FM_Imperfect Foods 07
Imperfect Foods' business is booming during the pandemic
02:42 - Source: CNN Business
New York CNN Business  — 

Online ordering is kind of a big thing these days, if you haven’t heard yet, and just about every supermarket chain in America offers delivery and curbside pickup.

Except Trader Joe’s.

The private company, which started in 1967 to appeal to counterculture shoppers overlooked by mainstream stores, rejects delivery because its brand identity is wrapped up in its distinct food brands and nautical-themed stores. One company motto: “The store is our brand.”

E-commerce is a costly undertaking for companies, and Trader Joe’s business model is suited poorly for delivery, according to retail experts. But Trader Joe’s resistance makes it vulnerable to losing shoppers who have gotten accustomed to the convenience of online ordering, especially during the pandemic.

“Trader Joe’s is skeptical of change. They have something that’s working really well,” said Benjamin Lorr, the author of “The Secret Life of Groceries.” “The chain has been very slow to adapt from its core model and core competency.”

Delivery is expensive for stores. Many supermarkets have outsourced the logistics to third-party platforms like Instacart rather than hire their own staff to handle orders. These platforms use a network of contract workers to select customers’ orders off store shelves and deliver them to their homes.

But Trader Joe’s stores are already overcrowded. Trader Joe’s squeezes a limited number of items into small stores, many on city street corners. Additional people inside stores or cars in parking lots would make Trader Joe’s unbearable. Curbside pickup would also be difficult to implement for these reasons.

Although Trader Joe’s could opt to build warehouses to fulfill grocery orders, that would be a huge investment for the company, which could force it to raise prices or cut pay.

“Creating an online shopping system for curbside pickup or the infrastructure for delivery – it’s a massive undertaking,” Trader Joe’s vice president of marketing Matt Sloan said in a company podcast in 2020. “It’s something that takes months or years to plan, build and implement and it requires tremendous resources.”

Trader Joe’s also introduces and discontinues products more frequently than many competitors. This strategy contributes to the treasure hunt-like experience of browsing the store and spurs customers’ impulse purchases. But it’s hard to recreate this environment on a website.

Trader Joe’s offered delivery in New York City for many years, but ended the program in 2019 because of high costs and limited space.

“Instead of passing along unsustainable cost increases to our customers, removing delivery will allow us to continue offering outstanding values … and to make better use of valuable space in our stores,” a spokesperson said at the time.

The company was caught flat-footed during the online shopping boom in 2020 and 2021, when many customers limited their visits inside stores to protect against Covid-19 and instead ordered to their homes.

During the peak of the pandemic, 20% to 30% of grocers’ business shifted online. By the end of 2020, online grocery shopping had hit 9% to 12% of the total market — a threefold increase from pre-pandemic levels, according to McKinsey.

E-commerce will keep growing and reach 14% to 18% or more of all grocery sales in the next three to five years, McKinsey projects.

Trader Joe’s lack of presence online means it will miss out on this sizable part of the market and puts it behind rivals like Kroger (KR) and Whole Foods, owned by Amazon (AMZN), which have poured billions of dollars into their online ordering systems.

In fact, even pharmacies and convenience stores like 7-Eleven have a delivery option these days. And Costco (COST), Aldi and other discount grocers that resisted moving online for years have come around to it.

“It does seem to be a potential missed opportunity on the sales side,” said Steve Bishop, the co-founder of retail consulting firm Brick Meets Click. “It’s a growing and increasingly significant part of the business.”