Episode #11: where to start the journey to Conscious Capitalism? (Part 2)
This week, Timothy and Raj discuss with Doug Rauch, former President of Trader Joe’s and former CEO of Conscious Capitalism Inc., his journey to Conscious Capitalism, personally and at Trader Joe’s.
Listen to this episode on Apple Podcasts, Spotify, Stitcher, or wherever you get your podcasts.
Mackey, J., Sisodia, R. (2014). Conscious Capitalism: Liberating the Heroic Spirit of Business. Harvard Business Review Press.
Sisodia, R., Henry, T., Eckschmidt, T. (2018). Conscious Capitalism Field Guide. Harvard Business Review Press.
Raj: And Doug, I wanted to talk to you about the stakeholders. We talked a little bit about employees. Trader Joe’s, of course, is known for paying employees very well, creating a wonderful culture for them to thrive in and they enjoy their work. What also attracted me to Trader Joe’s as a marketing professor was your approach to marketing and the way you thought about customers and it was very unusual, Trader Joe’s does not do any advertising other than that Fearless Flier, which actually people look forward to reading because it’s humorous. You don’t do sales. You don’t do those…what are those called? The food manufactuers give you a promotional allowance. Could you talk a little bit about that? How you treat your customers, not as consumers but as true stakeholders, and you earn and retain their trust through those kinds of actions.
Doug: Yeah, well I mean in all honesty that was something that I learned from Joe Coulombe. I mean he was the one that first set a tone in marketing that was direct, that was treating your customer as an adult and then sharing with them your learning, being transparent. So the original flier that was sent around was called the Insider’s Report. He was like, hey, we’re learning stuff about the food industry that other people don’t know. Let’s share it. You know? Here’s where this stuff comes from. Here’s how it’s made. Here’s what you’d want to know about this. So actually, then in the early to mid-80s, they sold that name to Loblaws because they wanted to copy it and they were willing to pay six figures for it, so then they took up…I remember Joe saying, “No one ever remembers what the name is. You know that flier you mail out?” You mean the Insider’s Report? “Yeah, yeah, yeah, that flier.” So he just said, I’ll sell them the name if that’s all they want and I’ll keep doing what I’m doing and call it Fearless Flier.
And then the other one was John Shields was the CEO that came on in 1989 when Joe stepped down and John was someone who was very turned in to how important it was as a customer to have customer satisfaction, which we slowly then, our own understanding and my own development along with the company was to recognize that customer satisfaction is good, but customer experience, literally being able to craft a customer’s experience is way above their satisfaction. So I think that the whole orientation of being customer focused is something which…I was a trustee for 10 years at one of the really more innovative colleges in the world, called Olin College of Engineering, and they have something that’s called user oriented collaborative design, which is a wonky way of saying customer focused iterative process. So you’re focused on the user, on the customer, and then you’re in a dance with them, of iterating the product, which is why I like to joke and say, you know, the thing about Trader Joe’s is we just failed our way to success. We kept trying things. Trader Joe’s, probably more than any other grocer I know, churns through its product. It introduces things, drops things, introduces, drops things, and as a percentage of their product line, they have more discontinued product than just anybody else I know, but it’s all part of an iterative process of trying to get more innovative, more interesting, better deals for the customer, and so it’s that dance that, again, has the customer in the center and then it’s let’s keep iterating on this. It’s that focus that says as a stakeholder…and by the way, I think one of the things that sometimes, to me, is a bit misleading and certainly as a leader very hard to follow would be this idea that all stakeholders are equal, that everybody gets an equal share and equal share of your time and equal share of everything. I don’t think that’s the case. I think that one can argue, and we have within our own ranks, which one is more important, employees or customers, but between those two, those are the core to a conscious business, is to have customers as a focus that become your raving fans.
