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Employees:

Positive: Increased wages, retirement contributions, health insurance, and other benefits increase employee satisfaction and well-being.

Negative: Increased performance expectations may stress employees.

Customers:

Positive: Employees are happy leading to an increase in the quality of customer service received, which also increases how pleasant customer's shopping experience is.

Negative: Higher wages may lead to slightly higher costs in products, deterring customers away.

Competitors:

Positive: Competitors may try and compete with Trader Joe's and therefore increase their wages and employee benefits.

Negative: Smaller companies may not be able to compete with such wages and benefits, this could cause market exits.

Suppliers:

Positive: The demand for Trader Joe's unique and private-label products may increase the revenue for suppliers.

Negative: Suppliers might have to decrease their prices to balance Trader Joe's high wage costs.

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Many employees in the labor market experience hardship when trying to save for retirement. This may be due to low wages and poor employee benefits. Trader Joe's addresses such issues with their high wages, which is well above the federal minimum, as well as their automatic contributions to retirement plans.

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Trader Joe's: 10 Ways it Attracts and Retains Great Employees

Written by Tricia McKinnon

Published March 17, 2022

Strategy and Growth

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By Tricia McKinnon

Customers love Trader Joe's friendly and helpful staff. One of the keys to Trader Joe's success is hiring the right people and investing in them. Jon Basalone, President of Stores at Trader Joe's in 2019 said: " we've been around for over 50 years, and we've never had layoffs. We stay true to what we know works for Trader Joe's and our crew members." "You combine that with the pay, benefits and supportive, fun environment, and people tend to want to stick around."

This year Trader Joe's was named the third best large employer in the retail and wholesale category by Forbes and Trader Joe's was ranked as having the highest customer satisfaction rating among supermarkets in 2021 by the American Customer Satisfaction Index. With a little more than 10% of Trader Joe's employees being with the company for 10 years or longer Trader Joe's knows what it takes to attract an retain talent. If you are trying to increase employee engagement or attract better team members consider these strategies that Trader Joe's uses with great success.

1. Trader Joe's pays its employees well. Part time crew members (an entry level store position) can make up to $24 per hour which is nearly twice the highest average minimum wage in the United States. Captains (store managers) make around $100,000 per year. Joe Coulombe, Trader Joe's now deceased founder once said that: "the fundamental difference between Trader Joe's and all other retailers is the income level of employees." Speaking about his dad, Joseph Coulombe said: "he loved and believed in his employees and he wanted to keep them." "And the only way to do that was to pay them well."

2. Trader Joe's knows how to keep its employees motivated during their shifts. Instead of having to do one task all day Trader Joe's crew numbers perform a variety of tasks ranging from replenishing stock, to cashing people out to cleaning. This variety keeps employees engaged and helps to prevent boredom. "It's perfect because it breaks down your shift. You don't get tired doing one repetitive thing" said Ivetta Linnell a former Trader Joe's crew member.

"My first day at Trader Joe's, I was being shown how to cut open a box and stock some frozen food, and someone came up and said, 'let's go in the back - we're having a tasting,'" said Basalone. "The whole time, I was thinking, 'am I supposed to be doing this? I feel like I should be at work,' and the person training me said, 'no, this is a part of it. We've got to learn about what we sell.'"

3. Trader Joe's takes care of its employees by making a contribution equal to 10% of an employee's salary to their retirement fund. This incentive is available even to part time employees as long as they work a minimum number of hours. Trader Joe's automatically makes the contribution without requiring employee matching.

4. Trader Joe's makes it a priority to hire nice people. Speaking about this Trader Joe's president, Bryan Palbaum said that Trader Joe's explicitly tries to find people that have "outwardly nice" personalities since it is hard to "train someone to be nice". One of Trader Joe's former CEOs, John Shields, said that he wouldn't hire someone if they didn't smile within the first 30 seconds of an interview. The nice and friendly people Trader Joe's hires attracts similar people to work there creating a positive working environment.

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Trader Joe's: 10 Ways it Attracts & Retains Great Employees

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If you are trying to increase employee engagement or attract better team members consider these strategies that Trader Joe's uses with great success.

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The high wages and great benefits Trader Joe's offers might come at a cost to consumers. Even though, Trader Joes is known for their friendly employees and gain customers due to it. These high labor costs may lead to higher costs in products, reducing the quantity demanded for products in price-sensitive markets.

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Positive (Descriptive) Analysis

Trader Joe's high wages and benefits are above the average, attracting qualified employees.

Customers are very loyal due to their one-of-a-kind products and quality service.

Normative (Value-Based) Analysis

Trader Joe's improves the quality of life for employees by providing fair and ethical labor methods and promoting equity and inclusion.

Supports financial security for employees.

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The standard equilibrium labor market assumes that supply and demand will determine the equilibrium of wages and benefits. However, Trader Joes has a different approach, which is not relying on the market but instead offering benefits above the standard equilibrium. This yields a competitive advantage when hiring and retaining employees, simply by shifting the equilibrium wage and benefits higher.

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Efficiency:

This policy of Trader Joe's having a higher wage than the market equilibrium is efficient in regard to reducing employee turnover and increasing employee productivity.

However, these higher wages may reduce customer surplus, if product prices are increased.

Equity:

Promotes income equity due to employees, even including part-time ones, receive above average benefits.

Improving intergenerational equity through their retirement benefits, decreasing the use of social safety nets in the future.

Distributional Impacts:

Employees benefit the most from higher wages and benefits.

Customers have some trade-offs if Trader Joe's increases their prices. However, negative impact is likely small due to strategic pricing and customer loyalty.

Smaller companies and suppliers face the most burden, as they most likely cannot change cost dynamics.

