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/

>. 

African Economy

In my operations management class I'm working on an extra credit assignment that involves the future of manufacturing in Africa, and how certain companies are moving to manufacture consumer goods in Africa as opposed to Southeast Asia, because wages are to rise in those countries. It will be cheaper to manufacture goods in Africa as wages continue to rise.

According to Maathai in The Challenge for Africa,

"Africa is still overwhelmingly a producer of commodities -- including coffee, cocoa, cotton, and sugar" (96).

The flip side of the coin is that "the money brought to rural areas through the sale of commodities such as cash crops is then siphoned back to the towns where the consumer goods are transported from, and eventually repatriated to the countries that produce them. Even most of the industries that are located in Kenya-tourism, and the growing of flowers, coffee, and tea-are largely owned by foreign companies" (97).

So what does this mean?

My take is that Africa is seen as an opportunity by outside, first world countries as a huge consumer base that needs modern day commodities like clothing - things other than the raw materials that they produce.

My fear for Africa is that when, eventually, the levels of output of raw materials and finished goods that come out of the country begin to even out - when Africa begins to produce more non cash crop items - that Africa won't be the one controlling the profits on those items. It would still be the outside first world countries that establish manufacturing plants in Africa.

The argument can be made, however, that the establishment of infrastructure, overtime, will be beneficial to the African people. There will be another opportunity for work aside from farming. As wage rates rise, as they are historically proven to do once manufacturing is introduced in a country, the companies will look elsewhere for cheaper labor, leaving opportunity for the natives to take control of the industry. This is all very long term, and generalized, but food for thought.

Trader Joe's Investment Proposal Memo *ROUGH DRAFT*

Demonstrate that you understand the basic concepts of the Triple Bottom Line, Corporate Social Responsibility, Social Enterprise, and Carbon Footprint – What is it? How do we measure it? Why is it important to reduce it? See the “AMDP Memos” tab at http://cchanse7.wix.com/writelivework for ways to handle this task.

Triple Bottom Line:

Corporate Social Responsibility

Social Enterprise

Carbon Footprint

1. Describe the enterprise you are proposing that AMDP invest in. Environmental Leader might be a good place to start your research: http://www.environmentalleader.com/

Trader Joe’s: http://www.traderjoes.com/

a.                    The description should tell me what the company does, how old it is, how well- regarded it is in its field, and something about its financial track record (growth, profit, loss, etc.)

Claims Made on Website http://www.traderjoes.com/

“It all started in the 50s... Would you believe we started out as a small chain of convenience stores? It’s true. Way back in 1958. We were called Pronto Markets. In ‘67, our founder, the original Trader Joe, changed our name (yes, to Trader Joe’s) and the way we do business.

We made the stores bigger (if you can imagine), decked the walls with cedar planks and donned our crew in cool Hawaiian shirts. Most importantly, we started packaging innovative, hard-to-find, great-tasting foods under the “Trader Joe’s” name. That cut our costs and saved you money. Still does. And that’s important, because “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... How do we do it?”

Financial Track Record

http://archive.fortune.com/2010/08/20/news/companies/inside_trader_joes_full_version.fortune/index.htm

 Hoovers

Any Buyouts? Who is the owner?

Sales Strategy

http://www.businessinsider.com/trader-joes-sales-strategy-2014-10

b.                   The description should include a summary of the company’s own claims regarding its business practices in the areas AMDP is interested in. Please provide a citation of your source for the company’s claims.

2. Present at least two opinions from well-regarded industry sources that provide a critical appraisal of the company’s statements about its practices. Please provide citations for these sources, as well.

3. Make a convincing case either for considering or rejecting investment in the company or social enterprise you have researched.

Life in Fast Forward

I recently watched the movie Amy Winehouse. Currently, I am listening to Amy Winehouse.

When she initially reached the top music charts in the world, I did not really care. I was either in middle school or early high school focused on getting into college, generally just not interested in the goings-on of the music industry or its famous international stars like Amy Winehouse.

It's obvious why people like her music - she is talented, and not just with respect to being a good performer. Her lyrics, written by her, are reminiscent of her life in London and of parts of her life that are emotionally stirring, comical, serious, fraught with great successes and great mistakes. All of that was put on a stage so that the world could learn or not learn, accept or ridicule, her wisdom or lack thereof in how she lived her life.

One of the most important points, I think, that was made in the documentary about her life was that she did not like performing and the expectation that she felt had to be met after attaining such irrevocable fame.

