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Mini-cast 219: Trader Joe's - Almost An ESOP

The EsOp Mini-cast: Trader Joe's - Almost and ESOP

Bret Keisling shares the story of how Trader Joe's almost became an ESOP as told by company founder Joe Coulombe in his business memoir Becoming Trader Joe, co-written by Patty Civalleri. Many of the factors that led to the company's success are hallmarks of successful ESOPs: great salaries, high retention, open book management, and employee communication.

If you're looking for a great business book that shares the entrepreneur's journey, from struggle to great success, and the many challenges along the way, we highly recommend Becoming Trader Joe: How I Did Business My Way and Still Beat the Big Guys.


Mini-cast 219 Transcript

[00:00:00] Bret Keisling: Welcome to The EsOp Mini-cast. Thank you so much for listening. My name is Bret Keisling, and as it says on my business cards, I'm a passionate advocate for employee ownership. Earlier this week, a member of my team at the podcast recommended I check out a great book called Becoming Trader Joe written by Trader Joe's founder, Joe Coulombe, and co-written by Patty Civalleri.

[00:00:31] Now you may know about Trader Joe's, which is a very unique grocer with a very cool vibe. But did you know the Trader Joe's almost became an ESOP way back in the 1970s? Well, it's true, and I'll talk more about that in a moment.

[00:00:45] As of 2023 Trader Joe's has 560 stores in 42 states with more stores being opened regularly. In fact, in central Pennsylvania where I'm located, we got our very first Trader Joe's location just about a year ago in the spring of 2022. Becoming Trader Joe traces the origin and growth of Trader Joe's from its inception in the late 1950s, when it consisted of a handful of convenience stores in California called Pronto Markets. In the 1960s, Joe Coulombe considered the Southland Corporation, which owned 7-11 at the time, to be an existential threat to Pronto Markets. So, he transitioned Pronto Markets into Trader Joe's.

[00:01:28] As regular listeners know I was an ESOP trustee for seven years and helped to transition a number of companies into ESOPs during that time. My favorite companies to transition were those that had an employee ownership vibe long before they considered employee ownership. And there are plenty of references in Becoming Trader Joe that make clear what a good fit Trader Joe's and its founder would have been for employee ownership.

[00:01:53] Four examples really stuck out at me. The first was the founder's focus on paying his employees well. In its early days, crew members and mates, as the employees are still called, were paid, whatever the median income was at the time. That's not the median income in the grocery business, but rather of all employment and this led to Trader Joe's employees being paid significantly more than employees of other grocery stores. Today, as some of my online research has shown, Trader Joe's pays an hourly rate that's approximately double the average hourly rate in the United States.

[00:02:27] The second factor is a correlation between salary and retention. Trader Joe's founder understood that if employees were happy and well paid, they would stay longer and for a very long time retention rates soared above industry standards. In his book, joe Coulombe says that he's often asked why nobody's successfully replicated Trader Joe's and his answer was that nobody else was willing to pay the wages and benefits and thereby attract and keep the quality of people who work at Trader Joe's.

[00:02:57] The third factor was Joe's policy of interviewing every full-time employee every six months. The principle purpose of this program was to allow the employees to vent grievances, and importantly allow management to address the grievances whenever possible. In employee ownership, we often talk about communication and the employee owners ability to feel heard as an integral part of the EO culture at successful companies.

[00:03:22] The fourth thing that stood out to me was Joe's commitment to what we now call open-book management. In Becoming Trader Joe, he shared that his policy was always full disclosure to employees about the true state of the company's affairs. In fact, he included a great quote from General Patton who said that "the greatest danger was not that the enemy would learn his plans, but his own troops would not." [p. 38; Joe Coulombe with Patty Civalleri, Becoming Trader Joe: How I Did Business My Way and Still Beat the Big Guys, HarperCollins Leadership, June 2021. ISBN978-1-4002-2543-9]

[00:03:45] In fact, at pivotal times in the company's history, Joe would write what he called a white paper, which others might call a three-year or five-year plan, that included all of Trader Joe's opportunities and weaknesses and strategies moving forward. And he would then share this plan with all of the employees so they were on board with the company's mission and strategies. That's also a hallmark of well-run employee-owned companies.

