There is a Trader Joes in Bellingham, WA near the Canadian border. Many Canadians cross the border to stock up on Trader Joes groceries because there is no Trader Joes on their side near Vancouver. One man recognized this demand for Trader Joes groceries so he set up a store on the Canadian side of the border in which he sells Trader Joes products. He calls it Pirate Joes. He buys all of the Trader Joes groceries on the US side, brings them to his store and re-sells the Trader Joes products at a slightly higher price. People are willing to buy the Trader Joes products at a slightly higher price because it saves them the hassle/expense of crossing the border (the border dissuades people from going for the even lower prices at the actual Trader Joes store in Bellingham)
Why doesn't Trader Joe's open a store in Canada?
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Pirate Joe's is increasing profits for Trader Joe's, not decreasing them. It increases sales of Trader Joe's products to Canadians. It decreases sales of Trader Joe's to no one.ReplyDelete
“A competitive firm cannot affect price, so there is little that a competitive firm can do accept react to industry price.” (Froeb, McCann, Shor, & Ward, 2014, pg.104)ReplyDelete
This concept is what Pirate Joes is based on. The owner knows that since his new store is a close alternative to Trader Joes, the prices of his goods plus the cost of travel to the actual Trader Joes needs to be lower than the prices offered by Trader Joes. If the price is equal to or higher than Trader Joes, then the demand for his product diminishes significantly. So, Pirate Joes was a risky move; one that is not going to make the owner a rich man. His company’s MR is solely dependent on 2 different markets: Trader Joes and the transportation market. It is imperative that Pirate Joes keeps the MC as low as possible to ensure the highest MR. In the grand scheme of things, this is every business owner’s main goal but Pirate Joes has a much smaller range of wiggle room.
Froeb, L., McCann, B., Shor, M., & Ward, M. (2014). Managerial Economics: A Problem Solving Approach (Third Edit.). Mason, OH: South-Western Cengage Learning.
As you mentioned, and as pointed out in Froeb’s book, in competitive industries, firms produce a good or service with close substitutes (as is the case with Pirate Joe’s) so demand is very elastic. Demand elasticity is affected however, because Pirate Joe’s does not have rivals in their particular corner of the market. There are barriers to entry present in this case; legal headaches , transportation issues, lack of scale to name a few. Even a larger company such as Trader Joe’s would have a significant cost associated with entering a foreign market – even one as close as Canada. The industry at least temporarily is made less competitive for them. This has been the key to their success. I agree with you that things may be tight in the future for them, however. The book asserts that this “short run” success may fade as market equilibrium is reached. Eventually, new players will enter the market. Trader Joe’s may Move into the market themselves if there is such a potential for profit. A larger company with better established infrastructure, resources, and pricing power would likely spell an end to Pirate Joe’s in the long term, even if the legal issues are able to be overcome.Delete
Froeb, e. (2014). Managerial Economics; A problem solving approach (3rd edition). Mason, OH: South-Western Cengage Learning.
