Though restaurants have been notably hard-hit during the coronavirus pandemic, fast food chains have fared pretty well. Many people shifted from in-person dining to takeout and delivery once the outbreak hit, which led to robust lines at the drive-thru and plenty of revenue for major players in the fast food space, like McDonald's (NYSE: MCD).
But now, the burger giant is making plans to shutter some locations. Specifically, it intends to close hundreds of its restaurants located inside Walmart (NYSE: WMT) stores. And that's actually a very strategic move.
What McDonald's stands to gain
Big-box retailers like Walmart have increasingly evolved into mini-malls, and the presence of in-store restaurants has historically been a draw for customers. But that was before the pandemic hit.
In the course of the past year, many consumers have shifted to online shopping or ordering goods online and picking them up curbside. As such, there's less demand for a sit-down dining experience inside of Walmart -- and more demand for standalone locations with speedy drive-thru windows.
It's the latter trend that McDonald's is opting to capitalize on. The burger chain has already introduced a new design that offers a better drive-thru experience for customers, and it's also in the process of trying out drive-thru lanes where machines replace humans in the hopes that doing so expedites orders and moves customers through the line more quickly.
The impact on real estate investors
For years, stores like Walmart have been taking customers away from malls. But now that hundreds of Walmarts are in line to lose their McDonald's dining rooms, that change alone could be enough to drive more customers back to malls, especially once the pandemic ends and the idea of indoor shopping and dining is less worrisome.
For many customers, shopping is a social experience -- and one that needs to be accompanied by food choices. If Walmart can no longer fulfill that need, consumers may opt to take their business elsewhere. And malls -- and the food courts they're known for -- could see an uptick in foot traffic once coronavirus vaccines are more widely rolled out and there's less fear to go around.
That said, Walmart won't let the space left behind by closed McDonald's restaurants sit empty. Rather, the retailer plans to convert shuttered locations into other types of restaurants or services, from tool rental shops to hair salons.
Replacing McDonald's with other food choices is certainly a viable option, but let's remember that there's a certain level of brand recognition that tends to draw customers to McDonald's counters everywhere. Bringing in no-name food joints may not serve Walmart as well, though the big-box giant is testing out locations featuring Taco Bell and Domino's Pizza (NYSE: DPZ) -- two well-known names in the fast food world.
At the end of the day, Walmart will need to do a good job of replacing McDonald's if it wants to enjoy the same level of foot traffic it did before the pandemic. And if it doesn't, Walmart's loss could be malls' gain.