In this episode of the My First Million podcast, host Sam Parr and guest Shaan Puri dissect the unconventional business model of Trader Joe's, drawing from a viral write‑up by Morgan Key. They highlight how Trader Joe's breaks traditional grocery norms: it carries only about 4,000 SKUs versus the industry average of 40,000, over‑staffs stores to create a curated shopping experience, and private‑labels the vast majority of its products, negotiating directly with manufacturers for exclusive branding and higher margins. The duo notes that the chain avoids data collection, loyalty programs, coupons, and traditional advertising, instead relying heavily on in‑store sampling as its primary marketing spend. Growth has been deliberately slow—about 500 locations in 50 years—mirroring the strategy of In‑N‑Out, which yields a striking $2,000 revenue per square foot, far outpacing Whole Foods and Walmart. They also touch on a story from Instacart founder Max Mullen, who bought an entire Trader Joe's inventory for $25k to bootstrap his service, illustrating the store’s dense product assortment. The conversation expands to a broader theme of identifying “secret sauces” in businesses, using examples like hotel franchising (90% of revenue from franchise fees) and SaaS metrics (high annual revenue per customer and low churn). Shaan emphasizes pattern recognition for investors and entrepreneurs, warning against over‑reliance on templates while encouraging systematic analysis of business models.
Chapters
Okay, so there was this great write-up in the Trends, uh, Facebook group by this guy Morgan, or girl Morgan, I'm not sure exactly, but Morgan Key. And it was talking about, hey, the founder of Trader Joe's just died. I think Joe— I don't know how you say the last name, but Joe from Trader Joe's, uh, passed away. And, um, you know, so he dug into the model and said What is it that makes Trader Joe's work? And there's a bunch of really fascinating things where they basically broke all of the rules, and I thought it was just like a great example of, of like, you know, when you want to do something different or you want to like make a splash in an industry, like it pays to just change a bunch of the rules. So some of the things that they do differently—
so they go through the rules.
So they— most grocery stores have a ton of SKUs. They're like, oh, people want all the options, we got to carry everything that people ask for. Trader Joe's has on average, I think, 4,000 SKUs. An average grocery store will be 40,000, so 1/10 the number of SKUs. The next thing that I thought was interesting was they overstaff, not understaff. So every other grocery store is trying to sort of have minimal labor costs, and they go the exact opposite direction and try to provide like an experience for shopping. They private label basically all of their goods. So how do you— okay, great, I overstaff, possible, I overstaff, but that's like like expensive, so where do they make their money back? They make their money back by not buying, not by buying wholesale and selling retail, they actually just private label their stuff and have a way bigger margin on their items.
So what's an example of that?
So like their tomato sauce, for example. They will have, or salsa, it'll be called Trader Joe's salsa, and people will be like, oh, I love Trader Joe's salsa, and it's actually the same exact salsa that somebody else carries. They go straight to that supplier or manufacturer, and they say, hey, we want our own line of this, And so it's usually just—
Trader Joe's isn't making it.
No, they, they, they go to the supplier, but they private label the— that, that exact item.
Oh, I didn't know that.
They carry it. They, they get a much bigger margin because they're cutting out the sort of retailer, and they have all this pricing power to go to suppliers with and say, hey, we have all these locations, so we are already a big customer from day one. Uh, we want you to give us our own brand of popcorn, our own brand of this, our own brand of that. And then on the other side, that makes customers love it because people will get addicted to this, and they think oh, that pretzel, that chocolate-covered pretzel I loved, I can only get it at Trader Joe's.
But that's not the reality.
Because there's no brand on it, but they could actually get that same thing. They just don't know the brand and it's from some other place.
I have felt that exact same way about a lot of their products.
And so there was a, there was a few other ones that I thought were interesting. I'm gonna dig it up, but talk for a second while I just—
So I'll tell you guys a quick story since we were talking about scaling. I talked to Max Mullen at HustleCon and listen to this story. He told me that when they first started Instacart—
Who's Max Mullen?
