The Origins of Trader Joe's
Charles Shaw wines
To celebrate its 30th Anniversary, the California Association of Winegrape Growers invited Joe Coloumbe to address at its annual meeting. Telling a tale worthy of PBS's "Nova," he enthralled the audience about why the Little Ice Age kept Americans from drinking wine, how the breakdown of an international monetary agreement affects the wine business — and how he started the chain of quirky gourmet stores that upended the demand for California wine.
He started by explaining why America isn't a wine-drinking country. In short, it's because the Little Ice Age of 1450 to 1850 turned our mostly Northeastern forebears from wine into beer and booze drinkers. About 600 years ago, the climate in the Northern Hemisphere plummeted for 50 years, and Northern Europe stayed uncharacteristically cold until the middle of the 19th century. This Little Ice Age replaced the Medieval Warming that preceded it, a time when vineyards grew across northern Europe and even in Iceland and Greenland.
In the 13th Century, French vintners complained that English wine flooded their shores and undercut their prices. With the cooling climate, however, these vineyards retreated south, and northerners had to satisfy their need for alcohol with grain-based beverages, namely beer. Of course, with cold temperatures, the wheat crop also failed, so laws were passed prohibiting its use in beer, forcing brewers to use tougher grains such as barley. Germans brewers still cite these old laws in proclaiming the "purity" of their beer made only from barley.
The Czechs learned to add hops to preserve the beer, and that member of the Cannabaceae family added a certain appeal. The public soon developed a taste for the slightly bitter brew. As technology advanced, scientists learned to boil beer to extract its alcohol, making whisky and other alcoholic beverages possible.
The result: Northern Europeans drank beer and hard liquor, not wine. And since the United States was populated mostly by northeastern Europeans, we became a nation of beer and spirits drinkers, a tradition that still exists. More than 80 percent of the wine consumed in America is drunk by little more than 10 percent of the population.
Coloumbe's ancestors came from Normandy to Quebec in 1665
to escape the cold and were surprised to find that area even
colder. Their ancestors eventually made their way to warmer
climates; Coloumbe lives in Southern California.
"I believe we're returning to the climate of the late Middle Ages," said Coloumbe. He notes that with the warmer weather, vineyards in the Northern Hemisphere are sneaking north once again.
Last year was the first when the growing group of vine growers in England didn't have to add sugar to their juice and long-abandoned parts of Northern France are being replanted with vines as they were when the Yonne Valley near Chablis was the primary supplier of wine to Paris.
Closer to home, parts of North America where vitis vinifera grapes were untenable are now flourishing, including Virginia, the North Fork of Long Island and even parts of Canada. Coloumbe even sees a great future for vines on the south-facing shores of Lake Huron. That climate change has other implications for the wine business.
Coloumbe forecasts that premium wine production will shift to latitudes as high as 50 degrees as locations closer to the Equator become warmer. The Bay Area lies at about 30 degrees, by the way, as do Santiago, Chile, and the wine regions of Australia, Argentina and South Africa. Maybe California wine companies that have invested in Washington are just thinking ahead.
Coloumbe notes that there's little land mass at higher latitudes of the Southern Hemisphere, however — only New Zealand's South Island, Tasmania and Argentina. He envisions an increasing vinous future for the latter nation's lower reaches. "Argentina has a long tradition of making wine, most not very good, but that's changing."
The second part of Trade Joe's talk concerned why currency rates fluctuate so widely, and in the interest of space, he says that the weak dollar is the best thing that could happen to American wineries. He notes that the Euro has risen from 87 cents to the dollar to today's $1.35, and he thinks it will hit $1.40. That makes U.S. wine cheaper overseas — and imports pricier to American consumers.
Likewise, the Australian dollar was at 50 cents American when that nation's imports started flooding our markets. It's now almost even with the American dollar. "The Australian dollar was at $1.25 in 1975," he notes. "If it goes to $1.25 again, you can forget about Yellowtail," the fastest growing Australian wine import.
And though the U.S. dollar is weak, he notes that the Argentine peso is even weaker. "Today, Argentina is the cheapest place in the world to grow wine." Finally, Coloumbe talked about how he started Trader Joe's. In 1966, he owned a chain of convenience stores called Pronto Market, but he could see that those businesses were becoming commodities. "I realized I had to change." In searching for a new business model, Coloumbe discovered a prime customer target: the relatively small group of people with college degrees.
Thanks to the GI Bill, it was growing very fast, and he discovered a very strong relationship between years of education and alcoholic consumption. "It was as perfect a correlation as found in market research," he notes. Attempting to exploit this group, Coloumbe outfitted a Pronto store with the "world's largest selection of alcoholic beverages."
In those days, California had "fair trade," i.e., manufacturers could fix retail prices. "We had 100 Bourbons, 50 Scotches and the world's largest assortment of California wines." He claims to be the first to give space to brands like Mayacamas, Schramsberg, Souverain and Mirassou in Southern California.
Coloumbe found a loophole in the fair trade laws. He acquired
an old license so he could also act as a wholesaler and developed
a private label program, the precursor of today's Charles
Shaw wine, better known as Two-Buck Chuck (now Two-and-a-Half-Buck Chuck). Over time, he realized
that his stores especially appealed to the over-educated and
underpaid, notably teachers, classical musicians, museum curators
"That group now includes starving Silicon Valley engineers," he jokes. "It became our sacred mission to serve these customers."
It was a winning strategy, especially since the targeted customers have influence out of proportion with their salaries and love to share their discoveries with others of the same ilk.
He adds, "We built Trader Joe's on wine first, then food. I tasted 100,000 wines, and most weren't wonderful. They were submitted to us by desperate vintners."
Joe Coloumbe left the company 15 years ago, but he notes that Charles Shaw wine is a return to the company's roots. "Is Two-Buck Chuck as good as our private label wine of the '70s?" he asks rhetorically. "Eight million cases later, who's going to argue?"
He concluded by saying, "I look forward to trying Carlos T. Shaw from Argentina."
(Updated: 02/21/13 BH)