Okay for this post, I’m going to simply ignore all the potential legal issues that can arise from the store owner and look at it from the prospective of a consumer. What has Pirate Joe’s brought to the table and winning consumers over in this one…. Convenience, Convenience and Convenience!!!! Despite the buying and reselling at a higher price Pirates Joes, which in the article it states that “prices are still cheaper than, or comparable to, Safeway or Whole Foods. Definitely, cheaper than Whole Foods.” So at minimum, Pirate Joes has one competitive advantage, deliver the same product or service of benefits as their competitors but at a lower cost (Luke, McCann, Shor, & Ward; 2014). The second key driver for Pirate Joes to succeed, is the ability to strike the adequate pricing market, to keep consumers from driving that extra distance and hassle of crossing the border to purchase the same goods at a lower price. As a consumer the key piece for me is when I put a price on my time as the trade off to spend the extra money for a product. For example, I may spend an extra $20 – $30 to save 2 hours of total travel time along with the cost of fuel, for the convenience of 30 minutes of total travel time. As a husband, parent, employee, student, homeowner & etc..., 1.5 Hours equates to a lot of things getting done as oppose to spending that time in a car traveling to save the additional money. I believe most people achieve a small quantity of this when they stop at the local store or deli, on the way home from work, to pick up a loaf of bread or milk and spend the extra money, as oppose to going to the supermarket.ReplyDelete
Luke, F., McCann, B, Shor, M., & Ward, M. (2014). Managerial Economics; A Problem Solving Approach (3rd ed., p. 115). Mason: South-Western Cengage Learning
Trader Joe’s has been owned by Aldi’s since 1979. It has created a marketing niche and storyline that appeal to consumers on both sides of the 49th parallel (traderjoes.com). In a 2013 survey conducted by Market Force, Trader Joe’s, or commonly called TJs, scored the highest ranking amongst consumers who would definitely refer it to another. The chain ranked first on atmosphere and fast checkouts, and second on cleanliness, courteous staff, merchandise selection, and accurate pricing. Interestingly, TJ’s was not in the top five in any of the following categories: convenient location, low prices, sales/promotions and one-stop shopping (Anderson, 2013).ReplyDelete
Such appeal drove one consumer to make a major economic statement about his brand loyalty to Trader Joe’s, and his desire for them to open a location in Vancouver BC Canada. Michael Hallatt of Vancouver spent over $350,000 at a Trader Joe’s in Washington and drove the product across the border to resell it at Pirate Joe’s. Trader Joe’s sued in the United States for trademark infringement and the case was dismissed, because Hallat was Canadian, and Pirate Joe’s was located in Canada, where the US court had no jurisdiction. Hallat reasoning was that he wants Trader Joe’s to open stores in Canada. It was noted during the trial that many individuals drive regularly to purchase the products at Trader Joe’s and bring them back through the border and customs. It appears that the demand is even higher by the results of Pirate Joe’s; however, there are many consumers who do not want to drive the distance, face the long lines at the border, or be questioned about grocery purchases for duties (Kim, 2013).
With the lawsuit results and the apparent demand for Trader Joe’s in Canada, one would surmise that TJ’s would have opened at least a Vancouver store. There is not a known regulatory barrier, as other US retailers/ grocers, such as Costco in 1985 opened warehouses in Canada and had success in their markets (Costco.com/history). With a recognized marketing difference (see highlights for their number one ranking) from other grocery providers one would suspect that Trader Joe’s would have a sustainable competitive advantage. There are other specialty grocery stores in the United States, but TJ’s is growing both in sales, number of locations and profits, so the competition is not eroding TJ’s market share.
Maybe TJ’s had more forethought than Target who entered Canada in 2011, and just recently announced closing its Canadian operations. Some articles cited cultural differences and not knowing the consumer, and changing the model to meet those cultural expectations could create success. One article on Target also cited Walmart’s failure in Germany, or Home Depot’s failure in China (Tedesco, 2015).
Trader Joe’s may be best suited by having Canadians travel to the US and purchase in the environment for which they are known versus trying to wrestle with cultural differences above the 49th parallel.
Anderson, G. (July 30, 2013). Why are trader joes customers the most satisfied in America. Web. (March 4, 2014). Retrieved from: http://www.forbes.com/sites/retailwire/2013/07/30/why-are-trader-joes-customers-the-most-satisfied-in-america/
Kim, S. (October 7, 2013). Trader Joe's Loses Vancouver Pirate Joe's Lawsuit. Web. (March 4, 2015). Retrieved from: http://abcnews.go.com/Business/trader-joes-lawsuit-canadians-pirate-joes-vancouver-store/story?id=20492833
Tedesco, T. (January 15, 2015). Pride took down a giant: How Target’s corporate hubris was its Canadian undoing. Web. (March 4, 2015). Retrieved from: http://business.financialpost.com/2015/01/15/theresa-tedesco-pride-took-down-a-giant-how-targets-corporate-hubris-was-its-canadian-undoing/
Competitive Advantage and StrategyReplyDelete
The source of competitive advantage leading to Pirate Joe’s success seems identifiable from a resource-based view of the business. The main assets utilized to generate economic profit are primarily intangible resources, namely the use of extremely valuable product brand-premium and knowledge of the local market. These resources enable Pirate Joe to simultaneously engage in both, a cost reduction strategy and a differentiation strategy. Thereby, allowing prices charged on products to be lower than those of close rivals with similarly unique products (Whole Foods Market, Inc.) and those of other competitors with close substitutes (Safeway, Inc.). Even though Pirate Joe’s most vital resources when combined are valuable and rare in the particular local market, they are however not inimitable and only time will tell if the competitive advantage the resources currently produce is sustainable or only temporary if other entrepreneurs succeed in copying and replicating a similar approach to the business model.
