PL Hall of Fame–Class of 2009

Joe Coulombe: Creator of TJ's Mystique

As Joe Coulombe tells it, Trader Joe’s has gone through three significant makeovers in its evolution into what it is today.

Says Coulombe: “The concept of Trader Joe’s is difficult to explain, but let me put it into just one phrase:

“Trader Joe’s was designed by me in the 1960s and 70s to serve people who are over-educated and underpaid.”

Coulombe retired from Trader Joe’s in 1988. Previous to this, in 1979 he sold Trader Joe’s to Theo Albrecht, one of the co-owners of the Aldi discount chain based in Germany.

TJ’s Evolution x 3

According to Coulombe, the Trader Joe’s concept underwent three major makeovers during his stewardship.

“Let me try to summarize it by saying under my management there have been three Trader Joe’s.
Version 1 “was created in 1967 which was basically a Pronto Market with the world’s largest assortment of booze. As we developed the concept, we had a hell of a lot of learning to do.” The initial version of Trader Joe’s sold branded grocery products including branded wine and distilled spirits.

Pronto Markets were launched in 1954 by the drug store chain Owl-Rexall and Coulombe was hired to manage them. He had just graduated with an MBA from Stanford University. Coulombe eventually bought the markets and expanded them by 1967 into an 18 c-store chain in Southern California and based in Pasadena where the first Trader Joe’s still operates today.

Version 2 was created in 1971. “It was developed to survive the recession of 1971,” says Coulombe. “In desperation, we married the health food store to the liquor store.” As part of the health food format, he included an earth-friendly product mix.

Version 3 was created in 1977. “This is the version that people know today,” says Coulombe. “In 1977, we no longer had the protection of a guaranteed gross profit on alcohol due to a ruling of the Supreme Court knocking out Fair Trade laws on alcohol.”

East Coast Role Model

“In trying to find out what to do, I went to the East Coast to study Stew Leonard’s and that’s when we began to slash the SKU count and in 1977 we adopted a long-term policy that we would not carry anything unless we could be outstanding in price,” recalls Coulombe. “We adopted a five-year program to implement this and by 1982 we had achieved 80% of this goal.

“At this time we were a very small company. There was no way that we could compete in branded goods on price with Safeway. So I began to move into private label.

“We first moved into private label products in which there was no strong national brand. Our first private label product was packaged granola cereal, and trail mix was a natural evolution from that. Then we moved into nuts and dried fruits because there are no strong brands in these categories.”

During the late ‘70s under Coulombe, Trader Joe’s began to eliminate all branded food products starting with the bakery products, then moving into own label fruit juices and cheese.

It was a huge challenge to create the logistics to stock these new store brand products, according to Coulombe. “To source our own brand products, we had to rely on small companies which are more flexible.

“Also, we relied heavily on brokers. We were not opposed to dealing with middlemen as long as they earned their keep. We made good friends with them and we relied on local food brokers to help teach us the private label business.”

By the early 1980s, the refashioning of Trader Joe’s into the current edition was almost complete.
“In the 1980s, I came to develop what I call the Brooks Brothers strategy,” explains Coulombe. “When you go to a Brooks Brothers, there is nothing in that store that does not have a Brooks Brothers label on it. We dropped out of our wholesale grocery co-op in 1982 and that ended our source of all conventional brands.”

Although Coulombe dramatically changed the store’s product mix over time, he held fast to the original tropical theme in store décor.

“The original idea was to create a fun, leisure, party concept,” he points out. “Therefore, in 1967 we came up with the name Trader to evoke images of the South Seas. Well, four years later in the recession of 1971, this was not highly relevant but we were already stuck with it.”

However, this theme obviously made a connection with TJ’s customers. That’s why to this day employees wear Hawaiian shirts. Coulombe knew the secret to Trader Joe’s success was to make the stores fun for customers to shop and fun to interact with store crews.

Kenton Gast: Champion of Kroger Store Brands

“We were one of the first retailers to support the new PLMA Trade Show,” points out Kenton Gast. “As I recall, the early PLMA Shows were held in hotel ballrooms.”

At the time, Gast was director of Kroger Brands procurement — a position he assumed in 1975 and held for eight years. In 1983 he was promoted to vice president of Kroger Brands procurement. “From the outset, I saw the PLMA Trade Show as an ideal place to meet my needs as a buyer of private label finished goods. It allowed me to make contacts among new private label manufacturers and to see new private label products coming onto the market. It was a place where I could pick up new ideas.”

