-twelve-month basis puts Trader Joe’s in some rarified air. When we’ve examined visits per square foot across multiple retail categories in the past, 16 visits per square foot would equate to roughly the 75th percentile for all grocery chains, and Trader Joe’s does more than three times that amount.
Trader Joe’s visit per square foot superiority has been noted before, but we also want to look at why they’ve been able to outpace the rest of the grocery category in 2023. Ultimately, we believe it comes down to an ability to attract a lower-income consumer. Below, we’ve presented captured market median household income for Trader Joe’s collective trade areas from Q1 2019 to Q2 2023. We see a meaningful drop in trade area household income over that time period.
How does this compare to other grocers? Below, we’ve presented how Trader Joe’s trade area household income compares to several other leading grocery chains. Almost all grocery chains have seen a decrease in the median household income among its visitor trade areas compared to pre-pandemic levels, something we attribute to shoppers visiting a wider variety of stores as they seek out value (as we mentioned above). However, Trader Joe’s has been an outlier here too given the 8% decrease in household income from Q1 2019 to Q2 2023.
Interestingly, it’s not just new visitor acquisition driving Trader Joe’s success in 2023. We saw Trader Joe’s visit frequency decline during 2021 and 2022 as it started to attract lower-income consumers. However, thus far, we’ve seen visit frequency start to inflect in 2023, suggesting that Trader Joe’s customers are becoming more loyal. This should serve the chain well as it continues to expand into new markets.