How Trader Joe’s Wine Obsession Launched Its Grocery Revolution

America’s favorite supermarket discovered its retail formula in booze

10 min readNov 29, 2020

Illustration: Rob Dobi

In1957, Joe Coulombe knew nothing about the grocery industry. He was 27 years old and had never taken a course in retail. He had never operated a cash register, waited on a customer, or filled out a purchase order for a wholesaler. He had no particular interest in food and cultivated such a rarified wine palate that he preferred to sip on Paul Mason Cooking Sherry to relax.

He was however a recent Stanford Business grad who had been hired by the Rexall Drug Company to revive its failing Owl Drug chain. As part of this process, Joe discovered 7-Eleven, then a relatively new chain out of Texas. Rexall’s response was to ask Joe to start an imitation chain in California. This struck him as madness, but nevertheless Rexall corporate selected six Owl stores and declared they would form the basis of a new chain. Joe is named president, and the fleet of stores that will become Trader Joe’s of today is born.

His first act as president was to find what he thought was the best run grocer in town and apprentice himself, offering to work free on weekends in exchange for a half hour of the owner’s time after each shift. The owner was giddy — a Stanford grad mopping his floors! — so for months, Joe spent his weekends slicing boxes and stocking shelves, before heading to the back office with notebook and pen, asking every simple question that came to mind.

Later, he would call it the best way to get an education. One observer tells me, “that grocer got a smart young kid to work with him for a few months. Joe got a billion- dollar business.” But Joe’s own personal takeaway: He didn’t actually like the grocery world. How his wife, Alice, puts it, “Grocery is a very conservative culture. And Joe didn’t belong. Or attempt to belong. Early on we went to a single grocery industry convention. Then we decided never to go again.”

So he broke with tradition.

Rather than worrying about which items his customers expected, Joe became obsessed with products with a high value relative to size.

Most consequentially, he made two decisions that shaped the Trader Joe’s of today: First, he concluded that nothing in the actual store is essential. Rather than worrying about which items his customers expected, he became obsessed with products with a high value relative to size. “Joe would measure every product with a ruler and calculate price per cubic inch,” an early employee explains. “It didn’t mean we wouldn’t carry something big like paper towels, we’d just give them much less room.” The store would go heavy into items like magazines and phonographs. L’eggs hosiery sold from a vertical spinning rack that occupied less than one square foot of floor space, becoming his Platonic ideal. Weird items like ammo became big winners. “We were doing 2% of sales in bullets each month,” the same employee explains. “Little boxes, incredibly easy to handle.”

Second, inspired by the development of the Boeing 747, which held two and a half times more passengers than its immediate predecessor but required only a slight increase in crew, Joe decided to maximize the return on his investment in employees. Rather than increasing floor space, opening new stores — growing his business by diluting his talent pool — he decided he wanted to grow in a way that maximized that investment.

A focus on booze knit these shifts together. Liquor licenses — which at the time cost almost as much individually as the startup cost for an entire store — were the perfect way for Joe to increase his investment per employee. And a bottle of wine was the ultimate high price per cubic inch product.

The first TJ’s would open with 100 brands of scotch, 70 brands of bourbon, 50 brands of rum, and 14 tequilas, along with “the greatest assortment of California wines ever assembled.”

It was an assortment that petered out at just 17 labels — and was valued most of all for the slogan it produced — but its immediate success pushed Joe to teach himself the basics of the wine business from the ground up. Learning the intricacies of wine was a decision he would describe as his most consequential decision as a grocer — and led him to break with tradition in ever greater ways.

The first lesson he learned: There was no such thing as wine, only wines. Even product from the same grape, grown on the same soil, crushed by the same vintner, varied so much year to year that price in wine was never set by brand but by vintage. Wines were the opposite of Cola-Cola and just about everything else he was selling.