Gast served as the first chairman of PLMA’s Retailer Advisory Committee.

Gast became vice president of manufacturing procurement in 1985.

In this position, he was responsible for the procurement of raw products and packaging for self-manufacturing and also for outside procurement of Kroger Brands finished goods.

Gast retired in 1986, after a 32-year career spent entirely at Kroger.

Career Path

Gast started his career as an assistant store manager in Kroger’s Indianapolis division in 1954.

In 1965, he became a sales representative for Kroger Brands in Kroger’s State Avenue manufacturing plant. In those days, Kroger operated its own in-house sales force to promote self-manufactured store brand products among its various retail store divisions.

In 1967, Gast moved to the head office in Cincinnati and served as a manager in grocery merchandising for 7 years. He was responsible for of a variety of private label grocery lines.

“My earlier work in both merchandising and procurement groomed me for the job of director of Kroger Brands procurement that I assumed in 1975. Even though I was in charge of store brand procurement, our department worked very closely with the merchandising team for Kroger Brands,” points out Gast.
“During this time, we developed sales plans for each of our private label lines that were very similar to the marketing plans of the national brands.

Store Brand Innovations

During his career at Kroger, Gast was responsible for the introduction of a number of store brand innovations. They include:

• A new large-size pack of frozen vegetables in 40-oz bags introduced in the early 1980s that included Kroger’s four best sellers which were peas, corn, green beans and mixed vegetables.
  
  “At first our West Coast packers were unwilling to produce the new frozen line for us because they didn’t want to invest in the new equipment needed for it,” recalls Gast. “To convince our packers to make the necessary investment, I sent them a letter that said if this new product doesn’t sell, Kroger would pay for the machinery.” The rest is history. All brands now have large sizes of frozen vegetables.
  
  
• Open-date coding on selected Kroger store brand grocery items that featured “Sell-By” dates on shelf-stable products.
  
  Adopted in the early 70s, the first items to receive Sell By dates on product packaging were private label pickles. According to Gast, the quality and taste of this product deteriorates if held too long, so he wanted a way to assure the timely rotation of product in Kroger stores and in consumer pantries.
  
  He overcame the reluctance of Kroger’s pickle packer to adopt the new Sell-By dating system by threatening to find another packer who would employ it. Gast recalls that the reluctant supplier subsequently met with him and said: “Mr. Gast that was the best idea you ever had. It has really proven to be a help to us too because we now are aware of when we packed our product, and we are aware of our warehouse rotation. When we see a few cases getting old, we go to one of Kroger’s retail divisions and give them a good deal so that we can sell it.”

Guiding Principles

Gast has followed two guiding principles in his long career in store brand procurement and merchandising: They are:

“Number One: Always be honest. No one ever offered me a bribe all the time that I worked because they knew I would never accept it.

“Number Two: Always remember that your packer has to make a profit. If you have a packer that can’t make a profit, he will find a shortcut that will cheapen your product or reduce service. He will do something to try to make a profit. As long as we work to insure that the supplier makes a profit, he will work to insure that he provides us with quality product and service.”

John Huffman: PL Guru for Fleming Cos

John Huffman knows the private label food business — from start to finished goods.

Huffman began work in 1953 at age 18 in a Safeway private label manufacturing plant in North Texas. While working the night shift, he attended Southeastern State University where he earned a B.S. degree in Food Chemistry.

By 1969, Huffman had risen to become a general manager overseeing five plants.

In 1970 Huffman joined the distributor Fleming Cos in Topeka, KS, and later moved with them to Oklahoma City.

“The reason Fleming recruited me was to help them vertically integrate their food supply chain. They bought every type of business including food manufacturing that they felt fit their business model of vertical integration.

“After a year of heading up Fleming’s manufacturing operations, it became apparent to me that the way the company was growing did not fit the model to properly grow your manufacturing business because you can only ship products so far. All of their plants were located in the Midwest and all of a sudden they were buying a wholesaler in California, another in Alabama, and yet another in Philadelphia.

“I advised Fleming’s president that we should close the plants and, instead, we should start buying these products from other manufacturers to supply to our private label customers.”

After helping to spin off Fleming’s manufacturing facilities, Huffman moved into private label procurement and marketing. As he explains it, “Eventually I became the head on the pencil for Fleming’s private label program.”

