Theo Albrecht, Trader Joe's, and Ruthless Focus

 
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The title of the Washington Post obituary sums it up: "Theo Albrecht, 88, dies; started Aldi food chain and expanded Trader Joe's." Here's the lead.

"Theo Albrecht, 88, a reclusive German billionaire who made his fortune building a discount-food business empire in Europe before buying and expanding the Trader Joe's grocery chain in the United States, died July 24 in his home town of Essen, Germany. No cause of death was reported. In the years after World War II, Mr. Albrecht and his older brother Karl took over their mother's corner store in Essen and turned it into Aldi, a multibillion-dollar chain of thousands of grocery stores whose success was firmly rooted in the Albrechts' penny-pinching ways."

It wasn't just "a" chain of discount grocery stores. ALDI (short for Albrecht Discount) was the chain that beat Wal-Mart at its own game. Wal-Mart threw up its hands and abandoned the German market four years ago.

There are really two ALDIs. In 1960, the brothers disagreed about whether they should sell cigarettes. Theo thought it was good business. Karl thought it would create a shoplifting problem.

The result was a friendly split into two companies. Theo got the ALDI Nord, covering Northern Germany and the rest of Europe. Karl took Southern Germany, Australia, the US, and the UK.

In Ruthless Focus, we recommend staying with a strategy as long as it works. That's what the Albrecht brothers have done. Their basic low price, cost-cutting strategy is the same in 2010 as when the brothers took over their Mutti's grocery 64 years ago.

But Theo Albrecht left us an even more impressive demonstration of the principle. It's part of the story of Trader Joe's.

The original "Trader Joe," Joe Coulombe, founded the company in 1958 in Southern California with the name Pronto Markets. The markets were basically convenience stores.

That made them vulnerable when the giant Southland Corporation began setting up its 7-11 stores nearby. His original strategy wouldn't work anymore, so Joe came up with something else.

He changed the strategy to targeting the educated consumer who wants a good buy. Probably that consumer was modeled on his father-in-law, a college botany professor who didn't make a lot of money.

He decided on low-cost gourmet foods presented in a fun atmosphere. The South Sea Island theme was carried through in the décor and the shirts worn by the staff. Oddball graphics and awful puns abounded.

He named the new stores "Trader Joe's." The first one opened in 1968 in Pasadena. In 1979, Theo Albrecht's ALDI bought the company.

At this point, ALDI could have acted like most big companies. They could have changed the way Trader Joe's did business. But they didn't

Trader Joe's strategy was working in 1979. So Albrecht stayed with it. It's still working today.

Here's to Theo Albrecht, who was not just a fabulously successful businessman, but one who realized that the best strategy is the one that works, not the one you came up with.

Boss's Bottom Line

When you've got a strategy that works, stay with it. That frees your people up to lavish innovation on the strategy. It helps you concentrate your resources and your efforts.

Check out my latest book, Ruthless Focus, at Amazon.

Posts about Ruthless Focus

Ruthless Focus: How to use key core strategies to grow your business
The Story of the Book

Annotated Table of Contents
Keep it Simple, Strategist
Strategy: Staying with What Works
Ruthless Focus on the Business Basics
Ruthless Focus: What about Toyota?
Ruthless Focus: Three Kinds of Crisis
The story of Yahoo's shifting strategy
Tom Stemberg, Staples, and the Two Strategy Questions
How Doing Acquisitions is like being a Fighter Pilot
Learning about Differentiation from Barbeque
Danger, Trader Joes!

 

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Comments

  • 7/29/2010 2:13 PM Laura Schroeder wrote:
    It certainly proves the point. Although sadly for German shoppers, Aldi is nothing like Trader Joes. I guess we didn't get the 7-11 threat over here.
    Reply to this
    1. 7/29/2010 3:01 PM Wally Bock wrote:

      There really is nothing like Trader Joe's. Americans do get to shop at ALDIs, though. Theo's brother, Karl, has set up several in the US and plans more.


      Reply to this
  • 7/29/2010 2:17 PM Anna Smith wrote:
    Growing up in Germany, I've always been a huuuuuuge Aldi fan. Here in Charlotte, NC, I've heard people refer to Trader Joe's as 'Aldi's big brother' - after reading your post, I finally get why.
    I enjoyed reading Sam Walton's autobiography and am now wondering if Theo Albrecht ever wrote one. The Albrecht brothers' ruthless focus really is amazing. I didn't think the company would stick to its model here in the US (you have to 'rent' your shopping cart for $0.25, bring your own bags or cartons, and the merchandise is displayed on pallets), but they did. And it works. Aldi, Trader Joe's and this post rock! Thanks for writing.
    Reply to this
    1. 7/29/2010 3:09 PM Wally Bock wrote:

      Thanks for your comments, Anna. As far as I know, neither of the brothers ever wrote a book. The family is very secretive and that only got more intense after Theo was kidnapped and held for ransom in 1971.

       

      The similarity with Sam Walton ends at the business model. The Albrecht brothers grew up in post WW I Germany when inflation was rampant and food was hard to come by. Then they lived through the Nazi era. Karl, the older, fought on the Eastern Front. Theo served in North Africa. None of that life experience is likely to make you the sort of folksy fellow that Mr. Sam was.

       

      As for the model, Karl's ALDI Sud has stores in the US and the model is pretty much the same as the German one. You can check that for yourself if you're willing to drive to Matthews NC, where there's an ALDI store.


      Reply to this
  • 7/29/2010 3:51 PM Anna Smith wrote:
    Very, very interesting! Thank you so much for the information. And yup, I take a trip to the Matthews ALDI at least once a month - I love their artisan breads, phenomenal deals on produce and more
    Reply to this
    1. 7/29/2010 4:50 PM Wally Bock wrote:
      Glad to be of help. Thanks for adding your voice to the discussion.
      Reply to this
  • 7/29/2010 6:44 PM Heath Davis Havlick wrote:
    What a great post! I had no idea about Trader Joe's roots, or about Theo's business savvy. Interesting and insightful, as usual. Thanks.
    Reply to this
    1. 7/29/2010 6:55 PM Wally Bock wrote:

      Thanks, Heath. Theo and his brother are a fascinating story themselves and the intersection with Trader Joe's is just delightful.


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  • 7/31/2010 11:04 AM John Hunter wrote:
    Trader Joe's is amazing to me. You can see the difference just by visiting a Trader Joe's the employees actually want to help customers. Lots of places talk about doing this. Trader Joe's is one of the few places that actually do it (Southwest Airlines does well, so does Crutchfield but it is rare).

    You don't get that level of customer focus without continual reinforcement by the management system to achieve those results. Just look at all the failures of customer focus you experience every day.
    Reply to this
    1. 7/31/2010 11:25 AM Wally Bock wrote:

      That's absolutely my experience, John. When I first moved back east from California, there was no Trader Joe's nearby. It was the only institution that I missed. In addition to what you've noted, it also seems to me that people at TJ's are encouraged to enjoy themselves on the job.


      Reply to this
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