In this episode of Industry Focus: Consumer Goods, Emily Flippen with Motley Fool contributor Dan Kline give a breakdown of the American Consumer Satisfaction Index Restaurant Report. Discover the state of the restaurant industry, which restaurants have gained and lost their rankings, and why. Learn how they are operating during the pandemic, what effect it is having on their operations, how they have adjusted, what the future looks like for the industry going forward, and much more.
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This video was recorded on June 30, 2020.
Emily Flippen: Welcome to Industry Focus. It's Tuesday, June 30, and I'm your host, Emily Flippen. This week, I'm welcoming back Dan Kline as we dissect the most recent American Consumer Satisfaction Index Restaurant Report. That was a mouthful. Dan, how are you?
Dan Kline: I am good. How are you? Wow! We are talking about a lot of food today. We just finished up an hour talking with the Digital Content Director for FSR and QSR magazines. And now we are moving into one of my favorite subjects to write about, to talk about, something we've done before and I'm really pretty excited to do it.
Flippen: Yes, this is a really interesting report. You sent this my way last week -- it's a report that was sent out by the ACSI, which tracks consumer sentiment, but specifically here for the restaurant industry. We've seen some major changes. I don't want to, you know, get ahead of the story here, but the National Restaurant Association actually has said that the restaurant industry in the U.S. lost over $120 billion just for March to May 2020 as a result of the pandemic. That's a statistic that they project could double by the end of the year. Obviously, a lot of this can be chalked up to COVID. But if you look at the American Consumer Satisfaction Index, the ACSI -- I'll just say ACSI from now out -- if you look at that report, what they're actually showing is that maybe some of this poor performance is actually due to another culprit: declining consumer satisfaction.
This report is released every year, so it looks at a lot of valuable data from consumer sentiment for restaurants. So I'm really interested to get your thoughts, Dan. I know that you've been looking at this report pretty consistently over the past few years.
Kline: So, the timetable on this report is long. [laughs] So, some of this is impacted by the current situation; some of it is not. So, it's really hard to know without giving away some of the results, that restaurants are not doing as well as they typically do. Some of that might just be to the struggle of new models. For example, forgetting the pandemic, McDonald's (MCD 0.62%) moved to its "experience of the future" -- that is, kiosk-based ordering, curbside pickup, and drive-thru or delivery.
All those don't always go seamlessly. The first time you do that, maybe you don't know how to pay, or maybe you're frustrated at the kiosk; that can impact customer satisfaction. I think it's very likely that we're in a little bit of an interim period for restaurants, where we're changing how we operate and that's going to make people uncomfortable. How many restaurants have you gone to where you can pay at the table? That's been an increasing thing for me before the pandemic. Sometimes you put your credit card in and you'll have something that's frustrating, like the default tip will be 25% (that is done at one of the coffee shops near me, where you pay via Square, and your choices then are no tip, 25%, 30%, and 35%). Those are all more than I would like to tip in most cases for counter service -- that is, they didn't bring the item to me -- at a coffee shop. I think you're seeing some pain points like that, and that's dragging the industry down. It is also worth noting that while overall numbers are down, these companies are still pretty well rated based on the entire family of companies that ACSI covers.
Flippen: Yes. So, maybe broadly speaking, for the people listening who don't, obviously, have this report in front of them, what does this report cover for these quick-service and full-service restaurants?
Kline: So, it's a broad range of questions that all speak to a 100-point score. And really, if you're in the high-70s, low-80s, where restaurants have traditionally been, those are pretty good numbers. And it's basically looking at a lot of different factors specific to the industry: convenience, you know, did you feel it was a good value? For example, there's one chain that I really like that's fallen behind a competitor. And I don't think any person in the -- well, not anyone, but I think most people would say that Dunkin' is a better service brand than Starbucks, but value is part of that. So, the two companies have always been really close, but Dunkin' has pulled slightly ahead. So, it isn't just, "Did I have a good experience?" Value does play into it on the quick-serve side more so than on the full-service side.
So, there are two distinct services, one looks at QSR, that's your fast-food or fast-casual restaurants. The other one looks at full-service restaurants, and that's a pretty broad slate. It basically means places that have a waiter or waitress serve you. I'm not sure which they factor in some of the restaurants that are in-between, like the barbecue place I go to with former Fool Matt Cochrane where you order, but then you put a number on your table and they bring you your food. There are a lot of restaurants accounted for in the "other restaurants" category, because generally the ACSI is rating the big national chains.
