Study: Fast-food customers lack brand loyalty

McDonald's (MCD) has won over many Americans with its Dollar Menu for decades, but lately, customers are demanding more than just good value from their fast-food favorites.

Fast-food chains are missing out on business because their customers lack a sense of loyalty, given that the experience of eating there remains impersonal, and often, service is poor, said Euan White, senior vice president of consumer markets at consultancy Dunnhumby.

Restaurants with higher customer-service scores tend to have higher comparable sales growth over a two-year period, according to a research report released last Thursday by Dunnhumby.

"What we're seeing in the fast-food sector is that there's not a clear differentiator between the chains," Mr. White said. "They all have a very strong focus on price and promotions, but experience is what builds customer loyalty, so there's a lot of consumers switching between fast-food outlets."

The study looked at consumer opinions of seven fast food chains: McDonald's, Arby's, Burger King (BKW), Jack in the Box (JACK), Taco Bell, Wendy's (WEN) and Dairy Queen.

Like its competitors, McDonald's scored highest for having low prices and good promotions, while its largest area for improvement was in customer loyalty, experience and communication.

Because of McDonald's scale, it can win customers based on convenience, but even the world's most massive restaurant chain admits it has work to do in the way of its speed and freandliness of service.

In a webcast McDonald's executives held with franchise owners in March, McDonald's called its service "broken," and said 1 in 5 customer complaints are related to friendliness issues "and it's increasing," while complaints about speed of service "have increased significantly over the past six months."

Mr. White said that McDonald's vast global reach affords it the opportunity to pioneer loyalty programs for the fast-food space, Mr. White said.

Loyalty and reward programs have had a massive impact in industries like the airline sector for decades. More recently, drug stores and supermarkets began relying heavily on such data.

It's only natural that as growing fast-casual chains such as Starbucks Corp. (SBUX) and Panera Bread Co. (PNRA) popularize the concept, the fast-food chains would catch up.

"The fast-food industry will need to react to what Panera and others are doing with loyalty in order to stay competitive," Mr. White said, just like McDonald's reacted to their specialty coffee drinks with the launch of McCafe a few years ago.

In full disclosure, Dunnhumby provides customer analytics for companies based on data, such as that collected through loyalty programs, so it could be in Dunnhumby's best interest that more sectors adopt loyalty programs.