The second lesson was that wine was a deliriously complex business. At the time, California liquor law was dominated by a series of Depression-era regulations called Fair Trade, designed to limit competition and help smaller independent stores. In theory, Fair Trade was simple: All retailers must set the same price for alcohol. But in practice, Fair Trade was a byzantine maze of regulations, and by and large, rather than wading into that regulatory swamp, retailers and wholesalers alike simply took their cues from one another; instead of studying the source material, Joe observed, they studied the competition.

Joe, on the other hand, decided to embrace the tangle. He traveled to Napa, then France, attending lot auctions and learning production. He studied the Fair Trade regulations in depth and asked a lot of obnoxious questions.

And in one particular question, he hit pay dirt.

In1970, Joe noticed an anomaly with the price of a Marques de Olivar wine. None of his buyers could explain it. He realized bottles that came through the wine arm of Pepsi had slightly different prices than those coming through smaller wholesalers. The longer he studied the issue, the more convinced he was that he stumbled onto something astounding: Imported wines that did not have an exclusive distributor could be posted at different prices depending on the wholesaler. Here, buried in the weird phase boundary that is the interface of regulation and practice, Joe had figured out something nobody else in the entire industry had seen: There were no Fair Trade pricing controls on imported wine.

“As I learned time and time again, success in business often rests on a minute reading of regulations.”

So Joe tracked down a veteran importer who confirmed Joe’s analysis and agreed to buy whatever wines he asked. The first sales were glorious. The price of wine shattered. “30 years later people still come up to me and talk about how they bought Latour for $5.99 or Pichon Longueville Lalande for $3.69,” Joe explains. “As I learned time and time again, success in business often rests on a minute reading of regulations.”

In three years, TJ’s was the leading retailer of imported wine in California.

At which point, Joe turned his attention toward domestics. Where he learned his third lesson about wine. With domestics, actual wine knowledge proved much more important than regulations. The ability to discriminate between a wine that would sell and a wine that would cause his customers to sneer was not something you could learn by reading case law. It required a physical depth of knowledge.

So in the courtyard outside Trader Joe’s small central office in Pasadena, Joe installed a tasting table. Then he began sampling. “Neighbors came. Friends came. Buyers came. Everyone came and did a tasting,” an early employee tells me. “Sometimes we’d do them blind. Sometimes we’d make a presentation. The only thing we asked was that they answer a few questions and tell us how it ranked.”

And this was lesson three: People were stunningly clueless about value. Wealthy friends would instantly vote down wines priced less than three dollars. Wines from highly regarded producers often stunk in the blind. Other bottles, regarded as swill by their producers, went over big. And so slowly, after uncorking, sniffing, and spitting tens of thousands of bottles, they learned enough to trust themselves.

The story of Two-Buck Chuck, or Charles Shaw — the notorious red wine Trader Joe’s rolled out at the mind-blowing price of $2 a bottle and sold into essentially unquenchable demand (up to 6,000 bottles a day per store, coming to represent a solid 12% of the total California wine market all by itself) — is almost a perfect embodiment of Joe’s entire ethos. It was built on the knowledge acquired by their wine program, and stares with a bull’s-eye back at their target audience — so devoid of character it achieves an almost frictionless drinkability, yet neither too sweet nor thin to inspire scorn. This was not some freakish stab in the dark that got proven right. Whole Foods, Walgreens, or Kroger all could have put out a $2 bottle of wine; none would have had the success of TJ’s.

“Our first real product knowledge came from wine,” Joe says. “That indoctrination flavored everything we subsequently did in foods.” Supermarkets revel in the continuous product. It makes everything easy for them — if you promote Coca-Cola you don’t have to explain it, don’t have to worry about it, all you have to do is advertise Coca-Cola and note the size and price in the copy.

