Trader Joe’s: the small grocery store that is crushing the competition by not following any of the traditional business models or methods that almost all grocery stores abide by.
We all know that for any dealership, the F&I department is where the magic happens, and is the most profitable per-square-foot-area in the store. Interestingly enough, Trader Joe’s takes in the most revenue per square foot in the US grocery industry.
So what can a grocery store chain – which is seemingly a world apart from a car dealership – teach us about dominating in F&I? Surprisingly, a lot!
A Quick Snapshot of Trader Joe’s
This small grocery chain broke the mould by delivering a whole new take on the customer shopping experience. The first store came to fruition in 1967 in sunny California. Despite their coast-to-coast fame, Trader Joe’s remains a small chain grocery store with only about 500 stores across the United States. Compare that with Wal-Mart, which has nearly 10x the number of stores!
If you heard their business model on paper without knowing the brand behind it, you wouldn’t think they had even a snowball’s chance of success. Yet, their out-of-the-box thinking is outperforming even the largest grocery chains!
So, let’s take a look and see how we think dealers can stand to take a lesson or two from Trader Joe’s in their F&I departments.
Names Matter, a lot.
Here’s a few examples of some of the most popular products you can buy from a Trader Joe’s:
- Sea Salt & Turbinado Sugar Dark Chocolate Almonds
- Everything But The Bagel Seasoning Blend
- Creamy Cauliflower Jalapeño Dip
So what? How does this relate to selling F&I products?
The first thing that’s important to note is that each of these items includes in its name what it is: Almonds, Seasoning Blend, and Dip. I can’t tell you how many times I’ve seen an F&I manager discuss “ABCD” (or some other acronym) with a customer, as though everyone in the conversation knows exactly what this means.
As humans, we have a tendency (some call it laziness, I prefer to think of it as efficiency) to overuse acronyms and abbreviations. We use them in settings and with people who have no idea what they mean.
So next time you’re presenting that 84-month 160,000 km warranty, make sure to write out its whole name!
The second thing to notice here is just how much thought they put into the name: “Everything But The Leftovers Seasoning Blend”. A really good example of this in F&I would be life and disability insurance. If you’re presenting a menu and you have “Life Insurance” as one option and “Disability Insurance” as another, you may be doing yourself a huge disservice.
I challenge you to look for more creative naming conventions. How many times have you heard a customer say “I don’t buy insurance”? I love the use of “Family Protection” for life insurance and “Credit Protection” for disability – this gives the customer something to think about and might just avoid you that knee jerk “no thanks” reaction.
Too Many Choices Leads to Less Products Purchased
In this TED Talk, Sheena Iyengar, Professor of Business at Columbia Business School focuses a lot of attention on one of the things that Trader Joe’s does really well – not overwhelming you with too many choices. Here, Sheena shares the results of an experiment she ran using Jam at a grocery store. The grocery store in question had 348 different kinds of jam.
To test her theory of more choice does not equal more purchases, she ran two tests: one where they set up a table with 6 flavours of jam at the front of the store, and another with 24 flavours of jam. The results were shocking!
First: more people stopped to look at the jam when there were 24, in fact almost 40% more people stopped. But how many people actually purchased jam?
Only 3% of the people who sampled the jam at the table of 24 flavours actually made a purchase. Compare this to the fact that 30% of the people who stopped to sample the jam at the table of 6 flavours, and you’ll see what she did: more choice leads to less purchases.
Okay, so let’s weave this theory back to F&I – and I know, this is not a perfect science – but I think it’s very relevant. In fact, I think one of the reasons that F&I Menu selling is so successful is that it reduces the customers’ choices from 12 products down to 3-4 groups of products.
I think it’s also important to remember this as we consider adding more and more protection items and things to potentially sell to customers. We should be conscious of the number of different products we sell, as adding more to the presentation doesn’t always mean adding more to the bottom line.
Be the Trader Joe’s of the Automotive Industry
Autovance dares to be bold with its innovative software solutions for F&I. Our integrated solutions allow you to sell anywhere to anyone. For more than 10 years, we have been refining digital retail to help dealerships increase their average F&I gross profit! Are you ready to break the mould and be a pioneer? Let’s chat!
This post was inspired by the Freakonomics podcast “Should America Be Run by … Trader Joe’s?” – I highly recommend you check it out!