ACSI Commentary November 2012
November 13, 2012
Quarterly Update on U.S. Overall Customer Satisfaction and
Commentary on Apparel, Athletic Shoes, Food Manufacturing, and Pet Food
By Professor Claes Fornell
The Donald C. Cook Professor of Business Administration
Stephen M. Ross School of Business, University of Michigan
National Customer Satisfaction Lacks Momentum, But Holds the Line
For the third consecutive quarter, aggregate customer satisfaction as measured by the American Customer Satisfaction Index is unchanged at 75.9 on a scale of 0 to 100. While the national ACSI benchmark appears to be stuck in a holding pattern, customer satisfaction is higher now than it was at the start of 2011. Similarly, the economy has improved compared to over a year ago, but the rate of growth has slowed.
While ACSI gains would be preferable, the news is not necessarily negative because the overall level of customer satisfaction in the United States remains high. There is no reason to believe that customer satisfaction will have a dampening effect on consumer demand. On the other hand, it will not produce a boost either.
With regard to consumer spending, its current level is not likely to produce enough of a change in economic growth. The ACSI predictive model forecasted a spending growth of 2.0% for the third quarter. The actual number as provided by the Labor Department was slightly less (1.8%), well below what is needed for a healthy economic recovery. Since wages and employment are only edging up and because our economy is so dependent on consumer demand (about 70% of GDP), it is hard to envision an accelerating rate of economic growth in the immediate future. ACSI data do suggest, however, that consumer spending will increase by about 2.8%, which is a solid gain, but still lower than the long-term average spending growth.
Over the past year, the Consumer Price Index has increased by 2%. Food prices, however, have gone up by much less, which likely contributes to higher customer satisfaction this year. Overall, the food category gains 2.5% to an ACSI score of 83. While the summer drought could cause prices to rise, the effect on consumers will not be seen until 2013.
The gain in customer satisfaction is wide—only 2 of the 13 largest companies lose ground (Mars -1%; Kraft -2%). Store brands and smaller brands, represented in the ACSI “all others” category, make the largest improvement, up 4% to 82. Heinz leads food manufacturing, unchanged at 89, well ahead of snack and candymakers Mars (-1%) and Quaker (+2%) at 86 and Hershey (+1%) and Nestlé (+1%) at 85. ConAgra gains 1% to 84, which is just above the industry average.
Several companies hover at or just below the industry average. Both Dole and General Mills hold steady at industry-average scores of 83, while Sara Lee inches up 1% to meet the average. The biggest gain among the large food makers goes to Kellogg, up 4% to create a four-way tie at 83. At the bottom of the industry, three companies are tied with scores of 81: Tyson Foods (+3%), Campbell Soup (+3%), and Kraft (-2%).
Customer satisfaction with pet food products inches up 1.2% to an ACSI score of 83, following two years of minor dips. Again, the absence of typical price increases appears to be behind the small gain this year. All but one of the largest pet food manufacturers shows some improvement. Del Monte, with 9Lives and Kibbles ‘n Bits brands, jumps into the lead with a 5% gain to 86. According to its customers, Del Monte’s better value for money and its new product introductions have propelled the surge.
The other companies in the category are grouped tightly around the industry average. The aggregate score for smaller pet food makers gains 2% to 84, followed by Colgate-Palmolive’s Hill’s Pet Nutrition (-1%), Nestlé Purina PetCare (+1%), and Procter & Gamble’s Iams brand (+2%), all tied at 83. Mars improves 2%, but the gain is not enough to lift it out of last place at a score of 82.
Customer satisfaction with athletic footwear drops by 1.2% to an ACSI score of 80. The aggregate of smaller brands, including Skechers and New Balance, usually leads the category, but a 1% drop places the small brands in a tie with Nike for the lead. For a third straight year, Nike’s score is unchanged at 80.
Adidas, which includes the Reebok brand, tumbles by 4% to 77. This is the second year in a row that customer satisfaction with Adidas takes a sizeable drop. While the company’s prices remain attractive relative to those of Nike, sagging quality as perceived by customers has become a major concern, with declining durability cited as a prime contributor. Sales of Reebok products in North America have been in steady decline since Adidas acquired the brand in 2006. Meanwhile, Nike’s revenue continues to climb, improving by 23% through the first three quarters of 2012.
Customer satisfaction with apparel falls for a second straight year, dropping 1.3% to an ACSI score of 79, which is equal to its lowest level in 15 years. Rising cost of raw materials continues to translate into higher retail prices. Unlike the small price hike for food, apparel prices have gone up almost four times as much: up 2.7% over the past 12 months. When prices increase without a corresponding improvement in quality, customer satisfaction almost always deteriorates.
V.F. Corporation has led the category alone for the past two years, but slips 1% into a tie with Levi Strauss (+1%) at 82. Jones Group joins the pair with a 4% advance to 82, creating a three-way tie for first place. The improvement for Jones this year follows the company’s three-year ACSI plunge from the industry’s top to its bottom. Jones may be upgrading the quality of its jeanswear after unsuccessfully trying to sell that part of its business. A 7% surge in sales of the company’s Gloria Vanderbilt and Nine West-branded jeans has offset weaker growth in other segments. For the 12 months ending September 2012, Jones’s stock price rose by 40%, after plunging nearly 50% during the preceding three-year period of weak customer satisfaction.
Hanesbrands moves in the opposite direction, falling 4% to 79 and tying the aggregate of all other smaller apparel brands (unchanged) at the bottom of the category. As a maker of undergarments, it is very likely that Hanesbrands has been negatively impacted by the sharp rise in cotton prices.