The Supply Side: Prices hurt customer satisfaction among Wal-Mart suppliers

Consumer packaged goods companies and other product suppliers to retail for everyday household items are seeing customer satisfaction ratings slide amid price inflation, according to the 2014 American Customer Satisfaction Index (ACSI).

Customer satisfaction deteriorates across all categories of household nondurables, including food, soft drinks, cleaning products and apparel when product prices rise, according to ASCI Chairman Claes Fornell.

“It’s never good news when customer satisfaction drops across the board,” Fornell added. “Since most nondurables are repeat purchases, strong customer satisfaction is critical. When it weakens, consumers become more reluctant to buy and brand loyalty suffers. As a result, demand weakens overall.”

He said companies typically respond by offering deals and price discounts, which lead to increased brand switching, lower margins, and more volatile revenue streams. This can further erode customer satisfaction as consumers change their favorite label for a discounted brand that then turns out to be less satisfactory.

Consumers are price conscious and many don’t mind asking for a lower price at traditional retailers, much like they would at flea markets. Wal-Mart who claims to have the lowest basket prices, backed with ad match and now Savings Catcher for branded products says its customer base is constantly looking for the best price, many times checking their mobile phones while in-store to see if it’s cheaper somewhere else – or looking at Walmart.com.

Stephen Quinn, chief marketing officer for Walmart U.S., recently said the “value mindset” that took over consumer consciousness following the recession of 2008 is still with them with no sign of abating.

Fornell said food prices have increased at more than twice the rate of the Consumer Price Index and that alone is driving consumer satisfaction with food manufacturers lower.

ASCI reports the food manufacturing industry index rating fell 2.5% for consumer satisfaction in recent months. The industry scored a 79 on a 100-point scale. Nearly all food companies registered a drop in customer satisfaction, particularly the aggregate of smaller companies and private label brands, which declined the most — down 4% to the bottom of the industry at 77.

Rising meat prices weighed on consumer satisfaction ratings with all the major packers and meat companies. Hillshire Brands rating fell 2% to 84, while Tyson Foods slid 1% to 79 and ConAgra lost 2% to land at 82 on their consumer satisfaction ratings, according to ASCI. Meat prices climbed 13% in the past six months which is what lead to those drops, the report states.

Despite lower grain costs cereal makers saw declines of 5% in this category’s customer satisfaction ratings in 2014. Kellogg lead the decline by tumbling 5% to a score of 81. General Mills and Quaker Oats each dropped 2% to tie at a score of 85.

There were just two food companies in the survey to buck the downward trend in 2014.  Mars rose 1% to 85, while Nestle improved its customer satisfaction rating to 85, up 2 points. Despite these improvements it was Hershey’s score of 86 that was ranked highest among chocolate makers. Hershey’s scored an 86, unchanged from a year ago.

The perennial leader atop the food manufacturers list is Heinz with a customer satisfaction rating of 87, unchanged from last year.

BEVERAGE DECLINES
Customer satisfaction continued to weaken for soft drinks as consumers continue to turn to tea and bottled water which are seen as healthier alternatives. Soft drink sales are at their lowest level in almost 20 years, according to the study.

Customer satisfaction with both is down by about the same amount compared to a year ago, but lower price points tend to keep soft drinks (82) at a higher ACSI score than beer (79). 

The major soft drink companies have long tried to expand their business by adding tea, juice, and water to their core soft drink offerings. They have also pledged to reduce soft drink calorie content by 20% over the next ten years. 

Dr. Pepper Snapple tumbled from its top post in 2013 down 5% to a score of 82, one point below top competitors Pepsico and CocaCola who are each at 83 this year. CocaCola lost 1% and Pepsico lost 2% year-over-year in the customer satisfaction ratings.

PERSONAL CARE, CLEANING PRODUCTS
Customer satisfaction with shampoo, soap, toothpaste, detergents and cleaning products slipped 1.2% to an ACSI score of 82 in the Oct. 2014 report. 

Clorox is the only large company to escape a customer satisfaction loss this year, leading the field at 85. Colgate-Palmolive and Procter & Gamble dipped slightly to 83 and 82, respectively. Dial dropped 4% to below the average at 81, while Unilever tumbles 6% to last place at 80, according to the report.

This class of nondurables consistently ranks high among users, against all types of manufacturing industries. Only the television and video player category ranks higher in customer satisfaction.

MIXED VIEWS ON APPAREL
The ASCI report shows consumer satisfaction ratings were split among apparel manufacturers with the category losing 1.3% to score 78. Rising costs passed on to consumers were responsible for the decline in customer satisfaction for apparel. The 78 score was the category’s lowest rating in nearly two decades, Fornell said.

“On average, prices rose 2.3% over the past six months ending in August. While the increase is less than previous hikes, escalating costs for raw materials have now been passed on to consumers over several years, taking a protracted toll on customer satisfaction,” Fornell added.

VF saw its rating improve 4% rising to the top of the category with a score of 84. All the other major brands trail far behind, with Jones Group edging up 1% to 81 and last year’s industry leader Levi Strauss down 2% to 80. 

With a 4% tumble to 78, Hanesbrands has the lowest customer satisfaction among the large apparel makers. Last place, however, is reserved for the aggregate of smaller companies (including store brands) with a below-average combined ACSI 
score of 77.