I mean to Raj’s first point, certainly marketing for Trader Joe’s when we started this stuff, we had very little money to spend and so what you do is you look to basically have your customers become your ambassadors, so you’re not so much selling them as enlisting them, and I can’t tell you how successful that was when people would go just nudge and then finally just drive their neighbors nuts, like okay, okay, I’ll go down. They’d tell us my neighbor is driving me nuts. I had to come see what this place was about. So that’s what happens when you have a company that people feel that, with integrity, they’re putting me first. They’re caring about me. They’re doing things that I don’t feel I got to grab my wallet and guard it carefully. Obviously, shameless commerce, right? They’re trying to get a big a market share as they can, but they’re trying to do it in a wonky way called voluntary exchange where the customer gladly comes and says, I’d love to give you more of my money. Why don’t you carry this and this and this and I’ll buy it from you? And so that’s the stuff that I think is…what reduces marketing is when you are able to get your customers to be your leverage point and they’re your catalyst.
We all know, and Raj is an expert on this, you can spend a ton of money on advertising and TV and all that other stuff, but we have a natural barrier, all of us, against having someone else yell at us on TV or on radio and stuff. There’s nothing like a trusted reliable friend or reference that says, oh hey, have you tried out this? And that’s gold.
Timothy: I love that, Doug, and I love that distinction about trying to create raving fans, but more importantly, doing it consistently, because in my experience, a lot of clients that I work with, yeah, they have some people who are raving fans, but the critical issue is are 80% of the people that are coming in experiencing this as raving fans rather than just the top 10%, and I think that creating that culture of raving fans and that focus is not easy, and I know that at Trader Joe’s you actually drove a change in the culture around that and because culture is so important and connecting that customer to the culture. Say a little bit about what that journey was like to sort of change how you did things at Trader Joe’s.
Doug: Well, I mean it’s one of those things that’s kind of like a fencepost. You keep pounding on something and eventually it sinks in, and so part of it was the iterative process of my own learning and the company’s learning. It was that the company nationwide was in this dance with learning more about what does customer experience mean? What does customer satisfaction really mean? What’s it really mean to put your customer first? And then at the same time they care deeply about their employees, so what do we do to make sure that they’re not getting left behind in this? And so I think that part of the process is to engage with your customers. So one of the things that always worries me is nowadays people think…some people will say, I have a million friends on Twitter or it's like, well, okay, I guess that’s one way you want to define friendship, but I would say that if you want to really engage, if you want to have those customers that are 80% raving fans, you can’t do it without interacting with them, without getting out in the stores and asking them what can we do better, without having a team, without having an organization that is open to and constantly trying to do the continuous, incremental, small improvements, not the great big bangs of aha ideas that come around every five or ten years, but that every day we’re going to be a little better than we were yesterday. What can we do? How can we do it a little better for you?
It’s everything from…and Trader Joe’s really got, in my opinion, really world class training and just developing classes for and tools for management to look at things through the customers’ eye, everything from videos to everything to where you would go, let’s start where management every day has to step back and start to approach the store like a customer. How’s the front look? Is there little pieces of paper? Is it a mess? When you first come in, what’s the temperature inside of here. How heavy is the music? Is it too loud? Not loud enough? I mean just…otherwise what happens is you get down into the weeds of doing the business and you forget what the customers’ experience. You get so attuned to do we have enough product on this shelf or I’ve got to get scheduled this person to that and we’ve got a load coming in in an hour and a half, as compared to are there enough shopping carts where they need to be? Is the signage right? Is it stocked well? Is it lit well?
A lot of stores have these sort of what I call aisle violators. They’re either stacks of product you’ve got to like slalom ski to go between, or they have 50,000 special offerings that are sticking out and it’s like nothing is a value because everything is for sale. So the question really is if you’re looking at it from a customer, is this an easy store to shop? Where are the pinch points? Do I really open up a register every time there’s more than two people in line? Am I doing that? Et cetera, et cetera, et cetera. So it’s really retail is detail, but it’s really about creating teams that care about this and they care about this because they start to understand this is the secret that’s going to differentiate us from everyone else.