The Canadian grocery market has certainly reach is long run equilibrium phase, where there is almost zero economic profit in this industry currently. And ,So it would not make sense for Trader’s Joes to enter this market at this time” (Froeb, 104).ReplyDelete
“Grocery wars are not new in North America, but they got a boost this past year as U.S. giant Target entered the Canadian market, forcing Walmart to up its game in the grocery department, and spurring a new wave of consolidation involving heavyweights such as Loblaw and Sobeys” (.http://www.huffingtonpost.ca/2014/04/06/grocery-wars-canada_n_5100103.html).
The three largest Canadian grocery markets are’ ” Metro Loblaw and Sobeys. However these three corporations are no longer competing with each other, only. The grocery market, now dominated by retail giants and super discounts stores are selling grocery too. This comes at a time when “Seventy-five per cent of Canadians say they are only buying on sale; 71 per cent are using coupons; 66 per cent are stocking up when products are on sale; and 62 per cent are seeking out stores with lower prices” (www.canadiangrocer.com).
As a result Canadians are buying more items from discount and retail stores that are closer to their homes.
Traders Joes biggest competitor is Wholefoods. Both of these grocery markets have changed our expectations and have made shopping for food fun. Traders Joes may be small, but the store is proving to be very mighty. “This stores focus is on everyone, in that it sells gourmet, natural, organic, ethnic and multicultural products at excellent affordable prices. People whom are Trader Joes' shoppers will travel to get their.
The store believes in fair wages -for all its employees, turn over is very low. Not only does this store have customer loyalty, it has employee loyalty” (www.foodnavigator-usa.com). Trader Joe's has following, and its just doesn't make sense for the store to relocate or open in new in steady markets that have peeked and reached their long-run equilibrium.
Looking at the three basic strategies we find in the reading, there is plenty of evidence that Trader Joe’s success in Canada is inevitable. There are opportunities to lower cost be establishing clusters of stores around distribution centers. With their affiliation with Aldi, similar to WalMart and Sam’s Clubs, one truck can supply several outlets. Also as the number of outlets increases there will need to be more production of products, this is turn may lower the marginal cost of each unit produced. There is product differentiation already established. The Trader Joe brand is established and growing, and there does seem to be enough interest in the brand in Vancouver. The third strategy however is not all that attainable. We have seen large international retailers fail in certain cases as they attempt to develop market share in new regions of the world. It is difficult to say that Trader Joe would or would not be welcomed by the consumers in Vancouver, but the success of whole foods and other specialty grocers would indicate that Trader Joe would capture some business; the question is of course – enough to justify the cost, and border crossing hassles.ReplyDelete
Froeb, L., McCann, B., Shor, M., & Ward, M. (2014). Managerial Economics: A Problem Solving Approach (Third Edit.). Mason, OH: South-Western Cengage Learning.
Reading this article, the first thought that crossed my mind was that the owner of Pirate Joe’s had devised a way to gain entry to an industry despite a barrier. However, upon further thought, I had a hard time defining what that barrier was since the grocery industry is well saturated with competitors.ReplyDelete
Trader Joe’s offers a common product (organic and whole foods) at a lower than average price. The pricing strategy is unique, so the only barrier I could identify would be lower costs driven by economies of scale. Trader Joe’s is a large company with hundred’s of stores spread out among 42 States. One of their advertised strategies on their website is to “buy in volume and contract early to get the best prices” (www.traderjoe’s.com). The owner of Pirate Joe’s was able to take advantage of Trader Joe’s economies of scale since some of the cost savings were passed along to the customer.
