Study: engaged customers give chains an edge

Nation's Restaurant News,  Dec 10, 2007  by Dina Berta

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Philadelphia -- Casual-dining chains that have highly engaged customers also have engaged employees and financially outperform competitors that fail to make emotional connections with customers, according to a recent study by PeopleMetrics, a research firm that tracks consumers, employees and consumer markets.

PeopleMetrics surveyed 1,250 customers on their experiences at restaurants owned by nine publicly traded companies that each have about 300 or more units. The list included such brands as Chili's, Cracker Barrel Old Country Store, Red Lobster and Texas Roadhouse.

The Philadelphia-based firm measured engagement by four factors: customer retention; extra effort a customer was willing to make for a return visit; whether a customer would recommend the business to a friend or family member; and passion, whether the customer "loved" the restaurant.

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The study divided the restaurant chains into two groups: those with low customer engagement scores and those with high scores. PeopleMetrics then compared year-to-year financial data--August 2006 to August 2007--on the two groups.

Companies with high customer engagement scores yielded a 7-percent average gain in return on investment. Low scorers had a 22-percent average decline in return on investment.

The average annual increase in earnings per share of companies with high customer engagement was 75 percent. Those with low customer engagement had an average drop in earnings per share of 50 percent.

On average, high performers in customer engagement posted gains in gross margins, return on equity and return on assets, while low performers in customer engagement had losses in those areas.

"The question is, what are these companies doing that's engaging the customer?" said Frank Rowe, a PeopleMetrics vice president. "The three major drivers of customer engagement in our research in the restaurant industry were that a customer feels valued and taken care of, that there is an engaged employee who is making the experience take place, and then the functional things such as a clean environment and hot food."

The casual-dining report was culled from a larger study PeopleMetrics did this summer of 10,000 interviews evaluating about 100 businesses in the casual-dining, hotel and banking sectors.

Customers were asked to rate a recent experience in a particular bank, hotel, retail store or restaurant. Questions related to such elements of service as the environment, courtesy and feeling valued.

PeopleMetrics would not reveal the entire list of chains or individual customer engagement scores of the nine restaurant companies, considering that proprietary information of the self-funded study. But in the larger study of multiple industries, such operators as Louisville, Ky.-based Texas Roadhouse and Cracker Barrel Old Country Store of Lebanon, Tenn., scored high in customer engagement, Rowe said.

Developing engaged employees who in turn can get the customer engaged needs to be an integral part of a company, said Mark Simpson, whose title at Texas Roadhouse is senior director of legendary people.

"Fun is a core value of Texas Roadhouse," he said while explaining that most of the chain's restaurants have a "fun budget" to spend on employees for such things as games, prizes, awards, pizzas, and to take crew members bowling or to a ball game.

The chain has more than 280 locations in 44 states. The units average about $4 million in annual sales, even though they don't serve lunch Monday through Friday.

General managers invest $25,000 of their own money to become managing partners in a Texas Roadhouse. They then earn 10 percent of their unit's net income.

An ownership stake among unit managers generates greater enthusiasm to run the restaurants well, Simpson said. The evening-only hours during the week have helped to attract top talent, he added.

Opening later in the day also gives managers more training time and sessions with employees. Most shifts begin with an "alley rally" to pump up employees before they begin work.

"The thought process is--if employees will have fun, guests will love it and keep coming back," Simpson said.

Doug Barber, senior vice president of Lebanon, Tenn.-based Cracker Barrel Old Country Store, agreed that a company has to have a culture in which being engaged is highly valued, as it is at parent company CBRL Group Inc.

"I grew up in other brands, and I've seen different brands and different missions," said Barber, who joined the 568-unit chain in 2003. "The mission here--pleasing people--has not changed since 1969. It's not a moving target." New employees go through an eight-hour orientation that focuses on that mission, pleasing people. Employees are awarded and promoted as they improve in their skills and service, and they are respected, Barber said. The company's executive team conducts employee forums throughout the chain's 41-state trading area. Twenty or so employees will spend a four-to-five-hour session with CBRL's senior officials, including chief executive and president Michael Woodhouse.