One of the other most important points made in the documentary was that she worshipped her father, who left her family when she was young. He was one of the driving forces that kept her performing, even when it may have not been one of the best things for her to do, health-wise.

My uncle also died of an addiction problem, and why someone would do that to themselves isn't something I really understand. Addiction paired with other personality traits or situational factors seems to cause the demise uniquely to each person, but how that person can just let themselves fade out of the world without what others would deem reasonable cause still confuses me so much.

The one reasonable explanation I can think of for Amy is that she had lived her life and achieved so much in such a short amount of time that she was completely overwhelmed, and completely unprepared for that feeling.

Street Cred

I like how the author establishes credibility in The Challenge for Africa. Wangari Maathai takes up several pages explaining her background, her motivations, and WHY she thinks she is a credible source to listen to regarding the troubles of Africa.

I also like how she explains Africa's situation, initially taking a historical standpoint and moving towards its more modern troubles:

"Africa has been on her knees for too long, whether during the dehumanizing slave trade, under the colonial yoke, begging for aid from the international community, paying now illegitimate debts, or praying for miracles" (p20).

 When I took history waaay back in high school, I remember the map of colonialism in Africa. the one where practically every European country was fighting over their own little slice of the country. The image made me laugh at first, but it also led me to think of how, long-term, the country would be affected by such aggressive colonialism. I think anytime a country occupies another, the consequences are very long-term and it will take a very long time for the country to be able to run itself after being controlled for the benefit of another country.

In terms of credibility, I like that the author explains why she thinks she is qualified to represent the best interests of Africa:

"Unlike many others who write about or lead large-scale efforts in support of Africa, I am not an economist, a social scientist, or a political theorist...I was raised in central Kenya in a rural village with no modern amenities....I grew up in the shadow of both Mount Kenya and colonialism's last thrones" (p21). 

I think the last thing Africa needs is one of the above (see picture) telling it what to do again. This is why I buy into the author's credibility. She seems like a local, and to understand what it is like to be from Africa, and therefore should have its best interests at heart. 

Expert Article, Final Draft

Livia Pierson

Professor Hansen

Expert Article

10 July 2015

Effective Land-Use Planning

The Skyline

Think back to a time when you’ve travelled across the country, or around the world, to a different city – any city that was particularly memorable to you. Toss away the awful plane ride, the painful line through security, the crazy cab driver that almost killed you on the way to the hotel, and think about how that city looked to you. When you looked out the window of your residence, what did the skyline look like?

Right now, the view outside my Los Angeles apartment is quickly being consumed by the construction of Frank and Jill Fertitta Hall at the intersection of Figueroa and Exposition. The LA skyline is already built up, but the main reason my fears of massive, overdeveloped, disgusting urban sprawl are assuaged is because the space is truly functional. USC is an institution of education, and I believe in education.

Real Estate Development

My biggest business related obsession is real estate. In particular, I am fascinated by the place where the business of real estate and the government policy surrounding real estate intersect. Many people I have talked to who aren’t as interested in real estate as I am are not aware of the real estate project approval process, so the goal of this article is to: 

1) Educate you on the process by examples and reliable research

2) Help you formulate an opinion on some of the most important laws regulating real estate development in the cities of Rancho Palos Verdes and Los Angeles

3) Provide a brief international comparison to give you a global perspective on ineffective land-use

Rancho Palos Verdes 

The Planning Commission is the government entity in every US City that is in charge of approving real estate projects within their jurisdiction. My first real exposure to the real estate project approval process was in my hometown of Rancho Palos Verdes. The best large-scale examples of real estate projects the Rancho Palos Verdes Planning Commission analyzed and eventually approved are the Trump National Golf Course and Terranea Resort (Terranea Resort Website). I live right next door to Terranea Resort and therefore have insight on the development of the project.

Lowe Enterprises first approached the City of Rancho Palos Verdes with its plans to develop a massive, 5 star resort right smack dab on one of the last undeveloped cliffs in PV about 10 years before the project was actually completed (Terranea Resort, Curbed LA; Lowe Enterprises).

The City of RPV took many different factors into consideration when approving the project – impact on the environment, dissent from neighbors, and revenue for the city only being only a few.

