Study: Mixed results in customer satisfaction

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. —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.

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. —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.

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. —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.

“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.” —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.

Papa John’s Pizza [3], Little Caesars [4], Domino’s Pizza [5], Taco Bell [6] and Burger King [7] 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. —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.

Only four chains posted year-over-year improvements: Starbucks Coffee [8], Wendy’s [9], KFC [10] and McDonald’s [11]. 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. —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.

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

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 [12], Red Lobster [13] and Chili’s Grill & Bar [14], 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. —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.

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. —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.

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

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. —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.

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 dinnerhouses are expected to do. —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.

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. —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.

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

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. —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.

University of Michigan’s American Customer Satisfaction IndexScores out of a possible 100SOURCE: UNIVERSITY OF MICHIGAN*“All Other” brands were not identified
 20062007%CHANGE FROM YEAR EARLIER%CHANGE FROM SURVEY INCEPTION IN 1994
LIMITED-SERVICE RESTAURANTS77770.0%11.6%
Starbucks Coffee77781.3%1.3%
Wendy’s76782.6%8.3%
Papa John’s Pizza7977-2.5%1.3%
Little Caesars7775-2.6%4.2%
Domino’s Pizza75750.0%11.9%
Pizza Hut7672-5.3%4.3%
KFC70711.4%6.0%
Burger King7069-1.4%4.5%
Taco Bell7069-1.4%4.5%
McDonald’s63641.6%1.6%
All Others*8079-1.3%8.2%
FULL-SERVICE RESTAURANTS81
Olive Garden80
Outback Steakhouse79
Red Lobster78
Chili’s Grill & Bar75
All Others*82

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. —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.

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. —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.

McDonald’s, for instance, has consistently scored the lowest ACSI rating of the quick-service chains since the survey’s 1994 inception, and did so again this year. Yet the company has boasted during the past two years some of its best sales and profit results. —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.

For the three-month period covered by the University of Michigan survey, McDonald’s domestic same-store sales increased 3.6 percent in January, 3.1 percent in February and 6.2 percent in March. For its first quarter, the Oak Brook, Ill.-based company reported a 22-percent jump in net income on an 11-percent increase in corporate revenues. The company’s stock is trading just pennies away from its 52-week high. —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.

The University of Michigan’s Fornell said the dichotomy between low customer satisfaction scores and record financial results is possible for McDonald’s because its sales are based more on convenience and pricing. —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.

“People don’t go there as much to get a satisfactory meal or experience as they do because of convenience and budget constraints,” he said. “From a purely financial perspective they don’t need to have a Starbucks score, and if they are slightly below Burger King, who cares?” —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.

Still, even the largest burger chain cannot dip too low on satisfaction scores, Fornell added. When McDonald’s was struggling with decreased same-store sales and a poor consumer brand perception in the late 1990s and into 2000, it scored some of its lowest satisfaction numbers, hitting its lowest, a 59 out of 100, in 2000. —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.

“There is a limit for every firm, where you’re in jeopardy if you fall too low,” Fornell asserted. —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.

McDonald’s 2007 score, a 64, matches the chain’s high, first hit in 2003. Wendy’s also is at an all-time high, with a 78 out of 100. Burger King fell to 69, from 70 last year and 71 in 2005, which was BK’s highest ACSI score. —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.

McDonald’s seems keenly aware that its customer satisfaction rating correlates, at least partially, to improved results. It spends about $2 billion per year on marketing, and within the past three years has focused heavily on its “I’m Lovin’ It” campaign and other efforts to improve its perception around the world. —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.

This year, McDonald’s has said, it will increase its focus on sales of Happy Meals, launching that initiative with its tie-in to promote the new “Shrek the Third” movie. The campaign is taking a nutrition-oriented approach to youth marketing. —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.

Securities analyst John Ivan-koe of JP Morgan Securities Inc. in New York said that McDonald’s efforts to increase an average child’s Happy Meal consumption from 2.2 times per month to 2.3 times per month would translate to an increase of 1 percentage point in overall same-store sales. —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.

McDonald’s is focusing on improved food quality and brand perception among adult customers, too, with such offerings as premium coffee and its test of Angus burgers. —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.

The University of Michigan survey also is known to be a leading indicator of future consumer spending, which the ACSI forecasts will increase in the second quarter between 3.1 percent and 3.9 percent. —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.

Consumer spending rose by 3.8 percent in the first quarter, according to government data, —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.

Across all industries, the aggregate ACSI score for 2007 hit its highest point ever since the survey’s 1994 inception. The overall satisfaction score, from about 200 companies in 40 industries, was 75.2 out of a possible 100, up 0.4 percent from a year ago. —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.

The index is produced by the university’s Ross School of Business in partnership with the American Society for Quality and CFI Group, a management consulting firm. About 250 customers are surveyed per company. —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.