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

Written by Tricia McKinnon

Published March 17, 2022

Strategy and Growth

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.