Study: mixed results in customer satisfaction: ACSI gives nod to Wendy's, McD, KFC, Starbucks, but most big brands lag flat average

Nation's Restaurant News,  May 21, 2007  by Sarah E. Lockyer

Tags: brand, customer satisfaction, Starbucks Corp.

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ANN ARBOR, MICH. -- Customer satisfaction with the average quick-service meal failed to grow in the past year, and most leading brands lag the sector's overall rating, according to a closely watched annual study from the University of Michigan.

Whatever increases were posted among the 10 QSR brands analyzed in the study were driven mainly by low pricing and not by improved quality, potentially signifying difficulties in converting guest contentment into bottom-line boosts, the survey's director indicated.

While satisfaction ratings have improved over the 14-year history of the American Customer Satisfaction Index, more of the quick-service brands studied posted latest-year decreases than increases or showed no improvement, the ACSI findings reveal.

The newly released ACSI study, which for the first time includes consumers' perceptions about casual-dining chains, speaks to paramount concerns of restaurant operators, whose livelihoods depend on satisfying customers--especially as rising gas prices, interest rates and costs of credit eat away at discretionary income.

"Companies don't have much pricing power unless there is shrinking supply or higher customer satisfaction," said Claes Fornell, the professor of business administration who is director of the university's National Quality Research Center. "There are no signs of the former ... so the latter becomes more critical. Companies may begin to see narrowing profit margins unless there is further improvement in customer satisfaction."

Papa John's Pizza, Little Caesars, Domino's Pizza, Taco Bell and Burger King showed either no improvement or drops in their latest satisfaction ratings. Pizza Hut's decline was the largest, down 5.3 percent from its 2006 ACSI result.

Only four chains posted year-over-year improvements: Starbucks Coffee, Wendy's, KFC and McDonald's. The aggregate quick-service score totaled 77 out of a possible 100, matching the segment's score from last year, which was an all-time high.

Only Starbucks and Wendy's posted latest-year index numbers exceeding that aggregate result.

In its first look at the full-service, casual-dining segment, the University of Michigan survey recorded a score of 81 for the segment, based on results from only four chains, Olive Garden, Outback Steakhouse, Red Lobster and Chili's Grill & Bar, and an undefined smatter of others. Because the 2007 ACSI survey was the first to include full-service brands, no comparisons to earlier years were made.

Fornell noted that no brand in the casual-dining group showed a strong competitive advantage, an observation many restaurant industry analysts have made repeatedly in explaining one of the sector's hurdles as it struggles to reverse almost three years of declining sales and reduced customer traffic.

"Nobody seems to be well ahead of the pack, or well behind." Fornell said. "No one stands out."

Olive Garden posted the highest score, an 80 out of a possible 100; followed by Outback Steakhouse, which garnered a 79; Red Lobster with a 78; and Chili's, which posted a 75. However, all four brands' scores lagged the segment's average, which was skewed upward by an even higher result for unidentified "other" chains.

Those rankings mirror the casual brands' recent sales results, with Olive Garden one of only a few casual-dining brands posting positive same-store sales of late and Chili's recently posting its 13th straight month of declines. Fornell noted that Chili's customer satisfaction score was more within the quick-service range, rather than one that "competes at a higher level" of satisfaction, as dinner-houses are expected to do.

Fornell echoed a widely held sentiment that the casual-dining slump seems to be helping the quick-service sector, at least in terms of lower-income customers "trading down" from mid-priced outings to fast-food alternatives. More affluent customers with less-sensitive incomes are still frequenting high-end establishments, however.

"There is a difference in income that seems to be playing more of a part now," Fornell said. "We see that across the board."

He noted that in the retail sector, Saks Fifth Avenue, a high-end shopping destination, is having one of its best years both financially and in terms of customer satisfaction, while Wal-Mart, the discount shopping outlet, is struggling with some of its worst results.

High customer satisfaction also is reflected in the financial performance of some pizza players. Papa John's posted the highest customer satisfaction score within the QSR segment, a 77, and also has posted positive sales momentum of late. It was the only national pizza brand to record positive same-store sales, up 0.2 percent, for the first quarter.

The results in customer satisfaction--measured through interviews with customers regarding their brand expectations, perceptions of quality and value as well as complaints and loyalty--don't always match a chain's financial performance, however.