Flippen: And as you alluded to, this was not a particularly favorable report for either quick-service or full-service restaurants. When was the last time you saw a report this bad, if you will?
Kline: So, in general, when you see a report this bad, it's when they put out their cable industry report and their ISP report. And every year you're like "Wow!" And sometimes when they do their retail report, you will see the companies at the bottom, which are usually Walmart, and people will be surprisingly more upset than you would think they'd be, given the improvements Walmart has made.
In this case it was a 4% drop across the board. That doesn't sound like a lot, but this has generally been a category that's been flat or moving up. So, again, I don't actually think it's a fair indication of where the industry is, because some of the surveys took place during the pandemic period. And if you normally ordered from -- you know, pick a restaurant like Texas Roadhouse, you normally ate in Texas Roadhouse and had a certain experience; well, maybe when you get at home, there's no easy way to heat up your baked potato, maybe your steak is a little overcooked because it cooked in the packaging on the way there, maybe it's a little dry because you didn't eat it right away. Nobody has figured out how to make fries anything but soggy. So, you have to put them in the toaster oven to firm them back up. Those aren't great experiences. Maybe they left out your bacon bits for your baked potato or whatever it is, and it gives you a bad taste. I do think there is some of that adaptability.
And some of that goes pre-COVID. As more restaurants have been turning to delivery platforms, Grubhub and others, like Uber Eats, can cause problems. I've often told the story about how I ordered from a local chain here, Duffy's, that's pretty well liked, and Uber Eats brought me my main dishes, but none of my side dishes. And there was simply no method to rectify it other than driving to that restaurant and picking it up.
And unfortunately, Grubhub had routed my order to the Duffy's that was nowhere near where I was. It wasn't the nearby one -- that's going to make me feel bad about the restaurant, probably unfairly. It wasn't actually their fault that the guy didn't grab both bags, and they were pretty accommodating, they offered me a very significant gift card, which I didn't take because it wasn't really their fault. Whereas UberEats refunded me a very small percentage of my order for a meal that I now had to cook side dishes for. Not a great experience.
Things like that, that transition, and will eventually get that right. I mentioned Walmart before, when Walmart first started free two-day delivery for orders over $35, it was a disaster. They'd show up in seven boxes and you'd get an email saying that part of your order was in the store, eventually they figured that out, and I expect the restaurant industry will do that, maybe it has done that, as well.
Flippen: So, before we dive into some of the specific companies that are in this report, that we'll definitely talk deeper about, I want to just look at the report as a whole. The numbers, as we mentioned, for both full-service and limited-services for the most part are all down. And at a high-level what do you think is giving rise to the declining satisfaction rates? You mentioned delivery, but is it just bad delivery?
Kline: No, it's, you know, little sneaky things that restaurants do. I'll give an example of one, Chili's. Chili's used to sell a full rack of ribs and a half rack of ribs. Chili's now sells a full portion of ribs and a half portion of ribs. It's about two-thirds of what it used to be. So, if you get a full rack, you're getting two-thirds of a rack. If you're getting a half portion, you're getting a third of a rack. That is a dramatically different change, and it's sneaky.
You see that at all levels of restaurants. Maybe you go into the upscale restaurant and the shrimp cocktail isn't quite as big as it used to be. The drink isn't as generous a pour, maybe the prices have gone up markedly higher, there's so much competition out there, obviously, some of that is pulled back in wake of the pandemic, that I do think that these things are being noticed more and maybe we're getting frustrated a little bit more based on some of those things. You're also seeing, if a company has to deal with a mix of delivery methods, maybe it's taking you longer to get served in a restaurant.
I'll also point out that some of this does cover a period where restaurants have been open with limited capacity, and it's not as pleasant an experience to go into a restaurant. I ate at a Miller's Ale House and they did a great job. Tables were distanced, but my waitress only came over when I flipped up the flag. I couldn't order because they hadn't printed anymore menus, because the menus were all single-use. Some of the items you'd want weren't available; everything I wanted was available, but it was a limited menu. Those things might be frustrating.
