Entrepreneurship Lessons from Pirate Joe's

Pirate Joe'sTrader Joe’s has a large and loyal following. (I’m one of them.) But they only have stores in the United States. Michael Hallatt lived in Vancouver, Canada, and got tired of having to cross the border to get his favorite grocery products. Thinking like an entrepreneur, he decided to start buying products from Trader Joe’s stores in the US and sell them across the border in Vancouver, and “Pirate Joe’s” was born.

Hallatt and his “associates” procure some $9,000 worth of groceries each week and mark them up $1-3. But because Trader Joe’s is not happy and has tried to shut down the operation (more detail on the various lawsuits and outcomes can be found here), the process Hallatt has to go through to obtain these groceries is complex. The result is that Pirate Joe’s is not making Hallatt rich by any means. He claims that he could make more money driving a cab.

So why is Hallatt doing it? He is clearly a Trader Joe’s super fan. And a little crazy – but can’t that be said for most entrepreneurs?

In my opinion, the more important question is: why is Trader Joe’s trying so hard to shut him down? His operation is generating additional revenue for Trader Joe’s. And it’s solving a clear need as it shows many Vancouver residents’ desire for Trader Joe’s products.

If we look at Pirate Joe’s from a lean startup lens, what Hallatt has done is create a tremendously successful minimum viable product (MVP). Trader Joe’s hasn’t spent a dime (excluding the attorney’s fees) and has, in fact, made a fair amount of money along the way. $9,000 of groceries a week equals $460k of groceries a year. It would arguably be much higher if Pirate Joe’s sold refrigerated and frozen foods.

Based on searching online, I found that Trader Joe’s retail sales were $1,750 per square foot in 2010. Assuming a store is 10,000 square feet, that translates to over $17 million per store. From that point of view, $460k looks pretty small. So, despite it’s success, maybe Vancouver isn’t a large enough market for Trader Joe’s.

But what Trader Joe’s is forgetting is that there is also a cost to all of the negative publicity associated with trying to shut down Pirate Joe’s. A better strategy might have been for them to simply open up a smaller store and hire Hallatt to manage it. Hallatt even says as much on the Pirate Joe’s website (minus the part about making him the manager):

“Trader Joe’s filed their Notice of Appeal to the Ninth Circuit Court of Appeals today. We would rather have them put all that time and money towards a store in Vancouver. Our French label printer will be a house-warming present.”

This post was authored by Dr. Atul Teckchandani.

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