FULL-SERVICE CHAINS: THE REPORT CARDS ARE IN

Bob Krummert

The biggest piece of news to emerge from the University of Michigan’s American Customer Satisfaction Index (ACSI) might simply be that full-service restaurant chains are now recognized in its survey universe. Previously, limited-service (i.e., fast food) was the only restaurant segment ACSI followed. In all, ACSI measures customer satisfaction for more than 200 companies in 43 industries, plus nearly 100 customer segments of federal agencies.

Its first look at casual dining chains produced some interesting results. Just four chains were given scores on ACSI’s 100-point scale. Olive Garden got an 80, OSI (formerly Outback Steakhouse) a 79, Red Lobster a 78 and Chili’s earned a 75. Unusually, the collective score for "all other" full-service restaurants mentioned by interview subjects was 82-higher than any of the big four brands. Overall, full service had an 81 score, tying the express delivery industry (i. e., Federal Express and UPS) for the highest score of any industry included in this quarterly study.

These are excellent scores. By comparison, the national customer all-industry satisfaction level was 75.2, the highest in ACSI’s 14-year history. Fast food feeders were unchanged from previous years, with a segment-wide score of 77.

These scores seem numerically close, but a point or two either way makes a big difference in the ACSI methodology. In case someone overlooks the business implications of these scores, ACSI’s analysts add commentaries that illuminate their findings.

For example, in the fast food category, Pizza Hut suffered a big drop off-five full points, from 77 down to 72. How come? ACSI surmised that "It looks like the co-branding of Pizza Hut with other YUM! restaurants-especially Taco Bell-might be eroding the Pizza Hut brand in the sense that it is becoming less a dine-in and more a traditional fast food restaurant." We’re betting this development comes up for discussion at the next YUM! Brands board meeting.

And what’s going on at Chili’s, which posted the lowest scores in the full-service category? Here’s what the ACSI analysts said: "Chili’s ACSI data looks much more like that of a fast food restaurant than the other full service restaurants. While its value offering is comparable to the other casual dining establishments, it lags significantly behind in both product and service quality. Importantly, Chili’s also comes in last in customer expectations, indicating a reputation for comparatively less quality is impacting its image with consumers even before they walk in the door."

Ouch. ACSI scores matter because this is not just another customer survey. Its backers claim the index has consistently predicted future consumer spending and is proven to be an indicator of financial performance at both the customer and industry level.

Here’s a key piece of analysis from its latest report that underlines why its findings should matter to you, given the current climate for restaurants.

"Companies don’t have much pricing power unless there is shrinking supply or higher customer satisfaction," says Professor Claes Fornell, director of the University of Michigan’s National Quality Research Center, which compiles and analyzes ACSI data. "There are no signs of the former in most industries, so the latter becomes more critical. Companies may begin to see narrowing profit margins unless there is further improvement in customer satisfaction."

ACSI gets its data from 250 carefully screened interview subjects who are actual customers of each of the companies they rate. But there are other ways to get customer feedback about the full-service chain restaurant dining experience. The Zagat Guide also solicits opinions from actual restaurant customers. Yes, its participants are self-selected, and chain restaurants are also-rans in most of the Zagat Guides that look at individual markets. Which may be why Zagat has come out with a guide devoted exclusively to quick-service and full-service chains and not tied to any particular geographic location.

Who came out on top in full-service? Outback Steakhouse, Cracker Barrel and Red Robin tied for the highest overall score, each posting a score of 20 on Zagat’s 30-point scale. These three operations also tied for top rating in the "Service" category, along with Hooter’s and Olive Garden.

Low-rankers included Chuck E. Cheese with an 11 ("grown ups generally ’rejoice when their children outgrow’ this experience") and Old Country Buffet, with a 12 ("facilities that ’make your old college dining hall look like the Grand Hyatt’").

The key for restaurant operators, of course, is how well these Zagat score correlate with financial results. For example, Zagat surveyors singled out both Darden concepts, Olive Garden and Red Lobster (which scored a 17) for having long lines. A drawback for them, perhaps, but a big plus for Darden.

Similarly, if you look at the quick-service portion of the Zagat Survey, the No. 1 finisher, Panera Bread, has posted flat same-store sales as of late. No. 3 Chipotle, on the other hand, grew unit sales at a meteoric 8.3 percent in its most recent quarter. Full results are available at the www.zagat.com web site.
So what’s driving ACSI and Zagat scores? For that we turn to the 2007 Customer Loyalty Engagement Index produced by New York-based brand and customer loyalty research firm Brand Keys, Inc. It surveyed 24,000 consumers, letting these respondents self-select the categories in which they were actual customers. The results showed that when ranked by customer loyalty and engagement, the top casual dining chains were:

Brand Keys researchers found that four drivers affect engagement and loyalty of casual dining patrons: Healthy choice and value; customer service; menu variety; and entertainment and décor, with customer service and entertainment and décor being on the upswing in the current survey.

"Consumers may be willing to settle for less," says Robert Passikoff, Brand Keys president. "But they are expecting more and better customer service."

All of which is to say, three large and comprehensive studies of full-service chain restaurants have come largely to the same conclusion: Customer service, always a key, is unusually important right now. Full-service restaurants are large and complex operations, and many factors contribute to their financial success. But if you want to focus on just one factor to improve the profitability of your restaurant, three out of three surveys say customer service is the way to go in the current operating climate.