Due to the low prices of Trader Joe products, the quantity demanded is high. When the only available products were in the United States and difficult to come by, the quantity demanded by the Canadian customers outweighed the availability of the supply, which raised the equilibrium price for that market (Froeb, et al, 2014). By purchasing Trader Joe’s products and reselling them at a slightly higher price, the owner of Pirate Joe’s was able to match the equilibrium price and provide the supply of Trader Joe’s products to meet the demand of the Canadian customers.
Whether or not this method of entry into the industry is legal or moral is another question. The market demand supported the increase in the supply, even at a higher price.
Froeb, L.M., McCann, B.T., Shor, M., Ward, M.R. (2014) Managerial Economics: A problem solving approach. Third Edition. South-Western Cengage Learning: Mason.
www.traderjoes.com. Our Story. Retrieved on 3/17/15 from http://www.traderjoes.com/our-story
The owner of Pirate Joe’s is definitely creating somewhat of a Monopoly on the Canadian side because he knows that Canada doesn’t have a Trader Joe’s or similar. The owner of Pirate Joe’s also knows that the Canadian residents are willing to pay a higher price so they don’t need to cross the border. The owner can probably get away with raising these prices until he figures out what the price elasticity of demand is for the Canadian residents and what type of value they are willing to put on those goods. The questions are: How much are these people willing to pay for the name? Would it be more beneficial for them to cross the border?ReplyDelete
Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2014). Managerial Economics; A problem solving approach (3rd edition). Mason, OH: South-Western Cengage Learning.
I have to say I loved this article. “Pirate Joe” recognized a demand for a product and decided to supply it to consumers at a slightly higher price, but much closer to home and less hassle (they don’t have to cross the border). For someone who values their time, such as myself, I would gladly pay the slight premium to save myself the time and hassle. In addition, the pricing is still lower than the other competitors in the area, such as Whole Foods, so it’s a win, win.ReplyDelete
So instead of wasting their money in court with “Pirate Joe”, why doesn’t Trader Joe’s use that money to open a store in Canada and put him out of business? And frankly, “Pirate Joe” is only creating more brand loyalty that would make Trader Joe’s a huge success if they did. If anything, creating this battle with him may only cause disgust among those who currently like Trader Joe’s and drive them to purchase other goods.
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Can I buy a can of food at Trader Joe's and sell it at a garage sale? Can I sell it to someone at work? Can I set my own price? The answers: of course I can. The scenario here is nothing more than my hypotheticals taken to the extreme. Pirate Joes is simply expanding Trader Joe's reach into a market that Trader Joe's does not participate in. However, my limited intellect does lead me to believe that there is a reason Trader Joe's should not want this situation. If people are purchasing Trade Joe's products at retail in Canada, should any of the products harm a customer Trader Joe's is in the "chain of distribution" and therefore liable under a products liability lawsuit. Pirate Joe's is not answerable in any way to Trader Joe's and may possibly mishandle products and also may not carry any liability insurance, making Trader Joe's potentially liable for Pirate Joe's negligence or otherwise tortious conduct.ReplyDelete
Trader Joe’s is still getting all of the sales that it would if Pirate Joe’s was not open. The difference is that those sales are coming from a single Canadian buyer rather from a multitude of them. As we know, by moving lower value items to higher values, wealth is created. Pirate Joe’s has figured out that the Canadian market is willing to pay more for the Trader Joe’s product rather than having to cross the board to shop the actual store, also an opportunity cost for the consumer.ReplyDelete
In order for Pirate Joe’s to be successful they need to constantly monitor their expenses. Regardless of the legality discussions that have surrounded this business venture, Pirate Joe’s need to continually monitor the costs of running their business since they are very much reliant on the success of Trader Joe’s in the US grocery market.