A Retail Spying Spree

Clad in gray sweats and a warmup jacket, Debbie Palty walks into a Taco Bell in Costa Mesa. She looks at her watch and makes a mental note of the long line ahead of her and the debris on the counter--seven straw wrappers, a couple of loose napkins.

She orders three tacos and a drink, listening for the cashier to repeat the order. When her food arrives, Palty grabs it and dashes for her car, where she jabs a thermometer into the tacos. Then she weighs the food on a digital scale. She checks the freshness of the tomatoes and finally bangs out a report on a laptop.

“They did pretty good,” she says.

Palty is a mystery shopper, and she has never been busier. Her main clients are fast-food restaurants, but requests are pouring in from virtually every type of business. Mystery shoppers are checking into hotels and cruise lines, posing as potential renters at apartments, even going undercover as patients in doctors’ offices.

She is part of an unprecedented boom in the ages-old practice of snooping on workers. An estimated 500 mystery shopping firms operate today--a 25% increase from three years ago--and weekly send out as many as 500,000 freelancers who work as amateur sleuths. Palty earns $10 to $20 a report, but she had enough volume last year to gross more than $50,000.

The driving force behind this growth is corporate America’s heightened attention to customer service, which has slipped in recent years amid the nation’s tight labor market, high worker turnover and layoffs of middle managers, who traditionally have played an important role in overseeing service.

The problem may be most severe at fast-food counters. Since the University of Michigan began compiling consumer surveys on service in 1994, fast food has consistently scored the lowest among several industries. At the bottom of the heap: McDonald’s, which this year launched its systemwide use of undercover shoppers.

Other chains, such as Del Taco and El Pollo Loco, are returning to mystery shopping after abandoning it years ago because of the cost.

“If you manage a restaurant, after a while you might stop noticing that cashiers aren’t smiling, tiles are missing and napkin and straw [dispensers] aren’t filled,” said El Pollo Loco Chief Executive Steve Carley, who has mandated a monthly inspection of each of the 136 company-owned stores. “That’s why you need a fresh pair of eyes.”

The Mystery Shopping Providers Assn. in Dallas estimates that 75% of the 95 biggest fast-food chains use mystery shoppers, up from 45% five years ago.

Palty, 40, is so busy that she frequently turns down work. She keeps a grueling schedule, working most weekends and routinely putting in 60 hours a week.

On a recent drizzly morning, she left her south Orange County home at 6:30 and over the next 11 hours circled Los Angeles County, visiting 17 restaurants in six cities. Much of the work was the same: ordering, observing, weighing and taking the temperature of food with electronic equipment.

“Hardly glamorous,” she said, digging through a bean burrito with her fingers to make sure her order for no onions had been met.

But the occasional actress (she once had a small part on the soap opera “Days of Our Lives”) likes the pay--she expects to earn $60,000 this year--and the freedom of being an independent contractor. The work appears to come naturally to her.

“I love to shop,” Palty said.

Palty has an ironclad memory, so she can record details without the aid of notes. Over the years, her work has become more varied and high-tech.

One of her most unusual assignments, she said, was posing as a prospective buyer of a $3.8-million house to tape the sales pitch of the real estate agent. She used a microphone hidden in her bra. (The agent did a bang-up job touting the wine cellar, mountain view and large entertainment room and received a positive review.)

As mystery shopping has proliferated, so has the debate over its use, which in the United States dates back to the early 1900s, when businesses first hired undercover customers to watch for employee theft. Ever since then, workers have complained that the practice puts undue pressure on them, breeds mistrust and often fails to give an accurate or complete picture of what’s going on.

That’s precisely what worries Michael Muntzel, a McDonald’s franchisee in Little Rock, Ark. Earlier this year, he said, the corporate office sent a mystery shopper to one of his four restaurants during the busy lunch hour. Because it took so long to fill orders, Muntzel recalls one of his employees giving that customer a free bag of fries and apologizing for the delay.

To Muntzel, the worker had turned a negative situation into a positive one. But to that mystery shopper, the service was slow, the order was improperly filled, and the worker who gave away free food had violated company policy. Muntzel said his restaurant received a critical review. He and some other McDonald’s franchise owners worry that the corporation could use the results of mystery shopping to weed out outlets it doesn’t want.

McDonald’s officials would not comment on the review of Muntzel’s restaurant.

Such customer-service reviews are relatively new to the mystery shopping industry.

