Fast-food giant McDonald's (NYSE:MCD) and the nation's largest retailer have had a mutually beneficial relationship for years. Restaurants placed inside Walmart (NYSE:WMT) stores gave shoppers easy access to a quick meal, added business for the restaurant chain, and gave the retailer rental income and a reason for shoppers to spend more time at its stores.
But the pandemic has led to an increase in food delivery and the use of drive-thru windows. Indoor dining remains restricted or closed in some places, and foot traffic has also dropped as consumers move to online shopping or curbside pickup. Now McDonald's is closing hundreds of its restaurants inside Walmart locations, according to a Wall Street Journal report today.
The approximately 30-year relationship will not be completely severed. McDonald's will keep about 150 locations inside U.S. Walmarts. That's down from around 1,000 stores at the height of the partnership. The latest round of closures will be completed this summer, shutting locations based on their business volume.
McDonald's isn't alone in redefining the in-store retail model. Franchisees of fast-food chain Subway are also closing Walmart locations, according to the report. The closures of in-store locations began prior to the pandemic, but McDonald's accelerated the moves as shopping behaviors changed over the last year. As online shopping has grown in popularity in recent years, sales in McDonald's Walmart locations increasingly came from Walmart employees, rather than customers. About one-third of food sales came from the store's employees at some of the restaurants, said a source for the Journal report.
Walmart plans to replace some of the McDonald's stores with other chain restaurants. It plans to convert some to Ghost Kitchen locations, a kitchen chain supplying online orders from customers for multiple restaurant brands at once.