If you go to Ruth's Chris Steak House or order from Ruth's Chris Steak House during the pandemic, and they don't have shrimp cocktail, which they didn't, they don't have lobster bisques, those are two steakhouse staples that are normally on their menu, that might be a more frustrating experience, where you have to make a substitution and you're still paying those high prices. So, I do think there is a fair amount of pandemic drag, even though some of the people surveyed were not during a full-on pandemic period. So, it's really difficult to know exactly how much it is.
Flippen: And one of the things that I hear debated a lot is the increasing integration of technology into, both, quick- and full-service restaurant experiences. Some people love it, some people hate it. So, do you think that helps or hinders the customer experience broadly?
Kline: So, it depends who you are and it depends if it works. I know that if I go to a Smokey Bones, they have kiosks on the table where in theory you can pay, you could order more drinks, you could say, hey, why don't you tack-on a desert. That, to me, as someone who's tech-savvy is a pretty cool way of going about it. If my mother had to do that, she'd be frustrated. You know, if a waiter didn't come over if you didn't press the button that turns the light green and tells the waiter to come over, that would not be a positive experience. So, restaurants really have to think about it.
You know, a lot of chains, Starbucks is encouraging you to digitally order via the app. There are plenty of people that are saying, I don't want to do that, I just want to come up to the counter and place an order. You really have to balance the needs of your customers. You know, one of the things we're seeing is Starbucks has launched just a few stores that are purely digital, they are grab-and-go stores. They have no seating. They're in New York City and Chicago and places like that, where the idea is that you're going to place your order, you're going to walk through the store, it's going to be there, you're going to leave. That's great, if you know how to do that; that's frustrating, if you walk in and they say, well, we can't take your order, you have to download the app, you have to register, you have to put a [laughs] credit card in, or you can walk to the Starbucks that's 200 feet down the road and have the traditional experience. Customers aren't going to like some of this, and it really depends how you handle integration.
Flippen: So, you know, let's talk about some of these restaurants and I want to start with the full-service restaurants first, because [laughs] I have to be honest, when I read this report, I was a little surprised. So, the satisfaction rates with full-service restaurants -- so, that's the sit-down restaurants for the most part -- as a whole, it declined 2.5% to a 79 out of 100. And that actually doesn't sound all that bad, at least to me, as somebody who is a novice looking at this report. But the ACSI knows that this is only the second time in their tracking history that full-service restaurant rankings have fallen below 80.
And, in my opinion, even more notably, the only chain that was tracked that improved was strangely enough, Red Lobster. So, what is Red Lobster [laughs] doing right that the rest of us are missing?
Kline: Two words, Emily, "endless shrimp." They scored really well on the value prospect. So, at a time where -- you know, the economy was booming before this, but people still liked value, and endless shrimp feels like a really good value. It's probably the only reason, other than my son occasionally, who likes the biscuits, will demand Red Lobster. So, for a way for a while, I usually have to give in. But endless shrimp for $19.99 feels like a value to me. And the reality is, I don't eat that much more shrimp than I would get on a normal Red Lobster plate. They make reordering feel a tad uncomfortable, you're not going to sit there all night, and I'm sure some people will, and eat 40 plates of shrimp. You're probably just getting one or two things extra after you have your initial order. But that feels like, one, it's kind of an entertaining experience. You get to try different things. But it also feels like, wow! For $20 I can have all I can eat, and eat in a sit-down restaurant, where I don't have to go get it myself. I think that's really the only thing that has changed.
Red Lobster has also worked pretty hard to diversify its menu to have a better lunchtime offering. They used to offer pretty much the same menu during the day and at night, and that didn't make that much sense from a value point of view. So, they're really trying hard.
The food is still the same, still mediocre seafood with good biscuits and, you know, if you're not eating the seafood, probably don't go to Red Lobster. It wasn't a giant improvement, but the improvement is due to how they are rated in terms of pricing and value, and that really did trace back to endless shrimp.
