How you win by selling fewer products than your rivals

You win by selling fewer products when a short list brings you supplier discounts, a store that is easier to run and customers who choose faster. Trader Joe’s, an American grocery chain, built on that. The case has public numbers and you can read it step by step.

1. What Fortune found at Trader Joe’s

In August 2010, journalist Beth Kowitt published a report on Trader Joe’s in Fortune magazine. The chain then had 344 stores in 25 states and Washington, D.C., and sales in the previous year had reached about $8 billion. The company is private, so the figures below are the magazine’s estimates.

A typical supermarket can carry 50,000 distinct products, each with its own stock code, which retailers call an SKU, short for stock-keeping unit. Trader Joe’s sold around 4,000.

The easiest example to remember is peanut butter. Most supermarkets had about 40 varieties on the shelf, and Trader Joe’s had 10.

The second number tells you just as much. About 80% of the goods on the shelves carried the Trader Joe’s name, meaning they were private label, made by suppliers whose contracts stop them from making the relationship public. Fortune estimated sales at $1,750 per square foot of store, more than twice Whole Foods.

2. What the company gains from a short list

Kowitt describes the mechanism in a few lines. Each product on a short list sells in larger quantities, so Trader Joe’s can buy in volume and win large discounts from suppliers. The same short list simplifies work in the store, from stocking shelves to the checkout.

Suppliers gain too. The magazine describes Trader Joe’s as the ideal customer for a supplier: it pays on time and does not add fees for advertising, coupons or shelf space, fees that traditional supermarkets charge to put your product on the shelf. A supplier spared those fees has more room to cut the price.

3. What the customer gains

The second half of the explanation is about buyer psychology. Fortune quotes Barry Schwartz, a professor at Swarthmore and author of The Paradox of Choice, with the idea that people fear regretting the choice they made. Facing a full shelf, every jar you do not take becomes a possible reason for regret.

Kowitt adds that customers may think they want variety, but too many options can leave them stuck in front of the shelf. A shelf with fewer jars shortens the path from the door to the checkout.

Think about your own offer from the same angle. How many packages, variants or options do you put in front of the customer, and how long does it take them to pick one? If people often ask you what you recommend, that is a sign the list tires them.

4. Why rivals copy a short list with difficulty

A supermarket could remove most peanut butter variants from the shelf tomorrow. It would lose the fees it collects from suppliers for shelf space and would be left with gaps where customers look for brands they know by name. Without a private label to fill the gaps, a short list looks like a poorly stocked store.

At Trader Joe’s, the short list rests on the company’s other choices. Private label fills the shelf, high volume on each product brings the discounts, and suppliers accept the terms because they get paid on time.

The people in the store are part of the system too. Fortune wrote that full-time employees could start on a salary between $40,000 and $60,000 a year, and the company put 15.4% of gross pay into their pension accounts each year. The magazine also describes an employee who, asked about roasted chestnuts, can open the bag on the spot for you to taste.

A competitor copies one of your activities easily. The way your activities hold each other up is hard to copy. I wrote more about that difference in the article on activities and systems.

5. What the case does not tell you

The case has limits worth knowing before you take it into a meeting. The figures are 16 years old and come from a magazine’s estimates, and the chain belongs to the German Albrecht family, which Fortune describes as very private. You cannot tell from the report how much of the result comes from the short list and how much from the rest of the choices.

For you, the useful part is the logic: a short list resists copying only together with the pieces that support it. I wrote separately about advantages that sit in the way a company is built, in the article on structural advantage.

6. How to use a short list in your company

A short list fits a firm with a single store, a workshop or a service offer too. Start with a count: write down every product or package you sell and, next to it, how much it sold in the last 12 months. Then look at the slow sellers and note what it costs you to keep them: warehouse space, time to explain them, an extra line in the offer.

The second step is the supplier. Work out how much you would buy of the products that remain if you dropped the weak ones and take the figure to negotiation. A supplier listens differently to a client who buys more of a single stock code.

The third step is the customer, and here I say what I believe without reservation: one hour with five real clients tells you more than a day of brainstorming in a meeting. Brainstorming, the meeting where the team throws out ideas, gives you opinions about what customers might want. A conversation with them shows you how they choose and where they stall.

The last step needs attention to the people who leave. Every product you cut from the list has a few customers who bought it, and they will ask about it. Prepare in advance what you tell them and what you offer instead, so you do not lose the person when you lose the product.

What to remember

A short product list brings supplier discounts, a store that is easier to run and customers who choose without getting stuck. Rivals copy it with difficulty when it rests on your other choices, from private label to how you pay suppliers. Before you cut the offer, count what you sell and ask your customers how they choose.