Investment Proposal Final

TO: Professor Clark Hansen, CEO, AMDP
FROM: Livia Pierson, Research & Development Analyst DATE: July 24, 2015
SUBJECT: Trader Joe’s – Investment Opportunity
Dear Mr. Hansen:
I would like to present a case for AMDP’s investment consideration in Trader Joe’s. Trader Joe’s is a privately held corporation specifically in the business of food retailing. The business of feeding and nourishing people is both a noble and necessary endeavor, and the nature of this business is one of the primary reasons for my investment proposal.
This memo will outline where Trader Joe’s aligns with AMDP’s values of People, Profit, and Planet. It would benefit AMDP greatly to consider investing in Trader Joe’s in order to expedite the company’s expansion, to make a few vital improvements in the environmental sustainability of the company, and to provide return on investment for AMDP. As an analyst at AMDP, I understand how important it is that the following 4 components are integrated into the business model and culture of any company we invest in:
1) Triple Bottom Line
In addition to the traditional measure of corporate success – Profit and Loss – corporations should also measure, and take measures to improve, their positive impact on people and the planet (The Economist).
2) Corporate Social Responsibility
Corporate social responsibility is in a sense a sacrifice by a company to do not what is necessarily best profit wise, but what “promote[s] positive social and environmental change” (Investopedia). This source also points out that some companies engage in “Greenwashing,” or feigning social responsibility with half-hearted acts of social responsibility, something that Trader Joe’s does not do.
3) Social Enterprise
There are 3 components to a social enterprise:

1. The company directly addresses an intractable social need and serves the common good
   
2. Its commercial activity is a strong revenue driver
   
3. The common good is its primary purpose (Social Enterprise Alliance)
   

This definition is constraining and also subject to interpretation. If a business is making money and becoming profitable and its founders’ wealth is increasing as a result, it is arguable that the common good is not the primary purpose. Profitability is a key factor in our investment decision process, along with serving the common good. Both are equally important, so we will address both.
4) Carbon Footprint - The amount

of carbon dioxide or other carbon compounds emitted into the

atmosphere by the activities of an individual, company, or country. Reducing Carbon Footprint is

vital in ensuring that our planet is safe and healthy for future generations. Carbon Footprint is

measured in equivalent tons of carbon dioxide. There are a few issues in Trader Joe’s business

model that I will address regarding the company’s Carbon Footprint and environmental

sustainability.

So What?

Does Trader Joe’s meet the criteria? The remaining section will explain why Trader Joe’s fits

AMDP’s investment criteria, including a few long-term modifications to be made to the

company’s business model.

As an investor potentially planning to take a high equity stake in

Trader Joe’s, AMDP should and will negotiate with the company to make the necessary changes

within the company to justify fronting that stake.

Claims Made by Trader Joe’s

On the company website, Trader Joe’s claims to be a food retailer, but let’s cut to the chase. We

want history, regard in its field, and most importantly, social and environmental responsibility

AND profitability.

History & Background: Trader Joe’s started in the 50s in Southern California. The company

originated as a convenience store chain founded by Joe Coulombe, a man who takes pride in

entrepreneurial spirit and creating unique products for his customers to enjoy. Trader Joe’s is

both profitable and known for being a healthy and natural food retailer. It is in a similar category

to retail food stores like Whole Foods.

People

Customers: Trader Joe’s prides itself in providing customers with high-quality food at a

reasonable cost. On the company site, Trader Joe’s states that “‘Value’ is a concept we take very

seriously. And by ‘Value,’ we mean great everyday prices on all of our great products — no

sales, no gimmicks, no clubs to join, no special cards to swipe.” In terms of responsibility for

customers’ health, Trader Joe’s label products contain “NO artificial flavors, NO artificial

preservatives, NO synthetic colors, NO MSG, NO genetically modified ingredients, NO partially

hydrogenated oils (artificial trans-fats)” (Trader Joe’s FAQ). The prime goal of the company is

to have happy and healthy customers, and the food ingredients reflect that goal.

Benefits to Non-Customers:

In addition to taking care of customers, Trader Joe’s caters to those

who aren’t fortunate enough to afford their own meals every day. The company donated more

than 25 million pounds of food to people in 2010, equal to about 20 million meals (Corporate

Social Responsibility: Feature Trader Joe’s). Each store has a “designated donor coordinator”

who is responsible for the operations management of the food donation program regionally.