[00:04:09] Knowing that I was going to record this Mini-cast, I wanted to pop into Trader Joe's and just kind of soak up the vibe. So, a friend went with me and while I was there, I walked up to a random crew member at Trader Joe's and I asked him to tell me about what it was like working there.

[00:04:26] And as he opened up a little bit, I learned that although this location in central Pennsylvania has only been open for a year, he's been with Trader Joe's six or seven years. He relocated from about 150 miles away in order to open the new store. It's probably almost unheard of - and this isn't a member of upper management, this is a rank and file employee - unheard of to be willing to travel that far for a grocery job, but he loved it. He complimented the salary. He complimented the work schedule. He complimented the environment.

[00:05:01] What I loved about the guy that I talked to is that he said in the time that he's been working at Trader Joe's it has always enhanced his personal life. His job has never interfered with his personal life at all.

[00:05:15] So, I know talking to one person is not the end all be all of research, but I think it is telling that I went in with perceptions of Trader Joe's based on the book and the first employee, I struck up a conversation with reinforced everything that was written. It's a compliment to Joe Coulombe and what he's built and what has been sustained at Trader Joe's.

[00:05:37] Now, about Trader Joe's brushed with becoming an ESOP. In 1977, Joe was pretty far along to becoming employee owned. They had hired the lawyers and even hired a valuation advisor to come up with a value for the ESOP transaction. Coincidentally at that time, California was about to deregulate, both milk and liquor and wine sales, each of which were an important part of Trader Joe's revenue and profits. Because of the uncertainty of what the deregulation would do to the balance sheet, the valuation advisors were unable to come up with a fair market value for Trader Joe's that would have allowed the transaction to proceed. [ibid., pp. 210-6]

[00:06:15] For whatever reason, Joe Coulombe was ready to sell his shares. So, he sold to the Albrecht family in Germany that also owns the Aldi grocery store chain. For the 10 years that Joe Coulombe stayed after the transaction the ownership took a hands-off approach to operations. And coincidentally, the crew member that I talked to recently said that it holds true today. That the folks who run Trader Joe's here in the United States do so with a lot of autonomy from the owners.

[00:06:44] Trader Joe's is a very cool retailer. If you haven't checked it out, please do so. The product mix is amazing. The prices are very reasonable. The atmosphere and the vibe; you can truly feel like you're in employee-owned place even though it's not.

[00:06:58] So, I hope you check out Trader Joe's. And even though the largest ESOP in the United States is Publix, a very large well-known supermarket chain, I definitely believe Trader Joe's would have been a great employee-owned company.

[00:07:12] I also strongly recommend if you like business - that's obviously detailed in the grocery business - but if you like business, if you like stories about how to grow a business, if you like learning about what techniques makes for a successful company, Becoming Trader Joe is a wonderful book. It's very approachable, easy to read, you get the sense that you're, kind of, talking to Joe Coulombe and I can't recommend it highly enough.

[00:07:39] With that, we'll wrap up today's Mini-cast. Thank you so much for listening. This is Bret Keisling. Be well.

[00:07:45] Bitsy McCann: We'd love to hear from you. You can find us on Facebook at EO Podcast Network and on Twitter @ESOPPodcast. This podcast has been produced by Bret Keisling for the EO Podcast Network, original music composed by Max Keisling, branding and marketing by BitsyPlus Design, and I'm Bitsy McCann.

Standard Disclaimer: The views expressed herein are my own and don't represent those of my own firms or the organizations to which I belong. Nothing in the podcast should be construed as guidance or advice of any kind in any field and the fact that I mentioned an organizational website or an advocate or a company on a podcast does not reflect an endorsement, but if you've heard your name or your group's name mentioned on this podcast, I'd love to have you come on and talk about it yourself.

A note on the transcript: This transcript was produced by Descript, an automated transcription service. While it has been reviewed by The EsOp Podcast, we cannot guarantee the accuracy of the transcription. Please refer to the original audio when citing sources.


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