Flippen: Yeah, I half expected you to say, endless cheddar bay biscuits, because those biscuits are so popular. But you know what, with the amount of biscuits that I know I can put away, they might actually lose money on that initiative. [laughs]
Kline: So, they do offer endless biscuits, they just don't promote it. So, if you ask for more biscuits, they'll bring you more. On a takeout basis that's not true, you can't say "I'll have a hundred biscuits;" you can order and pay for more biscuits. Look, my wife has been making those biscuits from their packaged mix pretty much once a week. My son has been going through a dozen of those biscuits. I got an excited photo from my wife a few weeks ago of the gluten-free version of that biscuit mix, which she still hasn't made for me, so I haven't tried them yet. But, yeah, I think especially now, at a time where maybe we're not going to go out to that very expensive restaurant, that Red Lobster maybe has more of a place than it did pre-pandemic, where it's a relatively affordable place that has choices for the whole family, that does feel a little bit indulgent, because even though it's a cheap take on seafood, you're still eating crab legs and shrimp and things that feel a little bit celebratory.
Flippen: And another thing that stood out to me in that report is that Texas Roadhouse, which has often been a leader in customer satisfaction, actually lost its top rank to Darden's LongHorn Steakhouse. I really shouldn't be too surprised at that, given the fact that typically higher rankings would indicate maybe higher sales, and Darden's LongHorn Steakhouse grew same-store sales nearly 7% pre-COVID; which is really impressive for a restaurant chain.
Now, I know we have had your skiffs with Texas Roadhouse in the past, [laughs] but ...
Kline: I'll point out that I like the food at Texas Roadhouse and go there regularly, so. [laughs]
Flippen: [laughs] Yeah, I mean, it's hard to play against Texas Roadhouse. I know the peanut factor is something that everyone, especially those with allergies, should consider. But they had a decline of 4% in their customer satisfaction rating. So, you know, what do you make of that?
Kline: So, I wonder if this was pulled way down by how badly they handled the pandemic. I was never entirely sure if Texas Roadhouse was open, if I could go there to pick things up. Sometimes they would show up on delivery apps, but like, their name wouldn't be capitalized and the menu wouldn't be right. And I'm pretty sure that was the delivery apps doing it without their permission. They fell off the board in terms of communicating with customers about what was happening during the pandemic.
I also wonder if they're, kind of, getting value squeezed. So, I put Texas Roadhouse, you know, with Outback, in that sort of like, with LongHorn, in that, like, it's not a fancy steakhouse, but it's still a reasonably decent place to go. You're going to get a nice piece of prime rib at Texas Roadhouse at an affordable price. But for not that much more, I can go to LongHorn -- which is a much upgraded experience, the food is a higher quality, the environment is a little bit nicer, the restaurants are bigger, so right now they have more tables; not that Texas Roadhouses are small, they're not, they're generally pretty large restaurants too. I think this might be a case of, again, where people they're maybe not going to Morton's and Ruth's Chris as much because they have slimmed-down menus, and they're saying, you know what, my first date night with my significant other in a few months, I'll go to LongHorn. That feels like a bit of an indulgence; it feels nicer than going to Texas Roadhouse. I don't think anything markedly changed about the Texas Roadhouse clientele.
So, frankly, I would dismiss a lot of this report as an anomaly and not a long-term trend. I think we're seeing some struggles, and that there will be some restaurants that don't adapt. Look, Texas Roadhouse may not figure out digital and delivery. If they don't figure those things out, they're going to lose customers, they're going to lose satisfaction. That's something that LongHorn, that that company has done, Darden has done generally very well, and they have multiple brands that can learn from each other.
The reality is though, all Texas Roadhouse has to do is place a delivery order from LongHorns and then they could figure it out and probably get there.
Flippen: [laughs] So, looking at the full-service report, was there anything else that stood out to you in these rankings?
Kline: Not really. It's really, the companies at the bottom, Ruby Tuesday, Red Robin, Chili's, they all got weaker. These are companies that, sort of, built their business on having massive menus and very good value. They've had to pare back those menus, they've had to pare back some of the two-for-$10 offers, because they just didn't make a lot of sense for delivery. I'm not sure that there was an audience who wanted cheeseburgers during this. And I don't know that Red Robin was on their list.
I actually think Ruby Tuesday and Chili's have reasonably decent food, but I think they get lost in the shuffle of trying to be these everything-to-everyone restaurants. I'll put Applebee's in a slightly lower version of that category. So, it doesn't shock me, but these all fell. And I think that's a sign that those brands are really going to struggle long-term. I'm not sure who the clientele for Chili's is.