Development Hurdles:  Rancho Palos Verdes and Los Angeles

Politics & Environment

The main reason it took Lowe Enterprises 10 years to have Terranea approved by the City of Rancho Palos Verdes is the California Coastal Commission (California Coastal Commission). The CCC protects California's coast by limiting the number of developments along the shoreline (Frequently Asked Questions: The Coastal Commission Permit Appeal Process). Distinct from land locked locations but similar to the regulations regarding nature preserves, the CCC prohibits the development of new buildings generally "within 300 feet of a beach, mean high tide or bluff edge; within 100 feet of a wetland or stream; or on tidelands, submerged lands, or public trust lands" (Frequently Asked Questions: The Coastal Commission Permit Appeal Process). For a major developer, the time tied up in the project approval process in addition to extra time spend dealing with the CCC means big bucks out of pocket. 

Money

Trump golf course is just down the road from Terranea, and Mr. Trump has had plenty of disputes with the RPV city politicians. Lawyers are rampant in the project approval process, simply because there is so much money tied up in whether a project is approved or not. Time is money in the development business, and the longer the approval process time means the more money out of the developer's pocket. Lawyers and constant Public Relations staff to endorse Terranea and Trump’s project over years of deliberation with the city add on cost. Those cost are in addition to the already purchased land remaining vacant during the years that a developer fights to get their project approved.

People

Additionally, city planning politicians have a duty to those citizens that elected them to take into consideration multiple public hearings where citizens express their dissent towards the approval of the project. The neighbors of Terranea resort, aka my family and all the other families in the neighborhoods surrounding the development were invited to events hosted by Lowe Enterprises designed to shed light on the details and local impacts of Terranea Resort.

Height of the Hurdles

To give you a better scope of the complexity and difficulty of project approval, especially in the Los Angeles and RPV areas in Southern California, there are consulting companies that specialize in the navigation of city politics, and these companies are paid a substantial commission by large and small developers to expedite their real estate project approval process.

One company I know of from my studies is Elizabeth Peterson Group, which “is a land-use consulting and lobbying firm headquartered in downtown Los Angeles, specializing in hospitality, mixed-use, and adaptive reuse developments located in historic and urban communities” (Elizabeth Peterson Group, LA). EPG consults with major developers and has a deadline for acquiring land-use permits from the city for their developer clients.

Why Difficulty is a Good Thing

Responsibility is of utmost importance when it comes to land use. The proper and effective use of land involves people, resources, food, flora, and fauna, flood, fire, and traffic. Organizations such as the Urban Land Institute, which has a mission "to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide" (Urban Land Institute, LA) are created to foster responsibility in land use, yet many communities or commercial developments are still poorly planned given the demand. There is a common phrase in land use planning called "highest and best use," but the question remains: for whom is the land being utilized at the highest amount of return and best kind of use?

There are entire cities in China that exist for the sole purpose of the developer’s profits, boosting China’s GDP, and figuratively storing money for Chinese citizens who are too afraid to store their money in the bank (Badkar 1).

These cities are known as “Ghost Cities,” because they are vacant. Let me repeat: the CITY is vacant.

In the United States, corruption is rampant in city politics, and “buying” politicians to expedite the project approval process has been known to occur. There is a fine line between building relationships with city officials and influencing city politics for the wrong reasons. But in some countries, there are virtually no rules city politics regarding the development of buildings without a function. Do the Ghost Cities seem like efficient or good uses of space, resources, and money to you?

Ghost City: Ordos

Works Cited

Badkar, Mamta. China's Most Famous Ghost City Got Even Worse In The Last 4 Years. 9

June 2014. 1 July 2015. <http://www.businessinsider.com/chinas-ghost-cities-in-2014-2014-6>. 9 June 2014.

California Coastal Commission. <http://www.coastal.ca.gov/>. Web. 1 July 2015.

Elizabeth Peterson Group, Los Angeles. <http://epgla.com/>. 3 July 2015.

Frequently Asked Questions: The Coastal Commission Permit Appeal Process. California

Coastal Commission. <http://www.coastal.ca.gov/cdp/appeals-faq.pdf>. 1 July 2015.

Lowe Enterprises. Terranea < http://www.loweenterprises.com/news/news-

download.aspx?newsid=1161>. Web. 2011. 2 July 2015.

 

Terranea Resort, Curbed LA. Active Discussions, Newest Posts.

<http://la.curbed.com/tags/terranea-resort>. 2011. 2 July 2015.  

Terranea Resort Website. <http://www.terranea.com/>. Web. 1 July 2015.

Urban Land Institute, Los Angeles. <http://la.uli.org/about-us/>. 3 July 2015.