Earlier this week, my colleague Heather Lalley wrote about Walmart, which is putting Mr Gatti’s Pizza restaurants into nearly 100 of its supercenters.
It is part of an effort by Walmart to add more regional chains to its retail shops. It will give those Walmart locations a more regional flavor and perhaps give their customers another reason to visit or stick around.
The deal is certainly a good one, at least on the surface, for a brand like Mr Gatti’s, giving the company exposure to a group of customers that may or may not be familiar with the brand.
But operating restaurant chains inside Walmart locations isn’t all that it’s cut out to be. Indeed, McDonald’s has largely closed most of its Walmart restaurants, making up much of its net closures over the past few years. Subway, too, has closed some of its Walmart locations.
To use a word from James Walker, a longtime industry executive—currently the CEO of Frisch’s and a restaurant brand developer—operating restaurants inside Walmarts is “challenging.”
Walmart is at some level a restaurant competitor. It’s worth noting that, not all that long ago, the retailer was actively talking about taking restaurant customers away by pushing low prices.
That can become a source of tension. For instance, there are a number of Subway units inside Walmart stores, even after some closures. But Walmart itself also serves sandwiches inside its stores. If Walmart pushes one of its own sandwiches, would that take business away from the Subway in the corner?
Or, to use the Mr Gatti’s point, Walmart sells a lot of pizzas that consumers pick up during a shopping trip and make when they get home. Would that take away from Mr Gatti’s sales?
Brands that open inside a Walmart are entirely at the mercy of the retailer. The brands won’t exactly have a large sign out front. Those customers aren’t there to visit the restaurant. They’re there to buy some groceries or get a new outfit or buy some fishing equipment. There are some limitations to that.
And the customers themselves tend to be price sensitive, as people who visit Walmart are often doing so because they want to get a deal.
The operator of that Walmart location will get access to a lot of traffic. But that traffic is full of value-focused consumers who will frequently look for the lowest-priced options.
Many of these complaints can go for any number of retail-oriented, non-traditional locations, such as a convenience store with a Subway or a pizza shop.
The same is true for a number of other frustrations, such as reduced operating hours. And Walmart’s immense size gives it all the advantages in the relationship with smaller restaurant brands. That might be a key consideration for some of these regional chains considering locating inside the retailer.
None of this is to say that operators shouldn’t consider opening inside Walmart facilities. As we said, the move could provide some of them with good exposure and they do generate a lot of customer traffic.
But that access comes at a cost. And at least in McDonald’s case, it was not worth it.