As the world continues to shift towards e-commerce and digital solutions, several retailers are revising their business strategies in order to adjust to the changing circumstances. For Walmart, part of that adaptation involves the dissolution of its longstanding commercial partnership with McDonald's, which it has held since 1994. Their decades-long relationship will soon come to an end as Walmart removes more McDonald's restaurants from its stores.
According to reports, the closures have been in the works for over a year now, with a bulk of them happening just in the past few months. As of 2020, there were approximately 500 McDonald's restaurants left in Walmart stores across the U.S., which is a substantial decrease from the 800 restaurants that were still in operation in the years prior. With the next series of closures that are set to occur this summer, there will only be a total of 150 locations left, and from there, it will only a matter of time before those locations are replaced with other fast-food services.
McDonald's had previously announced these plans with its shareholders, explaining that "the majority of closures across the U.S. market are from lower sales volume McDonald's in Walmart store locations." This makes sense as there has been less foot traffic in Walmart stores recently due to the sudden rise of online shopping, delivery services, and curbside pick-up. The pandemic has had a particularly significant influence on the reduction of in-person shopping in the last few months, with local restrictions discouraging shoppers from stepping into the stores.
This goes beyond grocery shopping, too—even when people do out to get food, they aren't getting out of their vehicles. According to a company study, 70% of orders in top markets come from drive-thrus, which Walmart-based McDonald's restaurants are not equipped with. In order for these chains to become profitable, they would need either increased foot traffic or a drive-thru feature, which are both too expensive to see through.
While it would be easier to simply close the restaurants altogether, it's important for Walmart to find replacement fast-food services to McDonald's since it still needs to remain competitive among its adversaries. Some Target stores, for example, have Starbucks locations inside, and Costco will soon reopen its food courts to the public. The presence of these restaurants in stores is a vital part of the customer experience and they provide many benefits to their partner companies, including improved customer satisfaction and retention.
Walmart typically leases its storefront space to other businesses, especially national chains and restaurants. Currently, it is experimenting with Domino's Pizza franchises, since pizza restaurants largely depend on pick-up and delivery and that could help increase the foot traffic. At this moment, there are 30 Domino's Pizza restaurants in Walmart locations across the country, and plans have been made to grow that number in the next few years. Additionally, Walmart is looking to test other franchises in various locations, including Yum Brand's Taco Bell, Charley Phyllis Steak, and Ben's Soft Pretzels.
"We have a great opportunity with our leased space business to help our stores become even more convenient and relevant to local communities," Walmart told Insider. "We are excited to continue to bring in new businesses that make sense for our customers and their changing needs."