Employees:

According to Glassdoor, a frequently used job analysis site, Trader Joe’s

employees’ opinions are very positive towards the company and their employment. The

company scores 4 stars out of 5 and employee reviews on Glassdoor are mainly positive,

signifying that it is a well-regarded place to work. Trader Joe’s offers competitive pay, a

generous retirement plan, health care, paid time off,

family and medical leave,

short & long

term disability to its employees.

and

The Planet:

In terms of environmental sustainability, Trader Joe’s stores encourage the use of reusable store

bags. Similar to other food retailers, however, the stores also offer paper and plastic bags as an

alternative. With such a loyal customer base, it would be an interesting endeavor to attempt to rid

the stores of all paper and plastic bags and only accept reusable ones. Research on the feasibility

of this should be done during funding negotiations.

According to sources that cover popular opinion on environmental sustainability and politics like

Mother Jones and Change.org, there are customers who disapprove of the claimed to be

“excessive” plastic packaging enclosing food products and print advertising the company uses to

inform customers of its newest products (Mother Jones).

If and when AMDP decides to fund the

expansion of Trader Joe’s, I highly recommend making the investment quantity contingent on

long-term improvements in the environmental sustainability of product packaging and

advertising.

Profit

The returns of the company’s retail stores are tied to the satisfaction of the customers. Trader

Joe’s understands that its customer base is diverse and therefore deliberately incorporates

international foods into its product line. The company takes an immigrant perspective when

doing business, meaning that Trader Joe’s expects an increasing immigrant population in the

United States and increasingly provides foods that immigrant groups are comfortable with

(Forbes). Non-discriminatory and worldly business practices that cater to the international

community make Trader Joe’s a great player in the land of social responsibility.

The primary reason Trader Joe’s has a loyal customer base is a combination of natural, tasty

ingredients and reasonable prices. The company buys directly from the supplier whenever

possible and sells food product under its own label for a discounted price. The discounted price

is economically feasible for the company’s profit margins because of the high sales volume,

estimated to be $1,734 per square foot by Jones Lang LaSalle (Business Insider, Trader Joe’s).

Additionally, the company takes very little loss on profit in advertising cost. The only form of

advertising Trader Joe’s uses is the online and mailed home print copies of The Fearless Flyer, a

low-cost document that outlines all of Trader Joe’s food products in a fun and easy to read

manner for consumers. One of my recommendations to improve environmental responsibility

within the company is to implement a long-term plan to eliminate print copies and focus on web-

based content only, a strategy that aligns with a customer base that has increasing access to

technology.

While the exact corporate profit and loss is unavailable because Trader Joe’s is privately held,

the company is expanding and is profitable due to its customer loyalty, cost cutting, and tight

supply chain (Forbes).

To Conclude
There is no perfect enterprise, but that doesn’t mean we cannot fund a slightly imperfect one and foster positive change. A company with as many positives and as high of customer loyalty as Trader Joe’s is worthy of expansion, and the investment will serve a dual purpose: 1) Expanding Trader Joe’s to communities that lack options in high-quality, natural foods and 2) providing return on investment for AMDP. Trader Joe’s responsiveness to customer demand, forward- thinking international values, and social responsibility, paired with improved environmental policies makes it an excellent match for our values at AMDP.

Works Cited:
Business Insider, Trader Joes. 19 July 2015. <http://www.businessinsider.com/trader-joes-sales- strategy-2014-10>.
19 July 2015.
Investopedia. “Social Responsibility” 20 July 2015. <http://www.investopedia.com/terms/c/corp-
social-responsibility.asp>
Mother Jones. Consumer Retorts. 21 July 2015.
<http://www.motherjones.com/environment/2009/08/consumer-retorts-trader-joes-bad-wrap>. Social Enterprise Alliance. 19 July 2015. <https://www.se-alliance.org/what-is-social-
enterprise>.
The Economist. 19 July 2015. <http://www.economist.com/node/14301663>.
Trader Joe’s Website. 19 July 2015. <http://www.traderjoes.com/>.
Trader Joe’s FAQ. Product Information. 20 July 2015. <http://www.traderjoes.com/faqs/product-information>.
Why Trader Joe’s Stand Out from all the Rest in the Grocery Business. Forbes. 19 July 2015. <http://www.forbes.com/sites/glennllopis/2011/09/05/why-trader-joes-stands-out-from-all-the- rest-in-the-grocery-business/>.

Corporate Social Responsibility: Feature Trader Joe’s.

<http://www.momentumtelecom.com/corporate-social-responsibility-feature-trader-joes/

>.