Flippen: [laughs] And I really saved the best for last here, which is the take that this report has on limited- or quick-service restaurants. You know, this is the segment that is, sadly enough, really responsible for most of my eating out budget. [laughs] So, while performance here wasn't as poor in terms of a total drop in comparison to the full-service restaurants, satisfaction still fell 1.3%, which ranks to a 78 out of 100. It's not a great sign.
So, when you look at this report, I'd venture to say that the average American who is listening to this podcast right now would be able to guess which limited-service restaurant ranked at the top.
Kline: And especially our listeners, because they are, of course, all above average. So, I'm sure they're going to get it. Emily, can I give it away?
Flippen: You can give it away; go for it.
Kline: It's Chick-fil-A. And I will point out that on these surveys you're answering questions about restaurants you frequent. So, Chick-fil-A is not hurt by the customer, for whatever political reason, is deciding I'm not going to go to Chick-fil-A. Chick-fil-A that's a pretty, you know, public stance that some people don't agree with. They're not really being hurt on this survey for that or even just the person who is angry that they're closed on Sunday and doesn't know why. That person probably didn't go to Chick-fil-A, so they're probably not dragging down the ratings.
I'm not sure I understand this one, I don't get that Chick-fil-A -- it's fine, the food's fine. It's a really limited menu, that to me seems like more of a negative than people make it out to be. But this is clearly a brand that has an audience and serves it incredibly well.
Flippen: [laughs] Yeah. I mean, there are so many things that we disagree about, this is going to rank up there with one of these. I mean, Chick-fil-A to me, politics aside, because obviously that's a debate within itself, just looking at the business. You know, the people who work there are always [laughs] so friendly. And that chicken sandwich, Dan, that chicken sandwich is to die for. And we're filming this or taping this, I should say, right around lunch time here on the East Coast, so maybe I'm just especially hungry. But to me, the service and the experience, the value for the food, especially at Chick-fil-A is so much greater than that you get at, say, a McDonald's.
Kline: And I would fully agree with that. The food quality is better. I don't know how it compares to, say, the new, like, Popeye's chicken sandwich, and places are certainly amping up the premium chicken sandwich. They've built their business on it. Look, their grilled chicken nuggets don't taste right and they are strange. And I actually talked about it with one of their executives and he said -- I was on a cruise, weirdly, with one of their executives, because he was pre-cruising before they took a companywide cruise where there was no alcohol allowed. So, he was having a fun, for him, very drunk cruise. I won't say what he does, to not call him out there. But he actually told me that they struggle to keep those moist, and that's why it had, sort of, a chemical taste to it. They've done the chicken sandwich well. They've done the chicken nugget reasonably well, but that's all they do. That, to me, makes it -- wow! They must have a very devoted audience of [laughs] chicken sandwich fans, and I guess they do. But it is no surprise that they came in well.
And frankly, they're not doubling down on delivery and pick-up. Obviously, they have drive-thrus, but they haven't gone aggressively into other markets. I think their customers are still just driving to them.
Flippen: Yeah. And I always feel bad, this is an investing podcast and Chick-fil-A, obviously, isn't a publicly traded company, but there's no way to not touch on just how successful they've been in the quick-service segment.
But there are also a number of restaurants in this report that increased in ranking that are publicly traded. A lot of them, my personal favorite, both, as a customer and an investor. That includes, Yum! Brands' KFC, Dunkin' Brands and McDonald's, which still is pretty low, but increased, they all increased in overall satisfaction. Domino's even held its place as the best-rated pizza chain. So, what limited-service restaurants are on your top favorite list here?
Kline: So, all of those chains are well-rated because they execute incredibly well. You know, Chipotle is the one that has really, over the past few years, figured it out. Chipotle used to service digital orders and takeout orders from the same line you're making your food. Meaning, someone had to navigate around the person making the in-store customer to put together orders. It was very unwieldy, it slowed down both processes. They now have a make-line in the back of the store, so they can service digital orders, pick-up orders totally separately; that's really smart. And that's why they're at the top of this.
But if you look at your Dunkin', your KFC, your McDonald's, what they've spent money on is making sure they can get you your order. I'm a little surprised KFC is on this list, because they haven't done as much of that. But Dunkin' basically said, what does Starbucks do in its app, let's copy that. They ranked, as I mentioned earlier, a little bit higher than Starbucks, because they have a higher perceived value.
