High anxiety: Consumers turn to chocolate and cigarettes

Updated 1:30 PM November 24, 2004

High anxiety: Consumers turn to chocolate and cigarettes

By Bernie DeGroat
News Service

With anxieties running high across the country, Americans are turning to comfort foods and tobacco to calm their fears—much like in the aftermath of 9/11 three years ago, the latest American Customer Satisfaction Index (ACSI) shows.

The ACSI for the third quarter of 2004 stands at 74.3, down slightly from 74.4 in the second quarter. However, customer satisfaction scores for individual companies like Hershey and Mars and the tobacco industry are up.

"The public's concern about safety, the war in Iraq, rising health care costs and oil prices—all fueled by the presidential election campaign—may have contributed to rising customer satisfaction with chocolate, candy and cigarettes," says Claes Fornell, director of the ACSI and professor at the Stephen M. Ross School of Business.

Fornell says that even a slight change in the overall ACSI in one quarter historically has signaled a change in proportional consumer spending the following quarter.

"From the third quarter of 2003, for instance, the ACSI prediction of fourth-quarter spending was 3.7 percent. The actual was 3.6 percent," Fornell says. "Based on the ACSI alone, and not considering other factors such as oil prices, employment and so on, the ACSI predicts that consumer spending will grow at a rate of 3.5 percent to 3.9 percent during the holiday retail season."

Customer satisfaction with food products overall has been remarkably stable, says Jack West, past president of the American Society for Quality, a co-sponsor of the ACSI.

"Hershey and Mars showed the greatest improvement from a year ago and remain near the top of the food industry," West says. "Hershey's recent announcement of record third-quarter and nine-month sales figures seems to support this conclusion."

Among all food manufacturing companies, Heinz remains the industry leader at 88, down two points from a year ago, followed closely by Hershey (87), Quaker Oats (86) and Mars (85). Although most companies are clustered relatively closely with scores in the mid-80s, three companies—Campbell Soup, Dole and Tyson—declined this year to 79, matching the lowest score any food company has registered in the ACSI.

Overall, customer satisfaction with cigarettes stands at 78, its highest level in four years. Smaller, discount cigarette-makers have a higher level of satisfaction than their larger competitors, the ACSI shows.

While Phillip Morris and R.J. Reynolds dominate the industry, smaller companies now account for 15 percent of the market. Big tobacco companies, Fornell says, have incurred large legal costs during the past few years and subsequently have raised prices on their premium brands, while smaller companies have been mostly immune from legal battles and have offered increasingly competitive prices.

"In a battle between high-profile advertising and price, discount cigarette-makers are competing on price and doing a pretty good job of it," Fornell says.

The beer industry declined 4 percent this quarter largely due to a drop for industry leader Anheuser-Busch to 79, its lowest score in five years. Anheuser-Busch has been the target of a negative advertising attack campaign launched by Miller Brewing, its chief competitor and No. 2 U.S. beer manufacturer. As Anheuser-Busch's satisfaction has declined, Miller announced 18 percent sales growth for Miller Lite in the first half of 2004, even though its satisfaction score of 79 is unchanged from a year ago.

Company scores and more information about the ACSI can be found at http://www.theacsi.org.

High anxiety: Consumers turn to chocolate and cigarettes

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