I'm not sure how many times I can emphasize just how important brand image, innovation, and product consistency actually are to the health of a business. In technology it involves constantly innovating and creating a cult-like following that waits on the edge of its seat for the next product. In retail, it's delivering the latest new styles at the right price. In the food industry, it's about delivering a good variety of ever-changing food offerings at the right price.
For the past 17 years, Brand Keys has issued a report on customers' relationships with 375 of the largest brands in the U.S., separated into 54 different categories. The score each company receives, known as the Brand Keys Customer Loyalty Engagement Index, ranks them from top to bottom against their peers in terms of loyalty based on a myriad of factors.
Today, I intend to focus on the food and food service companies that sit among the top of the pack in terms of brand loyalty, because they're obviously doing something right. Figuring out what that is, and whether or not it's sustainable, could be a crucial factor in determining whether or not these companies would make prime long-term investments.
Brand Keys' categorical analysis actually splits light beer and regular beer into two separate categories. In light beer, Molson Coors' Coors Light took the top honors, with regular Coors and Sam Adams, made by Boston Beer (SAM -2.38%), tying under the regular category.
Molson Coors has done an excellent job in the light beer category of appealing to consumers' health-conscious concerns about weight gain, surpassing Budweiser to become the No. 2 best-selling beer in the U.S. last year. In the regular beer category, Boston Beer has powered to the top by embracing the move toward more flavorful craft beer. By fostering an employee-friendly work environment and having little management change at the CEO position, it has grown its Sam Adams line of beers to more than 50 varieties but has still remained consistent with regard to quality.
It may not be the most exciting of cereals, but General Mills' (GIS -2.13%) Cheerios is the undisputed leader in customer loyalty according to Brand Keys. Similar to how Coors Light sales have expanded as consumers focus more on their waistline, General Mills has relied on the possibility of the cholesterol-lowering effects of Cheerios, as well as it being a good daily source of fiber, to help drive growth in the brand.
In casual-dining restaurants, DineEquity's Applebee's ranked as the top among its restaurant peers. Having just eaten there about an hour ago, I can tell you from firsthand experience that its menu has expanded greatly in recent years. With a greater focus on healthier food options and moderate-size portions, Applebee's has been able to keep prices well within a range consumers are willing to pay while still netting healthy profit margins.
As with the beer category, Brand Keys separates coffee into both coffeehouse and packaged coffee categories -- but it didn't matter either way, as Dunkin' Brands' (DNKN) Dunkin' Donuts ran away with the crown.
I admit to being surprised not to see Starbucks as king of the hill, given its dominant position based on the sheer number of stores it operates in the U.S.; however, Dunkin' Brands has done a phenomenal job of establishing and growing its signature coffee blend both within its stores and outside of its stores in the grocery market aisle. In addition, Dunkin' is planning to expand to Southern California beginning in 2015, proving plenty of growth could still be had for this doughnut and coffee chain.
Should anyone really be surprised that Whole Foods Market (WFM) topped this category? Whole Foods was a progenitor of providing more nutritious food options to consumers and has long been an advocate of utilizing local and organic growers to supply its stores. In addition, Whole Foods' leadership has often been pedestaled for their lack of receiving exorbitant pay packages and their involvement within local communities.
Nearly everyone I know loves a good pizza, but apparently none more so than those ordering from Domino's Pizza (DPZ 2.56%). Domino's CEO Patrick Doyle is another regular on the lists of top CEOs, understanding that his entire pizza line needed to be revamped in order to compete in the highly competitive pizza industry. By admitting his past mistakes and putting himself on the same level as consumers, Doyle has been able to transform his company's public image into that of a top-tier pizza company, based on Brand Key's customer loyalty engagement index.
Finally, among fast-food chains, Subway made McDonald's golden arches seem a little less shiny. As I noted earlier this month, Subway's push toward healthier foods, its competitive pricing, and its high quality of brand ambassadors have given it the ability to nearly double its number of stores since 2003, while McDonald's has only advanced its store count at a snail's pace.
What's the takeaway?
There are some key takeaways from this brand loyalty list courtesy of Brand Keys.
First, the most successful food and food service companies are offering consumers plenty of healthier food choices. Whole Foods prides its entire business on offering customers locally grown natural and organic food options, but we're seeing Subway, Applebee's, and even Cheerios jumping on the bandwagon by focusing on the nutritional quality of their food to sell the product.
Second, customers favor innovation, even if they prefer the consistency that a food company offers. Domino's ability to change its recipe, Applebee's new menu options, and Sam Adams' 50-plus varieties of beer are testament to this fact.
Finally, consumers will pay more for better-quality food, which will translate into heftier profits for high-brand-value companies. Whole Foods naturally charges higher prices for its "rarer" natural and organic foods, but branded cereals like Cheerios, and microbrews like Sam Adams that aren't mass produced, can command higher prices without consumers even thinking twice about paying more for them.