Thursday, April 7, 2016

Don't put too much credence in reports that TJ's is lowering prices across the board

Over the last couple of weeks, a story's gone viral about Trader Joe's (perhaps) introducing a sweeping set of price cuts.

Aggregators like Business Insider and slightly more reputable sources like Fortune picked up this story, which originated with a quick research trip by an investment analyst for Deutsche Bank. The analyst did a "cart comparison" of 77 grocery items, purchased at Whole Foods and TJ's. Apparently an earlier comparison found TJ's 15% cheaper, while the more recent check showed TJ's to be 26% cheaper.

The reason an investment analyst would do this in the first place is, Whole Foods is a publicly traded company. Investors are curious about Whole Foods strategy going forward, including plans to spin off a new smaller grocery store concept that seems to be a more direct competitor to Trader Joe's.

Right off the top of my head, I can think of two reasons to question the simplistic conclusion that TJ's is dropping prices. The first has to do with the design of this experiment: if Deutsche Bank wanted to determine whether TJ's was lowering prices, the way to do that would be to compare a current TJ's 'basket' with an earlier identical selection of goods. They didn't do that; they just used Whole Foods as a benchmark. Nothing I've read points specifically to TJ's lowering prices, as opposed to Whole Foods raising them.

And, they noted that the price disparity was greatest in produce. While I'm a big fan of TJ's as a company and a brand—and while I'm no fan of Whole Foods—no grocery expert would ever say that comparing TJ's produce to Whole Paycheck's was an apples-to-apples comparison. Produce is a TJ's weak point, and a Whole Foods strong point.

Meanwhile, if there are any current Trader Joe's employees who want to weigh in on the "price drop" story, feel free to contact me through this web site. I'd love your insights.