So I would get to the point where when I would meet with teams, I would say…and there was a radio program, very popular in Boston, called Car Top, on NPR. These two guys would get together and talk about cars, right? And I would say, I don’t really care about cars, but I love listening to these guys because within 10 minutes of listening to them I’m laughing, I’m having a good time, because they’ve given me an experience. In my opinion, a good retailer at store level should think of itself as a customer experience company. It just simply delivers it through food. Now, the buying team can’t think that way. Their job is to go get great deals and great products, et cetera, et cetera, but once you’ve got the product there and once it…then it’s like, what experience can I give my customer?
Raj: My favorite story I’ve heard you tell is about the cashier and the lady who bought…if you could tell that, because I’ve heard you refer to employees and customers as two wings of the bird, you can’t overemphasize one or the other, but it’s really the bond and the connection between them that ultimately becomes the secret sauce, in a way, so that story, I think, is sort of demonstrative of that, if you could share that.
Doug: This was one of my learnings when I came from the West Coast to the East, to bring Trader Joe’s to the East here, was that when there was a big massive snowstorm, a nor’easter they call it, that everybody scrambles out and buys like it’s the Cuban Missile Crisis. I mean it’s like we now know with COVID. They would just go out and they would buy all this stuff, and I was always puzzled. But we had a store that was in Scarsdale, New York that I had a customer call me and said, “Hey, I want to tell you about an experience I had.” Now usually if a customer calls and talks to the President, I’m going to be like giving gift cards or like what can we do to make things right? And this one was, “I’ve got to tell you about an experience I just had in your store.” I go, “Okay, all right,” putting on my non-defensive communication and relaxing into it, all right, here it comes. And she said, “Well, I just wanted to let you know that we have this huge nor’easter just coming and I rushed with my two young daughters, put them in the car, went through the store, filled my cart to the brim, got up to the register, and you know how you guys take everything out of the cart. I don’t unload it. You do that for me.” I said, “Yeah.” She said, “I really appreciate that. So we bagged it all up and I looked down and I had left my purse at home and all my order is now bagged up and there’s this long line of people and everybody is in a hurry to get out of the store. And the cashier looks at me and says, don’t worry about it. I’ve got you covered today. Next time you’re in, pay me back.” And she was shocked. “And this was before anyone else in line could even begin to get a sense like, wait, what’s going on? Am I in the wrong line? Lady, what are you doing? It was like he did it seamlessly, didn’t embarrass me. He didn’t ring bells to go get the manager to come over and look at me and are you trustworthy and give me your name and address and any of that stuff. He let me walk out with the groceries and go home, put them away. I immediately got my wallet. I drove back to the store,” she tells me. “I go to give him the money back and then a tip.” He said, “Well, I can’t take that.” And she said, “I just want to make sure you’re rewarded for this.” He goes, “Oh, go tell my Store Manager.” And so, she goes and tells the Store Manager and he said, “Well, if you really want to make sure the guy gets credit, here’s the President of the company. Give him a call and tell him what happened.”
So of course, she said you’ve won me for life, and the key other side of this is a great customers’ experience that knocked their socks off. From an employee standpoint, when I was down in the store traveling, probably 60 days later or so, I sought out this individual and I said, “Hey, by the way, I’ve got to ask you something. Where on earth did you get the idea to pay for this because this isn’t in the manual; “pay for a customer’s groceries.” I was like, “Where did you get this idea?” He said, “Well, you know, in our core values, number one is integrity, to treat people the way you’d want to be treated. So the first thing that went to my mind is, how would I want to be treated? One, I’d want to be trusted. I came here with the intention to buy the groceries. I’m good for it. Two, don’t embarrass me. Don’t shame me. Don’t embarrass me. And so, I said I’ve got to treat the customer as I’d want to be treated.”
Timothy: I love it. Now you know I think it’s really important in retail the role of leadership at the store level and I know that at some point you rethought what that role was and to your point, have the store leader be more in front of the store than the back of the store and make that change. Say a little bit about what that was like to try to help make that change happen.
