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Trader Joe's 'purposefully railroaded business relationships', alleges lawsuit

Trader Joe’s move to cut out the middlemen in dairy supply chain left key vendor & broker ‘high and dry’, says lawsuit

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By Elaine Watson+

11-Jul-2014
Last updated on 17-Jul-2014 at 02:14 GMT

Trader Joe's has been accused of unethical business practices
Trader Joe's has been accused of unethical business practices

Trader Joe’s move to ditch a broker and a vendor it had been working with for years and deal directly with key suppliers of ice cream and other dairy products left the pair “high & dry”, says a lawsuit accusing the retailer of “systematically eliminating companies from the marketplace”.

According to a complaint filed in the Los Angeles Superior Court on July 2 by Natural Dairy Products LLC (NDP) and Dairy Smart Inc, both firms contracted with dairy suppliers for years to produce products meeting Trader Joe’s requirements.

NDP, for example, pre-tasted products, handled invoicing, checked all TJ purchase orders for accuracy, dealt with complaints and partnered with key ice cream makers to ensure that the products were produced to the retailer’s precise requirements and delivered on time and in full.  Dairy Smart, meanwhile, acted as a broker for Trader Joe’s for dairy products including yogurt, cottage cheese, sour cream, and butter.

Suppliers given ultimatum

However, this all came to an abrupt halt in 2013 when Trader Joe’s told suppliers it would stop selling their wares unless they ditched NDP and Dairy Smart and dealt with Trader Joe's directly, alleges the complaint.

Ice cream makers, it says, were given an ultimatum, and effectively coerced into dropping or canceling contracts with NDP and Dairy Smart: “Either cease contracting with NDP and sell directly to Trader Joe’s at a lower price than Trader Joe’s previously paid to NDP, or Trader Joe’s would find a new supplier.”

One supplier allegedly told NDP that he had agreed to give Trader Joe's a big price reduction to keep its business, adds the complaint.

But retail prices did not come down and shoppers have not benefited from the new arrangement, it argued: “Checking retail pricing at Trader Joe’s for the last year on the products sold to Trader Joe’s by NDP shows no reduction in retail pricing.”

Trader Joe's and the plaintiffs had entered into an 'implied-in-fact' contract wherein they had agreed that as long as NDP and Dairy Smart were willing and able to supply the products in question, "Trader Joe's would not undercut plaintiffs by buying directly from plaintiffs' vendors, manufacturers or suppliers", added the complaint.

Attorney: Our clients deserved better

The grievances listed in the complaint includes intentional interference with contractual relations; unjust enrichment, breach of contract, and acting in bad faith.

"Our clients helped build Trader Joe's ice cream products which generated tremendous revenues for the grocer," said Ricardo Echeverria, a trial attorney with the law firm of Shernoff Bidart Echeverria Bentley LLP, which represents the plaintiffs.

"Once TJ's decided it would be more profitable doing business without Natural Dairy Products and Dairy Smart they purposefully railroaded their business relationships,” said Echeverria.

As a result of Trader Joes' actions, both companies suffered severe financial losses, added W. Bruce Voss, a partner at law firm Voss & Johnson, which is also representing the plaintiffs.

"Trader Joe's relied on our clients to do the difficult work of getting quality manufacturers and then TJ's left NDP and Dairy Smart high and dry. Our clients deserved better after the decades of combined years they helped Trader Joe's become a household name."

There was a contract, and they went behind our clients' backs and broke it

Asked whether cutting out middlemen and moving to direct relationships with suppliers is just a standard part of doing business once supply chains have been established, Voss told FoodNavigator-USA: 

"That may be true but in this case, there was a contract, they went behind our [clients'] backs and broke it. A jury would look at this and say this is not the thing you do - we all think of Trader Joe's as our neighborhood store, but this is not right."

A Trader Joe’s spokeswoman told FoodNavigator-USA: “We don’t comment on pending litigation.”

The case is Natural Dairy Products, Dairy Smart v Trader Joe's, Case No. BC550578 filed in Los Angeles Superior Court on July 02, 2014.

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1 comment (Comments are now closed)

Pathetic

First, TJ's is wrong to eliminate diligent hard working professionals that help to manage this sector of the business for them. They perform this as well as the sales function and are compensated by a small percentage of commission and typically absorb all their own costs. Second, the vendors are unethical to knuckle under to such tactics and for offering reduced prices. The reality of the economics of this is it is more cost effective for vendors to pay a small commission to brokers who perform these duties than it will be for them to pay their own people (salary, bonus, expenses, healthcare, vacations etc.) to deal with TJ's directly. As such, it is economically unfeasible to offer reduced prices once a broker is eliminated. In the end, while this action by TJ may not be illegal, it is unethical and it is without question foolish vendor practice. As a long time consultant to the industry, I speak from direct experience where this methodology failed.

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Posted by Anthony De Rubeis
15 July 2014 | 00h14

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