Huffman’s job managing Fleming’s private label program was made difficult due to Fleming’s ongoing acquisition of regional wholesalers. Along with every acquisition came a market basket of new regional private brands that the local retailers refused to give up. “As a result, we wound up with too many private brands to manage from a marketing and logistics standpoint,” says Huffman.

“I managed Fleming’s private label program starting in 1978.

“At that time Fleming carried the IGA brand, the Marquee brand in HBC, and later the Piggly Wiggly brand. Other private brands included True Value, Good Value, and Bonnie Hubbard. Except for Marquee, these were cross-category main-line food brands.

“Because of all those brands, it was a nightmare to manage the inventory.

“In 1993, I started a premium food brand also under the Marquee name. Our goal was to gradually eliminate all of the other brands.

“We would have one brand across the top of the line. We had a another brand called Rainbow. My plan was to make that our second-tier private label line. If we had done that, we would be in fat city.”
Before his retirement from Fleming in 1995, Huffman had advanced to the position of senior vice president of procurement and marketing in charge of both national brands and private label.

Category Management

Huffman was responsible for transitioning the company into category management for its private brands – a process driven by the advent of retail scan data.

In the early ‘90s, Fleming operated about 400 corporate grocery stores in its South, Midwest, and West Coast markets.

“Category management tells retailers how to analyze a SKU and determine whether it is profitable or not to carry,” explains Huffman. “Simply put, category management tells you: If it doesn’t sell, don’t stock it.”

Quality Control

From the outset of his career, Huffman understood that the success of private label was built on product quality.

In joining Fleming, one of his top priorities was to improve the company’s quality control program. To this end, he supervised the construction of a fully equipped product testing laboratory and the hiring of a full-time quality control director. Within a year’s time, Huffman and is QA team had developed detailed manufacturing specifications for the 1,200 private label items supplied by Fleming.

The Future of PL

“Improved gross margin is going to be the main driver of continued growth of private label in the future,” says Huffman. “Retailers like Wal-Mart are starting to earmark selected categories in which there are no dominant national brands to become private label only categories. The average supermarket carries about 30,000 items. Of this total, only about 10 percent of the items are dominated by the national brands. So there is a lot of room for private label to grow to become the dominant player in many categories.”

Don Spellman is one of the founding members of the Private Label Manufacturers Association. He participated in the special meeting of industry representatives held at the Chemist Club in New York City on October 23, 1979, to form PLMA.

He served as the 2nd vice chairman of PLMA’s first board of directors that held its first annual meeting in St. Louis at the Marriott Hotel, March 27-28, 1980.

Career Path

Spellman began his career in private label manufacturing in 1952 when he joined the Eppens, Smith Co. one of the largest private label coffee and tea packers on the East Coast and based in Secaucus, NJ. ( Eppens, Smith at the time also owned the Holland House brand.) The company was founded in 1855.
He served as the company’s sales manager, and then served as the firm’s advertising and marketing director. Eventually, he worked his way up to become vice president of sales and marketing for Eppens, Smith. Through his position, Spellman dealt with coffee buyers for all the leading East Coast supermarket chains at the time—from Maine to Florida.

In 1966, Spellman joined the J.L. Prescott Co., a private label manufacturer of household and laundry cleaning products. The firm was based in Passaic, NJ.

Spellman served the company as its vice president of sales and marketing until 1986. By the time he left the company, Spellman had helped to build the private label manufacturer into a $150 million business. When he joined Prescott in 1966, it was a $10 million enterprise. During Spellman’s service, Prescott became the largest family-owned, private label laundry chemical producer in the U.S.

Spellman helped the company to expand to the West Coast and become a national private label supplier in 1977 when the company obtained a licensing agreement from Procter & Gamble to produce private label fabric softener sheets for dryers.

After leaving Prescott, Spellman served as an industry consultant and also worked for a variety of private label and national brand manufacturing companies including a stint as director of private label for the Melita Coffee Co. where he helped to market the company’s line of private label coffee filters.

In 1999, Spellman joined the staff of PLMA as director of industry relations until his retirement in early 2009.

From the outset of his career in private label, Spellman embraced the philosophy that the quality of private label products that he helped to sell had to be as good as or better than the national brands.
“In the coffee business, we were a top-to-bottom, turn-key operation from the importation of raw coffee from South America, to roasting of the coffee, grinding and packing of the product,” recalls Spellman. “This total control over the supply chain helped us build trust and confidence in our product among retail buyers because they knew that only one organization was involved in the entire production process, without any middlemen involved.”