Wines resist this. They change too often. They reflect an authentic variability. Owners pride themselves on their scarcity. They require judgment and knowledge and a tolerance for risk during acquisition. And for whatever reason, as consumers we have been trained to understand this in a way we haven’t been trained for, say, jam or ice cream or any other branded product in our lives. So, for wines, we typically make products of their retailer. You find a good wine shop and then trust the owner to point you in the right direction. The more Joe thought about this, the more he realized it could be true of grocery as well.

One of the first places Joe put this idea to the test was with health foods. It turned out health foodies were the exact same demographic as his wine connoisseurs. “The people who really thought about what they ingest — wine connoisseurs or health food nuts — were basically on the same radar beam.” Both were rejecting the masses contented with Folgers coffee, both had an internal need to assert their individuality. Both were seekers who craved information, shoppers for whom buying was a material expression of that craving.

In executing this, bran proved something of a riddle. On one hand, bran was undeniably healthy, his doctor touted it; on the other hand, it absolutely violated his high price, low cubic inch commandment. You could fill a whole room with bran for a few hundred bucks. So Joe asked his bran supplier to bring in nuts and dried fruit to help pay for it. Cashews, almonds, these were the type of high-density, high-price products he wanted to build his chain around. The more he looked into nuts, the more he saw what a lazy job most grocers did with them. So TJ’s dropped bran, dropped the nut suppliers, and went in hard on their own, learning about nuts the way they learned about wine.

In a company-wide memo, Joe rejected several hundred years of cliché, and announced, “The Customer Is Not Always Right.”

From nuts, Joe moved to vitamins. Another high value per cubic inch product. Another space in the grocery store where the intricacies of production had led to a cartel of suppliers accustomed to setting whatever price they wanted. Within a year, TJ’s had mastered the regulations, created an alternate supply chain, and was doing 3% of total sales in Vitamin C alone.

The biggest thing Joe discovered as he peered into the supply chains of health foods was that he had been right: Almost every product in the grocery store could be sold like wine. Commodity is a matter of perception. Coffee can be Folgers or it can be terroir: The regions where beans are grown span continents and microclimates; lumping them together under a single label is as silly as lumping together Ethiopia and Brazil, or jungle and mountains. To anyone who bothered to look, the idea of a unified commodity coffee called Folgers was an invention based on simplifying trade.

But, just like with wine, most grocers couldn’t be bothered to look. It was actually antithetical to their business models to look. So Joe filled their blind spot. He went deep into Walla Walla onions exclusively sourced from Walla Walla, Washington. He carted in 50-gallon drums of maple syrup from Vermont and sold it based on location. He was given the best-tasting corn of his life, and created “Trader Joe’s Vintage Dated Canned Corn.” This was corn grown in a specific field in Idaho, isolated so it wouldn’t be cross-pollinated, and each year TJ’s would have to outbid the Japanese to buy the entire supply. And the most important thing about it? Those last few sentences were things Joe could tell his customers. He was using wine merchandising on corn, and his customers recognized it. They beat down the doors for canned corn; it flew off the shelves and another window opened in Joe’s mind.

In company-wide memo, Joe rejected several hundred years of cliché, and announced, “The Customer Is Not Always Right.” Trader Joe’s would flip the narrative, empowering buyers instead. Rather than use them as cogs in charge of replenishment, why not let them run free. His buyers actually engaged in the nuance of manufacturing, regulation, distribution, and nutrition. Customers on the other hand were amateurs, who aside from actually being the demographic he was after, had little to recommend themselves in terms of judgment and understanding about how to serve that demographic.

In rapid succession, Joe banned all outside salesmen from the store and drastically cut back his offerings. If buyers were going to be making decisions, they couldn’t be overwhelmed with paperwork or juggling the logistics of every possible food option on the planet. At the start of this transition, his managers selected from about 15,000 distinct products to stock their stores. By the time Joe was finished, a single store carried fewer than 1,500.

How Trader Joe’s Wine Obsession Launched Its Grocery Revolution

America’s favorite supermarket discovered its retail formula in booze

Written by Osbsnxixb