I would actually argue that you can get a regular coffee at Starbucks, people just choose not to, there isn't really as big a price point differentiator as you tend to think there are. If you want a cappuccino at Dunkin' Donuts -- and don't do that -- but if you want a cappuccino at Dunkin' Donuts, it's not that much cheaper, if cheaper at all, than Starbucks, but there's absolutely a perception of value, because your average person is probably ordering an iced coffee or a regular coffee, whereas at Starbucks they're not doing that. McDonald's has made it incredibly easy to get what you want where you want. You don't even have to wait in a drive-thru anymore, you can go pick-up in a specific parking space and they'll bring it to you, for people who don't want to reach up, that want to just have someone hand it to them sideways. I don't see what the benefit is there.
And I think as you look at investing in these spaces, you really want to focus on brands that are putting money into making sure things are convenient and doing it right and adjusting. One of the brands on here is Panera Bread. And Panera Bread, not a publicly traded company, they used to be. When they launched Panera 2.0, it was a mess. You could deliver on their app, you were never sure where to go to pick it up, they might have a dedicated counter, but they didn't tell you where it was. Now, they have essentially a bookshelf that's alphabetical, and they make it really, really easy to get what you need. They learned from the process.
Starbucks is constantly evolving and learning. Some Starbucks you go in, and there's a separate pickup area for mobile orders, some have a variation of that bookshelf, some are calling them out as they happen and repeatedly doing it. They're figuring out what works in each market. And some of that is managing customer flow. You don't want the person who ordered from the app and the person who ordered in the store to be all clustered in the same space. Right now, especially, [laughs] you don't want that, that is a terrible idea. So, they're figuring this out.
McDonald's is learning. We talked a little bit on the previous hour that they've slimmed down their menu due to convenience of operation during the pandemic. And they have decided that they may keep it slimline, they may never bring back salads, they may never put all-day breakfast back on the menu. And that's not about that people didn't like All Day Breakfast, it's that, what they gain in efficiency in being able to get orders out by having that limited menu, they feel is more valuable than being able to sell you a McGriddle 24 hours a day.
Flippen: Yeah, if you hear me chuckling back here, I apologize. Our man behind the glass, Austin Morgan, just shot me a message and said, thank you for calling Dan on Chick-fil-A, how dare he? [laughs] So, obviously --
Kline: Our Slack has gone actually pretty exciting with people saying "How dare he?" Folks, you can have a favorite restaurant, I would actually prefer, and I'm totally forgetting the name of it, the Korean wing place that we often order from at Fool.com That is in my opinion --
Kline: Bonchon, which is a slowly expanding chain. There's actually one where I used to live in Connecticut; they haven't come to Florida. I will take Bonchon wings over anything at Chick-fil-A 100 times over. The Korean Fried Chicken is absolutely fabulous. You can send me complaints at [email protected], or tell me I'm wrong @worstideas on Twitter.
Flippen: [laughs] I'm sure you'll be getting a lot of messages. And I want to talk a little bit about McDonald's, because you highlighted it as a company that's making a ton of changes in light of the recent events, but it's still ranked, if memory serves at the very bottom of the list in terms of customer satisfaction.
To use an anecdotal story here, I have a sister who lives in Singapore but travels a lot for work, at least pre-pandemic, but she is a coffee aficionado. And traveling across the world her challenge has always been to get good coffee. And one of the tips that she shared with me is that if you're in a pinch, McDonald's McCafé coffee is not bad. And I gave it a try, actually, for the first time last week, and I was pleasantly surprised by the offerings in McDonald's McCafé section as well as how pleasant the ordering experience was. I went through the drive-thru myself. I don't eat a lot of fast food. But I was a little surprised after having that pleasant experience, and hearing some positive things. That McDonald's still pulled up the tail-end of this report, do you think McDonald's improves long term?
Kline: So, I think there's a shame factor about eating at McDonald's. I am not sure the customer service -- until they fully automate everything -- I think, look, the average person -- and if you work at McDonald's, I'm not calling you out, I'm just saying that for most people who work there, that's probably not a career. Whereas Chipotle, actually almost all of its managers worked their way up the chain. Because McDonald's are franchise-owned, not company-owned, not all of them but a lot of them are, it's a little bit difficult. You might have a franchisee that has a general manager who has been in place for 20 years and there's no easy way for you to move up into that career non-job position. I think a lot of the workers at McDonald's are, you know, going to turnover pretty quickly, they're not going to be there; that's going to hurt your experience.