Doug: Well, I think that this came out of an understanding in the company that we’ve had that look, our most engaged employees should be our Store Managers. They have the longest tenure. They have the most at stake. They’re putting in long hours, et cetera. And yet, if we’re not careful, they’re the ones that are least interacting with our customers. Shouldn’t you have your most engaged employees interacting most with your customers? So we ended up with basically redesigned stores, getting rid of back offices where they could go hide, making sure they’re out on the floor and basically asking them to get out and interact with customers, at least a minimal percentage, minimal meaning X percentage of their time scheduled they’ve got to be out on the floor with customers. Same way we had a bunch of Store Managers that frankly didn’t do well with that change. They had been hired in an old paradigm where I’m here to move things. My job is to manage stuff. Now you want me to like be interacting with customers? I don’t like customers. And it’s like, well, clearly you’re not the new Trader Joe’s 2.0 sort of store leader, and so we lost a couple people because they just couldn’t make the shift to like I’ve got to be out interacting with customers.
And by the way, we were, with those staff, we weren’t telling them to be out there and be Guy Smiley or to try to put on a personality. Just go be yourself. If you’re somewhat introverted, just pay attention and kind of go, hey, how’s it going today. Can I help you with something or is there anything we can do better? And you don’t have to be the bubbly false personality because we all have that internal radar that tells us that person is acting out of character. There’s something about that that doesn’t ring true, and it puts us off. So the most important thing is you’ve got to be authentic.
So what we did as an organization was we made sure that management knew, they and their…at that time the Assistant Manager was called First Mate, and others were spending plenty of time out on the floor with customers learning and basically engaging with them to make sure they’re having the best possible experience.
Timothy: That’s great. And we’ve been talking about Conscious Capitalism and you’ve been doing a great job of talking about Trader Joe’s and your experience there, and one of the things I want to come back to is I know you didn’t retire. I like the way you already describe it as I graduated onto my next course, and I know one of the courses that you’ve been working on is a wonderful social enterprise called the Daily Table and I wonder if you’d tell us a little bit about what have you learned about running a “conscious” organization moving from a for profit to a social enterprise and how does that fit into this conversation?
Doug: Well, yeah, so I like to stay graduated because at the time I even told the team at Trader Joe’s. I said, “Listen, I’m not going to look at this as a retirement party like a funeral where everybody gets up and says he was a good old guy or something like that, like he’s dead. This should be like a college graduation. We celebrate this. I don’t know what I’m doing, like many people who actually leave college don’t know what they’re going to do, but they still celebrate they got a college degree.” So I said, “I’m not sure what I’m going to do, but here’s what I do know. I believe in lifelong learning and when you’re done learning, you’re done.” So I didn’t know what I was going to do. I went and did this fellowship at Harvard for a couple of years, out of which sprang Daily Table, and what I will say is, and what it really is is an innovative approach. It’s a different way of tackling hunger in America. It’s a different way of tackling food insecurity. Because one of the key learnings I had when I was at Harvard and talking to everyone from the CEO of Feeding America on down was that people were hungrier to keep their dignity than even their health sometimes and that the handout model that we have a power differential built into it where the person handing it out has the ability to withhold or have a power differential and those in need are getting it, and because of that, a lot of people are just ashamed and don’t want to deal with it.
So what if I could instead flip that model and create a hunger relief agency, a health incentive in the neighborhood that masqueraded as a corner grocery store, where we had to earn their patronage every day, yet our entire intent is to get healthy food into a community and have a healthier outcome. So that’s what Daily Table was about, and what I will say is I had some real learnings, that there was a nonprofit that in my opinion that we’re still part of a capitalism system because we run a business. We’ve got to earn customers who voluntarily interact with us. We’ve got to go out and compete, but we compete not just for the customer to come shop with us. Our form of capital, which actually exists with other companies, but it’s not as obvious sometimes, is in acquiring funding. So they’re at 1.4 million nonprofits or so in the United States. They all are out scrambling for funds. So it turns out that your main marketplace that you’ve got to win over is your funder, because without that, you’re dead.