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Positive Externalities

The higher wages and great benefits increase employee satisfaction, this not only reduces turnover but also benefits customers with more quality service.

Since employees have higher wages than the average as well as other benefits that would help them save for retirement, employees are more likely to have an adequate amount saved for retirement. This would reduce the amount of public assistance they would need and therefore decrease the burden on social safety nets.

Negative Externalities

Trader Joe's stores in some neighborhoods have been connected to gentrification. This may cause low-income individuals to be displaced due to property values and rents increasing.

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Trader Joe's should provide transparency to customers, addressing how their labor practices lead to improved customer service and employee satisfactions. This will assist customers in appreciating the value of the products even with possible price increases.

Trader Joe's could create supplier programs that help ensure suppliers get fair compensation and long-term partnerships. This would help reduce the burden if suppliers were face with it.

Trader Joe's could partner with other companies to help better labor standards, this would disperse the burden across the industry producing a more just playing field.

Regularly evaluate benefits to ensure they are competitive and fair.

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Trader Joe's holds a lot of market power due to their unique, one-of-a-kind products, and loyal customers. This allows them to be able to slightly increase their prices, without losing a ton of customers.

Due to Trader Joe's market power, they may be able to lower their prices with suppliers to balance out the costs of labors. This, however, may benefit the company, it also might strain suppliers, specifically the smaller ones.

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Standard Equilibrium Model may not be Applicable

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Standard Equilibrium Model may not be Applicable

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Trader Joes's does not align with the standard market equilibrium model, as it is not perfectly competitive. Some reasons for this include one buyer or one seller does not have enough market power to influence prices, companies do not sell identical goods, and buyers and sellers do not have all the information about prices, products, and market conditions. In addition to these, there are barriers to entry. This is because small starter companies cannot compete with Trader Joe's size, and therefore economies to scale.

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This article outlines 10 beneficial aspects of working at Trader Joe's that motivate skilled and unique people to work and stay working at the company. A combination of financial benefits including high wages ($17+), retirement contributions, consistent raises and employee evaluations, and providing a fun and supportive work environment make Trader Joe's both successful as a business as well as in hiring and retaining skilled workers.

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This graph shows how both an increase in supply of labor and a decrease in the demand of labor both contribute to a lower equilibrium wage, suggesting that there is downward pressure on the price of wages and Trader Joe's has the power to decrease the wages they pay their employees without jeopardizing losing employees or the interest of potential employees. As a result, there is a surplus of supply of labor, meaning that there are more people interested in working at Trader Joe's than there are positions to be filled at Trader Joe's.

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Supply and demand in this context is in relation to the labor market. The suppliers of labor are the employees and potential employees that are supplying the labor to the company that is hiring. That makes the company the demander of the labor the company that is hiring labor.

In this case, Trader Joe's is demanding the labor, and employees are supplying the labor. The high wages offered for employees increases the supply of labor willing to work at Trader Joe's, however, the low employee turnover rate decreases the company's demand for labor.

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The Law of demand says that a high price leads to a lower quantity demanded. It can then be assumed that a lower price leads to a higher quantity demanded.

The high wages and other financial benefits that Trader Joe's provides decreases the employee turnover rate and therefore decreases their demand for labor, which aligns with the law of demand.

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The elasticity of demand measures how responsive buyer are to a change in prices. A demand that is inelastic means that a change in price will not result in a large response, whereas an elastic demand results in a large response to a change in price.

The demand for working at Trader Joe's can be considered inelastic because supply of labor is not sensitive to changes in wages. Working at Trader Joe's is a unique experience and therefore not viewed as substitutable, as workers are provided with a variety of benefits as well as a supportive and encouraging environment.

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The cost benefit principle says that costs and benefits are the incentives that shape decisions. When analyzing a situation, is it important to consider all costs and benefits and make a decision that result in benefits that are at least as large as the costs.

Although Trader Joe's could reduce wages for their employees, the benefit of the productivity and effort they gain from providing high wages and other benefits outweighs the costs to the company of providing these benefits for their employees.

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Efficiency wages are high wages provided for employees that encourage productivity and effort. Extrinsic motivation is motivation driven by external rewards, like financial benefits. Intrinsic motivations is motivation driven by internal benefits, such as a supportive work environment.

Trader Joe's maintains a higher wage that encourages good work and greater productivity. It also provides a supportive and encouraging work environment that allows employees to be themselves and enjoy their work experience. This decreases the employee turnover rate as well as provides intrinsic and extrinsic motivation to work efficiently and put effort into their work.

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Current Situation:

Trader Joe's labor market strategies differ from industry-standard grocery stores, focusing on employee satisfaction by offering high wages and benefits while maintaining low costs and high employee retention.

Past Scenario:

Walmart has been criticized for its low wages and minimal benefits. In 2012, the average Walmart employee pay was $9 per hour or about $18,700 annually. Many store managers would cut full-time employee hours as a way to prevent them from getting benefits and minimizing costs.

Poor working conditions and low wages led to high turnover rates and a decreased supply of willing workers.

Compared to Trader Joe's, where the employees' full-time starting salary in 2012 was $40,000, which is more than twice of Walmarts'.

To incentivize working and productivity, Trader Joe's offers their employees an extra $10 per hour for working on Sundays and Holidays.

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Expert Viewpoints:

Zeynep Ton, an Operations Management Professor at MIT developed a system called the "Good-Jobs System" in which heavily focuses on the investment in their employees and emphasizes the giving higher than usual pay and benefits and creating models that promote productivity and loyalty.

Companies such as Sam's Club adopted this system, and saw a 25% decrease in turnover rates and a 16% increase and labor productivity.

Treat employees more like assets rather than expenses