PLMA Start-Up

It was during his service at Prescott that Spellman helped to form the Private Label Manufacturers Association in 1979 in New York City.

After serving as the second vice chairman of PLMA in 1980, Spellman became chairman of PLMA in 1983.

Spellman points out that the biggest change that has occurred during his career has been the increase in consumer confidence in private label products due to the increase in product quality over the years.

He credits Brian Sharoff and his leadership role at PLMA for the growth of private label since he became president in 1981. Spellman helped to recruit Sharoff to take over the helm of PLMA. From only 56 table-top exhibits at the first PLMA Show held in 1980 at the Ramada O’Hare Inn, in Chicago, the annual trade show — which moved to the Rosemont Convention Center in 1983 – has grown to include almost 2,000 exhibits that annually attracts more than 5,000 visitors.

As Spellman sees its, the creation of the annual PLMA Trade Show heralded in new growth opportunities for private label manufacturers.

“It has given the opportunity for private label manufacturers from different parts of the country to meet with retailers that are not located in their immediate trading areas,” points out Spellman. “Thus, a West Coast supplier could meet with a East Coast retailer and offer him private label products not available in his region.

This opened up new retail markets for PL manufacturers outside of their traditional trading areas.”

Karl and Theo Albrecht:
Masters of Hard Discount PLs

Karl and Theo Albrecht are co-founders of the Aldi chain of limited assortment discount stores, based in Germany. The brothers opened their first grocery store in 1948 in the Ruhr Valley and began operating under the name ALDI in 1962. The name is an abbreviation of Albrecht Discount.

Karl developed Aldi Süd, based in Muelheim, and Theo developed Aldi Nord, based in Essen.
Although Karl and Theo share the same store name — ALDI — the brothers have conducted their operations separately in northern and southern Germany both financially and organizationally, according to Dieter Brandes who during the 1970s was Theo Albrecht’s fugelman (meaning “wingman” in German or second in command.) Editor’s Note: Brandes negotiated the deal for Theo to purchase Trader Joe’s from Joe Coulombe.

Due its reputation for high-quality low-priced grocery products, Aldi hard discount stores attract all social levels in Germany. The vast majority of its grocery items are private label products under a myriad of exclusive brands. Operating under a limited assortment format, the stores –which average about 1,000 sq. meters — carry less than 1,500 SKUs.

According to Brandes, the success of Aldi is based on the concept of simplification and by developing its business system in little steps. “The original concept has never been changed significantly, it was only modified,” he says in an interview published in Private Label magazine, PL Nov.-Dec 2005.

The two Aldi companies keep retail prices low by keeping overhead expenses to a minimum. They do not spend money on external market research, consultants, centralized marketing, or public relations departments.

Aldi stores are not exactly a shopper’s paradise except low prices on high-quality goods. Customers must pick groceries directly from pallets or sometimes open cartons for themselves.

The stores have a Spartan interior: three aisles with pallets and shelves for cartons on each side. The refrigerated section is located at the rear of the store with some frozen food cabinets. The stores are stark and lack fancy product displays.

Despite decentralized structures, Aldi North and Aldi South share business data regarding costs, performance, product sourcing and supplier conditions, according to Brandes. He notes that it is no surprise that the two Aldis benefit from their slight differences: when one group’s decision fails to meet expectations, the problem does not affect the other Aldi group.

The Strength of PLs

Brandes explains why private label product reputation has grown significantly with Aldi over the last decades: “For retailers branded goods are passing-through articles, that pass through distribution centers, through stores and then through checkout,” he says. “The only interest arouses from margins. In contrast a private label product is top-ranking because it’s the retailer’s baby from development and packaging to quality and price.” As a result, it is of importance for all Aldi employees.

Parent companies in Muelheim and Essen negotiate only frame contracts. Orders always come from one of the 65 distribution centers operated to service stores in Germany.

Average shelf space for products usually meets a week’s demand; inventory for some fast moving goods is being replenished several times a day.

Karl Albrecht opened his first Aldi store in the U.S. in 1976 which has since grown to a chain of 900 stores in 27 states. Theo acquired Trader Joe’s in 1979 which has grown to a chain of 310 stores in 24 states.

The Albrecht brothers retired from active management of their respective retail enterprises in 2002.