Peter Doomanis co-founded Commercial Service Systems in Van Nuys in 1947 to run so-called integrity shops to expose dishonest workers.

In the 1970s, the practice evolved into a management tool to critique customer service. The term “mystery shopping” came into use then, reflecting the mysterious nature of the shopper, according to TrendSource, a San Diego-based mystery shopping firm. Doomanis, 80, said his business has grown into a $3 million-a-year enterprise. The last few months have been particularly strong.

Owners such as Doomanis said it’s now common for undercover shoppers to give strong-performing employees small rewards on the spot, such as $10 gift certificates for groceries or video rentals. Those who receive low marks are likely to be candidates for more training instead of dismissal, they contend.

But Kim Wirshing, an attorney for the Hotel and Restaurant Employees Local 2 in San Francisco, said he still often hears about workers getting reprimanded after a visit by a mystery shopper. And in the last four years, he said, at least six have been fired. One of them has stuck in his mind: a Bay Area hotel bartender who was terminated after being spotted giving a free drink to a high-paying customer. Wirshing said he contested the firing to no avail.

“To have someone who knows relatively nothing about an individual workplace go in and take a cold analysis is a recipe for disaster,” Wirshing said. “In the real world, there can be innocent explanations for all sorts of things.”

Debate also rages about the effectiveness of mystery shopping.

Doug Gould, director of mystery shopping for Taco Bell, credits the program for helping speed up the chain’s drive-through service. He said reports from secret shoppers highlighted delays caused by workers pushing promotions and repeating simple orders to customers. Ultimately, he said, Taco Bell slashed drive-through wait times from an average of 5 minutes to 3 1/2 minutes--a huge achievement in an industry obsessed with peeling seconds off the process.

But others question why mystery shoppers are needed to uncover such problems.

“If companies want to know what customers want, they should ask them directly,” said Claes Fornell, a University of Michigan marketing professor and critic of mystery shopping.

Mystery shoppers often don’t know how clients will use their reports, and sometimes the result is surprising.

Palty remembers one visit to a post office in Orange County. In her report, she wrote that a manager who waited on her inquired about Palty’s religious beliefs and then asked her for a date. She filed a negative report and thought the manager might be disciplined or even dismissed, but later found out he was promoted.

“When I walked [back] into the post office, there he was. I couldn’t believe it,” she said.

One of Palty’s toughest challenges is to maintain her cover. She figures that only her family and a few other people know what she does for a living. When people press her about her job, she tells them that she’s a retail consultant. She’s left her neighbors guessing and sometimes gossiping about the life of a single woman who often comes home with shopping bags full of new clothes.

In her seven years as a mystery shopper, Palty said she’s been unveiled twice. The first was when an employee at a Tustin bistro spotted her taking notes at the table. (Since then, Palty jots down observations only after she enters the bathroom or her car.)

On an assignment about six months ago, Palty went into a Huntington Beach supermarket, where she encountered her brother, who, unbeknownst to her, had recently been transferred there as store manager.

Palty doesn’t see herself as out to nab someone. But like many real shoppers, she expects good service and has no hesitation to submit a critical report when it falls short. Palty firmly believes in the value of mystery shopping, saying it keeps people on their toes.

Eric Schlosser, author of the best-selling book “Fast Food Nation,” isn’t so keen on the practice. He believes that if companies treat workers well, they’ll be more motivated and happy.

“And you don’t need to check up on them in this way,” Schlosser said.

Many workers in fast food and other industries, however, appear to have accepted the undercover shoppers as part of the workplace. They know that they don’t have much choice if they want to stay in their jobs.

For the last eight months, Dave & Buster’s Inc. restaurants have been using mystery shoppers to videotape employees at work with digital cameras hidden in purses, jackets and shirts. Employees must first sign a waiver allowing the contracting firm, Video Eyes, to do so. Dave & Buster’s said no worker has refused to sign, but the company wouldn’t say what would happen if someone did.

The practice has drawn fire from labor groups and privacy advocates, even from the industry itself.

“It’s very negative,” said Laura Livers, president of Atlanta-based Shop ‘N Chek Inc., the nation’s largest mystery shopping firm. ‘Would you want to work for a company that puts a camera on you?”

But Video Eyes said it has signed up three major hotel chains and 40 other businesses in its first nine months of operations.

“We like to think of this as the next generation of mystery shopping,” said Chief Executive Mike Bare.