So one of the things that makes Daily Table a bit unique and different is that I didn’t want to be solely dependent upon charitable giving because one of the learnings I had at Harvard was that 75% of a nonprofit’s management’s time is spent in fundraising, which means, if you stop and think about it, that 75% of the highest paid, most engaged people, their time is not spent in better services or product. It’s spent simply to get funds to deliver on the mission. So my idea was what if we could get funds by the delivery of the mission? So what if we put our stores down into inner cities so that every time a customer came in, we’re delivering on our mission. Here is someone who is struggling to eat well that can come and get fruits and vegetables and clean dairy and protein and grab and go meals and things, all SNAP (Supplemental Nutrition Assistance Program- formerly known as Food Stamps) eligible and at prices that are cheaper than junk food. We’d be delivering on our mission. Yet, every time they went through the register, they became a funder. So I like to say that every shopper is a funder and we cover currently about 70% of all of our expenses from just our own internally generated sales, which is world class in the hunger food space we’re in.
I will say very quickly on a Conscious Capitalism side, there’s some real learnings. One is that more than even in the normal business, this is one where you want to form…you don’t want a silo. When you’re dealing with social challenges like poverty, hunger, climate change, et cetera, whatever it is that are big systemic problems, there’s no single organization, no single vector, no silver bullet is going to take care of it and so you band together as best you can to as many organization and as many channels to go in after it so that you can become part of a spectrum that is going to cover the solution, and that’s what we do. So my attitude is that food banks are necessary. They’re essential in America and they’re not sufficient. There’s not a food bank in America that can feed a family all the food they need. They can give them supplemental handouts, and in the same way Daily Table itself couldn’t solve this problem by itself. We need each other and this is a problem when it comes to social entrepreneurship that you have to look at success in a different way. Success is literally every time a customer walks through that front door and buys a product that’s going to lead to their health that they wouldn’t have been able to afford. They would have gone to chips and soda, and instead they got a fresh apple and a salad.
So when people ask me, when will you know you’re successful, the answer is we’re successful a thousand times a day. What you’re really asking me is when can you expand your impact? When can you have a larger impact? More success, if you will. So that’s one of the key learnings I’ve had, besides the fact that we’re dealing with employees since we hire from the neighborhoods. 90% of them are employees that come from a mile or a mile and a half radius of our store, and are people coming, et cetera, like from the communities we serve. It took me a while and it took my wife, who is a trauma therapist, volunteering there for several years to realize the degree to which there is low to high levels of PTSD in almost every employee we have, and to be very blunt about it, it turns out living in Boston, which is a relatively racist city, and if it isn’t intentionally, just look at the geographies and the red lining that’s occurred, et cetera, et cetera, and the history, and you don’t have to go back a century to look at race riots when they started busting, et cetera, that it’s a city that has got beneath the skin of a very liberal population, a very strong sense of otherness, so it’s stressful to be a person of color in Boston.
Next, you’re economically challenge. Being poor is stressful in America and it is also oftentimes not safe. These are the most violent areas of our city. So you’ve got all of this that lead toward this staff that has a hard time focusing on detailed instructions, that has a hard time…all the things of PTSD, which we won’t bore ourselves with right now, show up. So we had to adjust our training, our development, et cetera. We have not backed away from hiring from the community, just we now know that it’s going to take a different level of interaction than it would have in normal circumstances.
Raj: This is a true healing organization that you have created and you also hire citizens who have been incarcerated at some time and they often have doors slammed in their face. Thank you so much for that noble work that you’ve been doing. It’s very inspiring.
Timothy: Thank you, Doug, for all you’ve been doing for Conscious Capitalism and for setting just a great example of what a conscious leader looks like and how do you go about really helping an organization go on the Conscious Capitalism journey, so thanks so much for your time and your energy today. Thank you.
Doug: Well, thank you. It’s been an honor to be here with you guys.
Timothy: Well, that brings us to the end of anther episode and if you have any comments or thoughts you’d like to share with us, please go to TheConsciousCapitalists.com and there’s a little form there you can leave a note and if you’ve enjoyed this, feel free to hit the subscribe button on whatever channel that you’re listening to this and thanks so much and we’ll see you again next week.