McDonald’s Is Closing Walmart Restaurants

A Thirty-Year Partnership Frays

McDonald’s (MCD) is closing hundreds of restaurants located inside Walmart (WMT) stores as the COVID-19 pandemic and a surge in ecommerce depresses sales. McDonald’s has been serving burgers and fries in Walmart stores for more than thirty years, benefiting from a stream of hungry shoppers. The coronavirus pandemic has changed people’s shopping habits, which is making the partnership less profitable. Many consumers no longer want to linger in stores, preferring online shopping and curbside service.

At the height of the partnership, there were about 1,000 McDonald’s restaurants in Walmart stores. Now McDonald’s is planning to keep about 150 restaurants open in Walmart stores.

Drive-Through Behind Fast-Food Sales

The McDonald’s stores located in Walmart tend to be less profitable than the restaurant chain’s other branches. McDonald’s makes most of its money through drive-through orders, and the Walmart stores lack that capability. Even before the pandemic hit, Walmart shoppers were beginning to visit in-store McDonald’s locations less frequently. According to one analysis, about one-third of McDonald’s sales from Walmart stores came from Walmart employees.

McDonald’s is not the only restaurant chain closing up shop in Walmart stores. Some franchises of Subway, the sandwich fast-food chain, said they also plan to close locations within Walmart this year. They also pointed to lower sales as Walmart customers pick up their goods curbside and shop more online.

Walmart Seeks Out Other Partners

The closure of restaurants within Walmart could be a blow to the retailer which makes money from leasing out space to restaurants. To counter the closures, Walmart is exploring different restaurant models including more to-go and delivery food options. It’s also considering partnering with smaller, regional chains which might draw more local customers.

Walmart is currently testing several Taco Bell (YUM) franchises in its stores and is expanding its partnership with Domino’s (DPZ). Charleys Philly Steaks is also opening ten locations in Walmart stores. Another Walmart initiative includes testing in-store smoothie vending machines.

Both shopping and dining habits changed during the pandemic. As more people receive COVID-19 vaccines, investors will be analyzing how quickly pre-pandemic habits return and how this will impact retailers and restaurants.

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