For consumer-facing businesses like restaurants, grocery stores, and automotive manufacturers, competition on price, quality, and convenience is fierce and leaves little space for differentiation. Yet, even in this parity market, companies such as Chipotle, Whole Foods, and Tesla have achieved spectacular growth. Are these companies positioning themselves in a significantly different way than rivals?

Mission Measurement research has shown that these companies have capitalized on emerging consumer demand that financial analysts have largely overlooked. To date, Wall Street’s use of deep consumer research has been limited. Most analysts use observable metrics like historical sales trends, demographic data, and business cycles to inform their sales forecasts. Still, direct consumer research is rare because extracting meaningful information from consumers is challenging. But consumer data is increasingly valuable, and for industries with largely undifferentiated products, understanding consumer decision-making is essential to forecasting sales growth.

If we could quantify the nuances of consumer preferences we could better predict shifts in consumer demand. This was our goal in a recent study of consumers in the quick-service restaurant category in which we applied a research methodology designed to uncover what consumers do (rather than what they say) when deciding where to buy a fast lunch or dinner. Our representative sample consisted of 1,200 U.S. consumers aged 16-64 who had purchased fast food at least four times in the past four weeks. We tested an exhaustive list of traditional benefits (such as low prices, good taste, and convenient location) and what we termed “social benefits” (including healthy options, community improvement and environmental impact) to examine their effect on consumer choice.

The results revealed which product attributes really matter, which companies deliver them well, and how much monetary impact delivering these attributes will have on business growth.

Perhaps surprisingly, the results challenge conventional wisdom about consumer behavior. For instance, we found that fresh ingredients were 42% more important to consumers than value and 57% more important than restaurant location. Interestingly, high performance on traditional benefits did not predict sales growth. In fact, almost all restaurants were rated similarly for traditional benefits. On the other hand, there was wide variation in how consumers rated restaurants for social benefits.

Clearly, the battle to differentiate and win customers’ hearts as well as their wallets has shifted away from providing traditional benefits to delivering social benefits. This is especially apparent when analyzing how consumers rate brands on their delivery of social benefits. In our research, the top performing quartile of restaurant brands that delivered social benefits averaged 14% U.S. sales growth over the past three years, while the rest of the restaurants averaged only 2% growth. While some of this difference can be attributed to restaurant size and other factors – as much as 15% of this difference can be explained by Mission Measurement’s consumer-driven ratings. This relationship between growth and delivering social benefits to consumers underscores the importance of consumer preference research in equity analysis.

Moreover, the research findings provide insights into unexpected growth successes. For instance, though Chick-fil-A has generated controversial social headlines, it has succeeded, while chains such as Burger King have stagnated. Both Chick-fil-A and Burger King perform within 5% of industry averages on traditional benefits such as offering a broad product variety. However, on using natural ingredients, Burger King performs 15% beneath the industry average while Chick-fil-A is rated almost 15% above the industry average. While these perceptions may not reflect the actual restaurant characteristics, it is these perspectives that are the driving force behind a growing portion of the market’s purchasing decisions. At the brand level: Chick-fil-A (rated a 1st quartile social leader by the consumers) had 14% U.S. sales growth in 2013, while Burger King (rated in the 3rd quartile on social benefit delivery) had 2% U.S. sales growth.

Data provides a clear understanding of why different companies thrive. In the case of Chick-fil-A, studying the nuances of U.S. consumer preferences demonstrates that some social issues affect sales more than others. For restaurant consumers, “uses ingredients free of additives” is 89% more influential in purchase decisions than “is an ethical and transparent brand.” The data also compares different social benefits to each other and reports how consumer preference for certain social issues evolves over time rather than prioritizing social issues individually. As an example, “food safety” may have been a key issue for U.S. consumers in the past. But as all companies began delivering this benefit, the key concern today is “uses natural ingredients”. With recent media attention about income inequality gaining traction, maybe “fair wages” will emerge as an increasingly relevant purchase driver.

Companies are bombarded with many conflicting voices – shareholders, employees, and activists – each with their own values and perspectives on social issues. We think that now is the time to return focus to the preferences of the modern consumer. Uncovering latent demand among consumers has the potential to unlock tremendous business and investment opportunities and ultimately predict the next Chipotle, Whole Foods and Tesla.

 

John Hoeppner is Head of Investment Research at Mission Measurement, a consultancy and data firm which uses measurement and social impact to improve business and investment results.