I saw the news when I got to the office: Burger King is offering a Whopper for 1 cent. Normally I scoff at fast-food deals like that, but there was an opportunity here to see how the burger wars are playing out in the digital age. In the name of education, I was ready to pony up my penny.
There is a catch, of course. Burger King requires the download of its app first. Fair enough -- only the slowest of the slow organizations out there aren't promoting an app these days. But there's more: After downloading the app to a mobile device, the Whopper needed to be ordered "at" McDonald's (NYSE:MCD) -- or more specifically, within 600 feet of a McDonald's.
Fortunately for me, a Burger King and a McDonald's can be seen from my sixth-floor office window, making scouting out the best time to grab this cheap lunch a convenient endeavor. I went to McDonald's first, location-services equipped so my phone knew I was in range, and ordered my penny Whopper. The coupon applied itself, prompted me to set up an account, asked if I wanted emailed news and deals (nope), and asked for payment information. Next stop, Burger King, where dine-in, pickup, or drive-through could be selected. Not bad for an almost-free lunch.
Burger King isn't alone
You can get a Whopper for a penny, too. Here's a link to Burger King's video on how to score a really cheap burger with what's called the Whopper Detour. The deal runs through Wednesday and you can only get one 1-cent Whopper.
Burger King's parent company, Restaurant Brands International (NYSE:QSR), isn't the only chain trying to get consumers wrangled into their digital system. Other fast-food campaigns have been running deals in exchange for an app-store download or digital order, although not with the same "clog up our competitor's parking lot" twist.
McDonald's, the target of Burger King's Whopper Detour trolling, offers deals in its app. Dairy Queen, owned by Warren Buffett's Berkshire Hathaway, is giving away small Blizzards upon download of the app and creation of an account. Wendy's (NASDAQ: WEN) has also been giving away free and cheap food ordered on mobile devices.
There are multiple reasons for the push restaurants have been making into the digital realm. One is convenience, which increases the likelihood customers will drop some paycheck on a meal. According to a survey by Deloitte, visits increase an average of 6% when consumers use a mobile ordering and payment app. According to the same survey, the average ticket increases about 20% when using technology versus a standard visit to a restaurant. As inseparable as we are from our smartphones, sending emails and notifications on promotions can also help keep a brand top of mind.
Beating the burger bubble
There's another reason for the app frenzy and crazy promotions. Especially since the financial crisis a decade ago, consumers have been steadily increasing what they spend on eating out. One of the best-performing segments of the restaurant industry has been burgers, and not just the fast-food variety. The "better burger" has been growing by leaps and bounds, with new local start-ups and regional chains expanding at a rapid pace.
The industry has responded by rapidly expanding the number of locations. In recent years, overexpansion has been a primary cause of overall falling foot traffic. According to research group TDn2K, foot traffic fell 1.3% in the third quarter of 2018, followed by a 2.2% and 1.8% decline in November and December, respectively. The only saving grace is that spending overall has been up, increasing 6% over 2017 through October, according to the U.S. Census Bureau. Nevertheless, lower foot traffic on a per-location basis puts pressure on profit margins.
In short, while consumers are spending a lot more on dining out, the restaurant industry is as fiercely competitive as ever. Thus the crazy food giveaways like the Whopper Detour to lure in and steal hungry lunchgoers away from the competition. That's good news for consumers, but not necessarily a great situation for shareholders. With the industry a mixed bag of results as of late, extra discretion is needed in picking restaurant stocks. Here are a few to help get you started.