Consumers aren’t the only ones leaving brick-and-mortar retail.
Restaurants are, too. McDonald’s, for instance, has been moving out of Walmart locations for years, a move it decided to speed up last year as the pandemic made such locations less desirable. The same is true for Subway, which is realizing that such locations don’t often generate enough business to make the model work.
But such moves are taking place elsewhere. Dunkin’ last year opted to close locations inside Speedway convenience stores. Starbucks likewise decided to shift away from mall-based units.
There are other signs of an apparent split between restaurants and the retailers that once housed them. In February, for instance, Travel Centers of America sold Quaker Steak & Lube for $5 million. TCA has surprisingly acquired the chain for $25 million out of bankruptcy in 2015.
To be sure, there are plenty of restaurant chains that still operate inside retailers—many of Starbucks’ 6,400 licensed units remain inside places like Target stores and HyVee grocers. Nontraditional locations still make up a sizable portion of restaurant chains’ expansion strategies.
But that has taken a bit of a hit, and it’s not strictly due to the pandemic.
Consumers have been shifting dining toward takeout primarily in recent years as convenience has become an increasingly important element in restaurant dining.
As such, McDonald’s has been quietly closing Walmart locations for years largely because it wanted to replace them with stand-alone units with a drive-thru. When the pandemic hit, and the drive-thru became even more vital, the company opted to speed that process along.
The same is true for Dunkin’s decision to close its Speedway units. In February last year—before the pandemic—the coffee chain opted to close 450 locations inside Speedway units, saying they would be better off serving those areas with traditional restaurants.
Dunkin’ also noted that it could offer its full complement of beverage and food offerings in more traditional locations, something it couldn’t necessarily do inside a gas station.
Here’s another reason: Retailers are competitors. More retailers and gas stations have been upgrading their own food and beverage offerings, meaning that locating inside them only means they’re going up directly against a competitor.
This was explained perfectly by a Subway operator who privately grumbled about Walmart, noting that the chain has been selling more pre-made sandwiches that it delivers to customers who order curbside delivery for their groceries. “Over the past five-plus years, Walmart has become our biggest competitor,” he said.
The locations inside of retailers have lower average unit volumes and lower profitability. For Subway operators—which have the same number of workers no matter where their restaurants are located--that's a bad business model. As such, more operators are opting to close such locations.
Retail and other nontraditional locations also took a massive hit from the pandemic, leading operators of all kinds of brands to question whether they should continue to focus on such locations during the long term.
That is true for locations inside office centers or inside malls. Consumers, after all, are not going shopping in malls as much as they once did, a trend that appears likely to remain even after the pandemic.
That’s why Starbucks last May said it planned to move more of its locations from malls to suburban locations where it could have drive-thrus. “Our digital leadership and ability to transform lower-performing locations and formats to successful new store formats (i.e., relocate Starbucks stores from low-traffic malls to new, thriving locations that combine the third place with drive-thrus) are unique strengths we will lean into the coming months,” CEO Kevin Johnson said at the time.
Retail based locations often have lower volumes, more restrictions, more competition and no drive thru. That’s why they’ve been increasingly out of style even before the pandemic. But that pandemic has only furthered this trend along.