By Sarah Nassauer and Heather Haddon
Fewer people want to eat their meals at Walmart.
For years Walmart Inc. and large restaurant chains like
McDonald's Corp. enjoyed a mutually beneficial relationship. The
retailer delivered a steady stream of diners, and the eateries
provided rental profits and a reason for shoppers to stick around
Those bonds have frayed as more shopping goes online and
fast-food restaurants depend more on drive-through windows for
sales, a feature Walmart locations don't have. The pandemic has
made indoor dining unappealing -- or prohibited -- for many
shoppers, accelerating the split.
McDonald's is closing hundreds of restaurants located in the
largest U.S. retailer's stores, the last vestiges of a roughly
30-year-old experiment between the companies. Around 150 McDonald's
stores will remain at U.S. Walmart locations after another wave of
planned closures that are expected to finalize by this summer,
according to the burger giant. At the peak of the partnership,
there were roughly 1,000 McDonald's restaurants inside Walmart
Franchisees of Subway, one of the largest fast-food chains in
the world with locations across Walmart stores, also say they are
closing locations this year, citing diminished foot traffic and
More Walmart customers are picking up their goods in store
parking lots during the pandemic, which means fewer sandwich sales,
said Jim Miller, a Subway franchisee. "The Walmart locations have
been our toughest challenge," said Mr. Miller, who aims to close
four of his five Walmart restaurants located in Michigan, Ohio and
Indiana by June.
The closures also pose a challenge for Walmart, which has long
counted on revenue from restaurants leasing space inside its
stores. By contrast, rivals like Costco Wholesale Corp. runs its
own restaurant space selling inexpensive pizza and hot dogs; Target
Corp. operates its own food-service space under licensing
agreements with partners such as Starbucks Corp. Retailers hope
food service inside store walls draws shoppers to linger longer or
give workers a place to eat while taking a break.
Walmart is working to find new models for its store restaurants,
focusing more on meals to-go, delivery and joining with small
regional chains that appeal to local shoppers. It is testing new
locations with Yum Brands Inc.'s Taco Bell and expanding Domino's
Pizza Inc. locations, said Linne Fulcher, vice president of
customer strategy for the retailer. "We took a turn to make sure
what we are doing matched up with the strategy for the company,"
and what today's shoppers want, Mr. Fulcher said.
Walmart is also testing smoothie vending machines in stores, he
said, as well as opening around 10 Charleys Philly Steaks
locations, a 600-store chain.
Walmart and McDonald's first started working together around
1994. At one time, Walmart allowed McDonald's to be the exclusive
restaurant when it was present in a store. More recently the
retailer and McDonald's franchisees have struggled to find a
mutually workable model at many locations, according to people
familiar with the situation.
McDonald's locations inside Walmart stores are generally less
profitable than stand-alone restaurants, in part because they lack
a drive-through, the main source of McDonald's sales, according to
people familiar with the situation. Customers at times loaded up on
refills and condiments, diluting margins, said one former
McDonald's executive. Even before the pandemic, Walmart shoppers
increasingly preferred to shop and leave or buy online, said
another person familiar with the situation. Around a third of
restaurant sales inside stores come from Walmart employees, the
The companies' overall strategies have been drifting apart for
some time. McDonald's in 2002 closed hundreds of U.S. stores and
began to focus on improving its image and the health of its
offerings, as sales had fallen. More recently, Walmart stopped
building new stores, instead spending to remodel existing
locations. Sometimes the McDonald's inside looked dated in
comparison, said people familiar with Walmart's thinking.
"You can't do a multimillion-dollar remodel in a store and then
have a 1980s McDonald's at the front," said one of these people.
Some franchisees left, while others remodeled in exchange for lower
rent, said another of the people familiar with the situation.
There were roughly 500 McDonald's locations in Walmart stores at
the start of 2020, down from more than 800 in 2012, according to
the restaurant company. It has held two rounds of closures in the
past year. The closures were planned before the pandemic, but
McDonald's sped them up during the crisis, the company said.
Walmart is accustomed to some restaurants leaving after their
lease is up and always has backup plans to fill space, said Mr.
Fulcher, the Walmart executive.
Some Walmarts are courting restaurants that don't rely solely on
store traffic, say the people familiar with Walmart's thinking.
Hissho Sushi, one of the country's largest wholesale sushi vendors
that supplies grocery stores and corporate cafeterias, added a
restaurant location inside an Arkansas Walmart last year. It offers
a sit-down meal and supplies premade sushi to seven Walmart stores
regionally from the restaurant, said a Hissho spokeswoman. Walmart
plans to open several Ghost Kitchens locations in stores, a chain
that allows guests to order food from multiple restaurant brands at
once, cooked in a central kitchen.
Domino's, the world's largest pizza chain by sales, approached
Walmart several years ago about opening locations in its stores, as
other chains such as Subway were retreating, according to a person
familiar with the discussions. Domino's had wanted to expand into
smaller towns and was investing more in its pickup service, both
areas that fit well with a Walmart-based store, the person said.
Domino's had to persuade the retailer that their pies wouldn't eat
into sales of Walmart's frozen pizzas, the person said.
The pizza company now has 30 stores inside of Walmart locations,
Walmart's retailing decisions, at times, could run counter to
the interests of restaurant tenants, some current and former chain
Mr. Miller, the Subway franchisee, said his sales fell in one
Walmart location after the store added a Ben's Soft Pretzels, LLC
location near his restaurant. On occasion the store also advertised
Walmart's submarine-style deli sandwiches at a low price near the
Subway restaurant, Mr. Miller said.
The pandemic further hurt sales as customers ordered their goods
for delivery or pickup from Walmart. Some owners of in-store
restaurants say they worry the to-go trend will stick.
"They aren't even coming in the store to see the Subway. They
aren't there to have that impulsive purchase," Mr. Miller said.
Write to Sarah Nassauer at firstname.lastname@example.org and Heather
Haddon at email@example.com
(END) Dow Jones Newswires
April 09, 2021 05:44 ET (09:44 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.