Why are McDonald’s restaurants leaving Walmart stores?
McDonald’s plans to shrink its presence inside Walmart to about 150 U.S. locations from about 500 at the start of 2000 in moves accelerated by the pandemic.
The closures were first reported by The Wall Street Journal, although McDonald’s signaled to investors in July that shops inside lower-volume Walmart’s were closing. At the peak of their 30-year partnership, McDonald’s had about 1,000 locations inside Walmart.
Even before the pandemic, McDonald’s Walmart locations were generally less profitable than its standalone restaurants because drive-throughs have become a primary revenue driver. Sweetgreen, Shake Shack and Chipotle are among chains adding drive-thru lanes for convenience and contactless pick-up.
With the pandemic, sit-down eating became prohibited or risky. Walk-by traffic in Walmarts has also been impacted by the increasing desire of shoppers to buy online and have a get-in, get-out experience or take advantage of curbside pickup.
Subway franchisees have also shuttered their locations inside Walmart in recent years. In February 2020, Dunkin’ decided to exit 450 locations inside Speedway in part because it couldn’t offer its full menu, according to Restaurant Business.
Walmart is testing a variety of other options to replace the closed McDonald’s.
“These spaces have been freeing up over time. We have been and continue to fill them,” Walmart spokesperson Molly Blakeman told USA Today. “We’re looking to both restaurants and services that are really relevant to our customers.”
Walmart is exploring restaurants that don’t rely solely on store traffic and solutions that focus on meals-to-go and delivery. Some former McDonald’s locations will become ghost kitchens, a central kitchen that cooks for multiple restaurants. Taco Bell, Domino’s and Charleys Philly Steaks have filled some spots. Some are being converted to services ranging from tool rentals to hair braiding.
Among competitors, Target’s food service areas are operated under licenses with Starbucks and others. Costco operates its own food court and looks to keep prices low and quality high to drive club traffic.
Costco last week received wide coverage in confirming that seating and a full menu would soon be returning to locations. Costco’s CFO Richard Galanti told CNN, “The food courts work. They’re one of the things we’re known for.”
- McDonald’s Is Closing Hundreds of Its Walmart Restaurants – The Wall Street Journal
- McDonald’s is closing more restaurants in Walmart stores, but Taco Bell, Domino’s and others are moving in – USA Today
- McDonald’s will close hundreds of locations in Walmart stores as pandemic changes shopping habits – CNBC
- McDonald’s Corp (MCD) Q2 2020 Earnings Call Transcript – The Motley Fool
- Restaurant Companies Move Out Of Their Retail Homes – Restaurant Business
- One of Costco’s secret weapons is coming back – CNN
DISCUSSION QUESTIONS: Why do you think McDonald’s is no longer a strong fit inside most Walmart locations? What should Walmart do with space that is opening up?