But I also think McDonald's simply doesn't have that brand cachet. Look, ordering via kiosk, ordering via app should improve customer satisfaction, because you're getting exactly what you want. If you want half pickles double ketchup, you can do that in an app in a way that might confuse a human. You can order a bacon cheese burger, hold the bacon and pay extra to get a cheeseburger, if you [laughs] want to do that in the app; I don't know why you would, but you could. Those are things that should increase their ranking, they haven't.
The fact that McDonald's has been a pioneer in delivery in the fast food space, I know that's a weird thing to say when Domino's has been delivering forever, but you weren't seeing fast food burger chains deliver, and McDonald's basically said, we know our food has a shelf life of 30 seconds, customers don't seem to care, we will bring it to them and they could eat old Big Macs. And by old, I mean if it's 15 minutes to get to you, I feel like that's not an edible Big Mac anymore.
But that said, it's worked, check sizes are higher. If people are spending more money, it would seem to me that they're more satisfied, but I just think McDonald's being what it is somewhat makes this survey less than relevant for them. They don't want to see big drops, but I think they're always going to be ranked toward the bottom just because of, sort of, perceived value, and you know, how people see that brand.
Flippen: And before we sign off, I kind of want to get your thoughts at a high level here. How, if at all, do you use the ACSI report and these rankings when looking at restaurants in terms of making investment decisions?
Kline: So, normally, if a company had a big drop, I would really investigate that. So, if I was looking, and boy! You know, that Texas Roadhouse drop, I would normally say, did something change in management? Did they make a change to the menu where, you know, their steak sizes used to be 60-ounce, 12-ounce, and 8-ounce, and now it's 8-ounce, 6-ounce, and 4-ounce, and [laughs] they're the same price? I would really look at it to see if they had somehow wronged their customers.
I am not as concerned about this year's report, because we're just in a weird time. There might be people upset because they ordered from Texas Roadhouse and they didn't put in the peanuts, you know, and they expected to get that, or maybe they wanted silverware because they're having a picnic and they didn't check the box off on Grubhub, so they didn't get it. I think there's a lot of factors that might be hurting some of these businesses that really aren't the businesses' fault at the moment.
So, normally, this is a report where I would really look for big ups and downs. And if I saw a big improvement, I'd go, oh, wait, yeah, they have a new Chief Brand Officer and he's really making a difference or their CEO is a new person and she's really changing how they operate. Right now, I would watch how these companies are reacting and how quickly they can adapt to the current normal, but I'm not overly concerned about geez! Were you well prepared for a pandemic? I don't think any of us were well prepared for a pandemic.
Flippen: [laughs] Well, if my waistline says anything, I was definitely not well prepared for the pandemic. [laughs]
Kline: [laughs] Absolutely nothing I could comment on there, but I would say, I do think a year from now we're going to know a lot about how these restaurants operate. And I think you might see some of these brands, that were already in trouble, not exist. I'm not so sure there's a need for Applebee's, I'm not so sure Red Robin comes through this, a BJ's, a restaurant I like very much, which I like less due to their slimdown menu. I think that's going to be tricky for some of these brands to find who their customers are in a world where people might eat out a little less, they might be willing to spend less money and they might be a little bit aware of how much delivery services are costing them, and that might cause them to order, you know, from companies that are baking that into the cost, like a Domino's.
Flippen: This will be a really interesting follow-up report when the ACSI releases their 2020–2021 report [laughs] a year from now. It'll be really interesting to take a second look and see how these trends have changed in a post pandemic world. But in the meantime, Dan, thank you so much for taking the last 30-or-so minutes of your time to join me for this segment.
Kline: Thank you for having me.
Flippen: Of course. Listeners, that does it for this episode of Industry Focus. If you have any questions or just want to reach out to say, "Hi!" you can always shoot us an email at [email protected] or tweet us @MFIndustryFocus. If you also want to send Dan emails and tell me how wrong he is at Chick-fil-A [laughs], he shared his email and Twitter handle earlier.
As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against any stocks mentioned, so don't buy or sell anything based solely on what you hear. Thanks to Austin Morgan for his work behind the screen today. For Dan Kline, I'm Emily Flippen, thanks for listening and Fool on!