Max Mullen started Instacart. Cart. He goes, he goes, our first store was Trader Joe's and they wouldn't let us go in there and they wouldn't give us all their inventory. He goes, I took it. He goes, it cost $25 grand. I bought everything in the store. We brought it to our apartment, took a photo of it, took pictures of every single thing.
I love it.
And it was $25,000. He goes, one of everything was about $25 grand. And he did that with Whole Foods and then 5 other stores.
That's amazing. Okay. A couple other points that Morgan brought up. So no data collection. So they're not collecting data on their customers.
They don't ask for your—
they don't do sales, coupons, loyalty, or advertising. The biggest expense, so their marketing, is samples in the store. So they go above and beyond on samples and don't do a whole bunch of other promotional stuff. They expanded very slowly, so they have about 500 locations after 50 years. And so they really went sort of slow and steady with their growth, sort of like an In-N-Out or whatever.
And are they owned by someone at the moment?
Private company. I don't think they got bought by a private— I think it's literally like owned by the Joe original whoever's, uh, there's a couple people involved. Um, and so in, in the end, their price per, or sorry, their earnings per square foot in their store. So they'll earn $2,000 per square foot revenue. Um, and like Whole Foods would do $1.2K and then, you know, Walmart will do $600K. So they're way more profitable per square foot because of, or sorry, way more revenue per square foot because of these, um, uh, these different changes they made to the, to the model of a store.
I dig that. I, uh, we, we should, I don't know why we didn't, we should publish that.
I think it's a $10 billion, uh, company overall.
I, I thought they were owned by Aldi's for some reason.
You might be right. I don't know on that. But, uh, shout out to Morgan. I thought this was a great breakdown. Uh, love it. Do more of that in the groups. We love this stuff and we'll share the information. Uh, because yeah, more people need to learn from this stuff.
So that's actually an interesting take, which is what are the interesting components that make something special? So we're doing this thing that we're gonna publish on Tuesday on hotels, and I thought that that was really interesting. And so it's not live yet, so I haven't been able to read all of it, but basically a lot of the largest hotel chains, what they do is they don't actually own the property. I mean, or sorry, sometimes they own the property, but it's all franchised.
Yeah.
And so 90% of their money is made via franchising.
Hiltons, Marriotts, whatever.
Yeah. I had no idea. Yeah. Uh, and so that's one of like the secret sauces, which is you have to do franchising. And it's really expensive. Like could be $10 million to start a Marriott franchise.
Right.
Very expensive.
That's not that expensive. $10,000.
That's cheap for a franchise. Sorry, I said $10 million.
Oh, $10 million.
Okay. Like it could be millions of dollars.
Okay. Yeah, that's a lot.
It's crazy. And so what, what we've been doing on Trends and what I have always loved doing, which is what's like, what's like the, the thing that makes something special.
What makes it tick?
Yeah. So for example, with software, typically it's just Um, uh, what makes a great software business is like, there's, I, I'm, I'm just riffing here, but I'd have to find the exact numbers, but it's like, are, is the annual revenue per customer at least $5,000? Um, can you make it so churn is only 4% a month? And then there's, uh, probably only one or two more rules, but it's usually churn and can it be at least $5,000 a year for a SaaS business you're talking about? Yeah. And so I love seeing those like, Yeah, you want—
so what investors do is they see so many deals and they talk to so many founders and they do this for a number of years. They get to see how these play out. They start to do what they call pattern recognition, which has pros and cons. The pros is great. You can recognize a good thing when it's a good thing. The con is if you're trying to make everything fit your pattern, you'll miss the outliers. And that's a, that's a big issue. But, um, but it's worth— it's still a tool in your tool belt that you should have. So I feel like this should not just be investors that do this, this should be entrepreneurs as well. So you should be looking at different businesses, industries, breaking them down, listening to podcasts like this or others, and trying to identify the patterns and commonalities and try to characterize, okay, what made that business tick? What made this have a different outcome than that? What are the sort of minimum requirements on, let's say, churn or customer, you know, customer value for a SaaS business to work? And start to get these rules of thumb or like kind of common patterns in place in your brain.
Yeah. And what, what I've been trying to do is figure it, figure out those on, on all types of things. Yeah. And that's been exciting.
