McDonald’s and Burger King Want You to Come in and Stay Awhile

The opportunity for growth may have flipped inside out.

Apr 20, 2014 at 11:00AM

The strategy behind quick-service restaurants like McDonald's (NYSE:MCD) and Burger King Worldwide (NYSE:BKW) has always been simple. Get your customers in fast, get their orders in fast, get their food fast, and get them out fast. With 70% of McDonald's sales coming from the drive-thru window, that mission has been accomplished. However, the next opportunity for growth at age-old fast food chains may now be aimed at luring you inside and keeping you in.

Mcdonalds Us Interior
Source:  McDonald's

I'll take that order for here, please 
Mickey D's has been struggling of late to show gains in domestic same-store sales. It's not because the restaurants aren't busy. In fact, many are still so busy that the chain is adding a third window to allow better flow through.

Inside McDonald's and Burger King, you may have noticed reimaging and remodeling efforts that are changing the decades-old look from an eye-sore bright yellow and red plastic to more modern decor. The fancy hanging lamps and darker colors may remind you of Starbucks (NASDAQ:SBUX). And it's paying off. The average reimaged McDonald's sees between a 6% and 7% surge in sales and the average Burger King sees a jump of between 10% and 15%.

Historically the hard, uncomfortable booths and chairs were deliberate. The idea was to keep you from wanting to hang around very long so you could make room for other patrons. Restaurants make money, or at least used to, by flipping tables and getting you out ASAP. But now, with the majority of orders coming from the outside intercoms, that's all changed. McDonald's and Burger King's new efforts to grow inside sales mimic more of the "third place" strategy of Starbucks.


Source: Starbucks

Let's meet up for coffee ... and a burger
The Starbucks strategy, what it calls the "third place," is to market itself as a third place between home and work. There is home, there is work, and then there is Starbucks -- a place where people can come and relax comfortably with no pressure. Most Starbucks have offered Wi-Fi for what seems almost as long as Wi-Fi itself has existed in order to invite you in and get you to make Starbucks your alternative to the home and office.

Now burger joints want to be the third place too. You know McDonald's and Burger King have already been trying to take on Starbucks by offering fancy coffee drinks with a similar Starbucks-like menu. You have seen or heard about the Starbucks-like decor. And now the Wi-Fi is being perfected. For example, on April 16 Burger King proudly announced it was launching "Whopper Wi-Fi," an upgraded, more robust, and supercharged Wi-Fi. Burger King is trying to get you in and keep you in.

McDonald's has been offering and advertising free Wi-Fi at more than 11,000 domestic locations for the last four years. Do you remember a time when McDonald's used to actually charge for Wi-Fi? What a shift. These days the mere thought of being charged for Wi-Fi in a restaurant would seem almost as tacky as having a payphone in your house for guests. Free Wi-Fi feels like a right.


Source: Burger King

Times are changing and so is the landscape. McDonald's and Burger King, like Starbucks, are becoming known as places you can get reliable Wi-Fi service. Their timing is good. People seem to be looking for places to spend their time outside the malls these days. For example, this holiday season mall traffic saw a 15% decline, yet Starbucks actually saw a 4% increase in traffic and a 5% increase in same-store sales.

Quick-service restaurants used to be more known for getting spillover traffic while customers went to a more primary destination such as the mall. The shift is becoming that McDonald's and Burger King want to be primary destinations such as we're starting to see with Starbucks.

Foolish final thoughts
McDonald's has mostly gotten rid of Ronald McDonald, and Burger King has gotten rid of its creepy king mascot as well. The name of the game these days seems to steer focus away from kids and over to adults by offering a calm, comfortable, and inviting atmosphere. Look for McDonald's and Burger King to show continued improvements in domestic same-store sales to learn if they have successfully transformed from just "to go" restaurants into "go to" restaurants like Starbucks.

The biggest profits are in the first place (your home!), not the third place.
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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide, McDonald's, and Starbucks. The Motley Fool owns shares of McDonald's and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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