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Who's going to be the Trader Joe's of healthcare?

Much-loved by a key consumer demographic and highly-guarded by its corporate parent, Trader Joe's has pioneered affordable, great quality groceries. Can its model work in America's healthcare system?

Few other American companies command the reputation of Trader Joe's: $3.79 for a one pound bag of peanut butter pretzels (no preservatives or artificial flavors, naturally). $2.49 for a bottle of wine (the former "Two-buck Chuck" before a small hike). Organic New Zealand cheddar for $8.58 a pound. A 13 ounce can of Kenyan Peaberry Coffee for $7.99. Organic strawberries for $3.79 per pound. And vegetable flaxseed tortilla chips for $2.49 per 12 ounce bag.

The company offers those products and prices, while sending profits back to its German owners and paying workers well above minimum wage -- and it could offer some lessons for American healthcare organizations in these times of health reform, patient-centered medicine and consumer-friendly insurance.

"Trader Joe's is a customer experience company that happens to sell food," said Trader Joe's former president Doug Rauch, who retired in 2008 after 31 years, in a presentation on the Big Think.

"When they're doing things right, it's impossible for the customer to come into the store, interact with employees, leave and not feel in some way a little bit better."

Now the CEO of a leadership outfit called Conscious Capitalism, Rauch and other consumer retail veterans believe American healthcare payers and providers alike can apply new approaches to the healthcare trade that will benefit their customers and their finances.

First, though, it's worth "reimagining healthcare in a consumer-centered world."

That's what Rauch will ask health insurance leaders to do in some lessons at America's Health Insurance Plans' conference in Seattle, along with a senior VP of the outdoors company REI and the CFO of Nordstrom -- two companies that have led their corners of the retail industry and adapted along with their customer bases, like Trader Joe's.

Trader Joe's was started by Joseph Coulombe, who, fresh from Stanford's MBA program in the 1950s, ran a regional convenience market chain in Southern California meant to rival 7-11. He later bought them out and turned them into Trader Joe's in 1967, with the first store in Pasadena.

In 1979, after trying to bring unique but affordable food to middle and upper class Californians, Coulombe sold the company to Aldi, the privately-held German supermarket conglomerate, and stayed on as CEO until 1988, when the company started expanding on the West Coast.

In 1997, the company opened its first East Coast store in greater Boston's Brookline neighborhood -- where it really found its big demographic, young, college-educated adults and families.

Now, with more than 400 stores across the country, Trader Joe's is led by Dan Bane, an accountant from California who joined as West Coast president in 1988 and became CEO in 2001.

While the company's sales and profit figures are closely-guarded secrets by its corporate owners, a large factor in Trader Joe's success has been scaling a strategy (sometimes called "ruthless") that may have some application for organizations trying to bring America's affordable healthcare -- designing high quality products while refining supply chains and driving out middlemen.

The affordable, high-quality house brand

On its website, the company articulates a list of business credos and pledges to consumers: "We buy direct from suppliers whenever possible, we bargain hard to get the best price, and then pass the savings on to you. If an item doesn't pull its weight in our stores, it goes away to gangway for something else...We keep our costs low -- because every penny we save is a penny you save."

About 85 percent of the branded products sold in Trader Joe's stores are sold under its own brands; the original goal was to offer an in-house brand that wasn't inferior to name-brands, in reality or perception, said former President Rauch.

The aim was "buying direct by cutting out all the steps and what we thought were unnecessary steps." At the same, company leaders experimented with new products constantly, creating enough failed items to fill a Wal-Mart before finding a success, he said. "Trader Joe's was in a constant state of reinvention."

That type of experimentation and willingness to change products is sorely needed in healthcare, critics of the status quo say -- from health systems bring back the house call for primary care visits to infusions therapy, to insurers offering discounted drugs, exams and tests for high-risk patients.

Trader Joe's also offers some business reputation lessons, as the company's secretive supply chain and branding methods have not been without controversy. Just recently it agreed to pay $3 million to settle a class action lawsuit over the use of the word "natural" on products such as "Joe-Joe's Chocolate Sandwich Creme Cookies" and "Jumbo Cinnamon Rolls."

Back in 2005, the company promised to make sure all of its in-house brand eggs are sourced from cage-free hens, and in 2010 agreed to buy all of its seafood from certified sustainable sources. Last year, it promised to source all its in-house products with non-genetically modified ingredients.

Over the next decade, as American healthcare organizations try to transform themselves, Trader Joe's will be worth watching to see if its decade of growth can be sustained amid the increasing competition in the growing organic and natural foods market, which has already been impacting the sales at publicly-traded rival Whole Foods.

Trader Joe's,  insurers and health systems may even end up finding themselves competing with the same giant creeping into all of their businesses -- Wal-Mart, which may or may not become a formidable player in healthcare.

Photo by daveynin via Wikimedia Commons.