Dive Brief:

• McDonald’s is planning to permanently close 200 of its nearly 14,000 stores in the U.S., the restaurant chain announced Tuesday. More than half of the restaurants set to close are located within Walmart stores and are reporting low sales volume.
• The company, which made the announcement during its second quarter earnings call on Tuesday, said the closures were already expected for future years but that the pandemic accelerated its plans.
• McDonald’s noted that restaurants with drive-thru windows, which Chris Kempczinski, the company's president and CEO, said are in about 95% of stores, are recovering better from the effects of COVID-19 as customers opt for less contact when making purchases. Restaurants that operate in malls and urban centers or depend on tourists are struggling more, according to the company.

Dive Insight:

Given the foot traffic required for McDonald’s locations to generate sales within Walmart stores, it’s not surprising that some locations are losing revenue as more people stay home and order groceries and restaurant meals for delivery or pickup. 

On Tuesday's earnings call, McDonald’s chief financial officer, Kevin Ozan, said drive-thru purchases accounted for nearly 90% of the burger chain’s sales in Q2 as customers sought safer transactions. Diners also turned toward more digital ordering and delivery, Ozan said. 

Walmart saw an initial surge of about 18% in store traffic when the first round of panic buying hit in March, but traffic dropped in late March and early April, according to an analysis by Reuters. The retailer also put capacity limits in place at its stores to promote social distancing, which could have affected walk-up sales at McDonald’s outlets in Walmart locations. 

McDonald’s opened hundreds of locations inside Walmart stores in the 1990s, Restaurant Business reported. But over the years, Walmart has moved away from McDonald’s as it embraced fresher, more customized fare from Subway. McDonald’s had nearly 875 restaurants inside Walmart in 2012 and just over 630 in 2017, according to U.S. News & World Report.

Even with the McDonald’s locations closing, the fast-food company still plans to open about 950 new locations globally this year, according to Business Insider. About 96% of McDonald’s stores are currently open for business worldwide, up from 75% in early April, Fox Business reported.