The Top 10 Burger Joints Have One Common Trait (And it's Changing the Restaurant Industry)

Ever wonder where to get America's best burger? Well thanks to Tripadvisor you no longer have to guess. The travel company released its top 10 burger list based on customer reviews. And chances are, you've never heard of any of them.

All the restaurants in the top 10 are single-location restaurants, which is to be expected. After all, the Tripadvisor results are catered toward unique destinations. But there is something here that studious investors can learn about the changing restaurant business.

The top 10
Check out the price tag on one of these top-rated burgers.

Burger Joint Starting Burger Price
Black Hills Burger & Bun $6.75
Nic's Grill $4.75
Sparky's  $6.49
Grill-A-Burger $6.95
MEAT Eatery and Taproom $9.00
Brook's Gourmet Burgers $8.95
Mussel & Burger Bar $12
Big D's Downtown Dive $11*
Casper & Runyon's Nook $6.50
Village Burger $7.50**

*Unverified price from Yelp.com
**Unverified price from Tripadvisor.com

Average starting price? $7.99. That's not exactly cheap. So what excited consumers? Tripadvisor rates restaurants in four categories: food, service, value, and atmosphere. In all 10 cases, the food ranked no.1 among guests.

This reflects what studies from Consumer Reports and Technomic are saying. More and more Americans are ranking food quality over price.

The big three
This might be unsettling news for the big three burger chains: McDonald's (NYSE: MCD  ) , Burger King (NYSE: BKW  ) , and Wendy's (NASDAQ: WEN  ) . In a reader survey from Consumer Reports, all three of these chains ranked startlingly low in taste, with McDonald's winning (losing?) the honor of last place.

Is this the end of fast food? Not so fast...

Before we get much further, we must keep in mind that while McDonald's was ranked dead last, it sold more hamburgers than anyone else in the business. It appears we have a conundrum. 

Burger Joint Starting Burger Price
McDonald's $1.00*
Burger King $1.00*
Wendy's $0.99*

*Prices vary by location

The average starting price at these chains is just $1.00 -- a full 87% less than the starting price at Tripadvisor's top 10. Granted, this isn't a completely apples to apples comparison -- a burger off of the McDonald's Dollar Menu isn't near the size as a burger from Black Hills, but this does suggest that price is indeed still a huge deciding factor for diners.

Striking the balance
There are a few players effectively striking the balance between quality and value who pose a serious threat to traditional players.

Fast casual burger up-and-comers -- The Habit Burger Grill, Five Guys, and Smashburger -- ranked 1st, 3rd, and 4th respectively in the same consumer report that ranked McDonald's in last place.

Burger Joint Starting Burger Price
Five Guys $4.75
Smashburger $4.99
The Habit Burger Grill $2.95

Not only did these fast-casual chains rank high in food quality, but the average starting price is $4.23 -- more than fast-food, but almost half the cost of America's top 10. That, my friends, is the best of both worlds, and why these three chains have serious disruptive potential.

These chains are also here to stay. Five Guys leads the fast-casual pack with over $1.1 billion in annual sales. The Habit Burger Grill and Smashburger are both in the top 10 in fastest growing chains by sales. And while The Habit grabbed top honors in food quality, Smashburger has been named America's "most promising company" by Forbes. 

If fast-casual is the winner here, then who's the loser?
You may be tempted to write off the traditional fast food giants with the rise of fast casual, but I still don't believe that to be the case. If anything, the data shows that casual dining is the segment suffering the most from fast-casual's rise, meaning that casual players like Ruby Tuesday (NYSE: RT  ) are more susceptible.

According to NPD Group, casual dining is at a six-year low, and fast-casual was one of the main culprits cited in the decline. Yet in general the bigger the chain, the less the impact. The restaurants most effected are independent casual dining restaurants. 

So who really loses? While nobody's immune, I believe it's the independent burger chain who is most vulnerable. These independent restaurants make up nearly 14% of all burger restaurants, and don't have the same ability to advertise and offer discounts as big chains do. Ironically then, the chains most at risk are chains like the ones in Tripadvisor's top 10.

In the meantime, keep an eye on your non-fast-casual restaurant investment to see how they're being affected. Oh yeah, and if you live in Custer, South Dakota, have a burger for me.

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