Wal-Mart to get 100 McDonald's units - Wal-Mart Stores Inc

Discount Store News, July 5, 1993 by Richard Halverson

OAKBROOK, Ill. -- Wal-Mart and McDonald's are forging ahead with their test of franchisee-owned restaurants within stores in place of standard Wal-Mart snack bars.

At the Wal-Mart annual meeting last month, DSN learned that McDonald's expects to open as many as 100 more restaurants by August in Wal-Mart stores on top of a handful of test units that opened since January.

A Wal-Mart spokeswoman confirmed that McDonald's franchisees are opening additional restaurants in Wal-Mart stores in an ongoing test but declined to confirm the exact number. A McDonald's spokesman said only that "a couple of dozen more will be opened over the summer."

Someone is guessing on the numbers, the spokesman added. McDonald's still is negotiating with Wal-Mart about more sites, he said.

Unlike the Little Caesar's pizza shops in Kmarts, where Kmart is the franchisee, independent franchisees own and operate the six or so Wal-Mart McDonald's, including one opened last month in the Lawrence, Kan., environmental store. Other locations are: Visalia, Calif.; Savannah, Ga.; and Greece, N.Y.

By letting established franchisees operate the McDonald's, Wal-Mart avoids the resentment Kmart stirred up among Little Caesar's franchisees, some of whom complain that Kmart, operating 410 Little Caesar's pizza shops and shooting for 1,100, is unfairly competing with existing franchisees. Wal-Mart also avoids the capital investment franchisees make in the restaurants.

McDonald's itself may own some of the restaurants in Wal-Marts, the spokesman said. The company owns about 15% of the 9,000 U.S. McDonald's.

The three known franchisees each own six to eight other McDonald's in addition to the one in a Wal-Mart. Wal-Mart and McDonald's operate under a "working partnership," said a Wal-Mart spokeswoman.

The McDonald's spokesman also declined to disclose any details of the agreement with Wal-Mart other than to confirm that it gives Wal-Mart the right to continue offering traditional items such as hot dogs, pop-corn, pretzels and Icees.

In some of the Wal-Marts, the McDonald's franchisee also operates carts as an extension of his restaurant, the spokesman said.

Because of space limitations within the Wal-Mart snack bar, as well as the limited hours of store operation, the McDonald's offer less than a full menu, especially for breakfast. At Greece, N.Y., for instance, the McDonald's offers only a limited breakfast menu of danish, bagels and coffee.

Since the Greece Wal-Mart opens at 9 a.m., the McDonald's would have only 1 1/2 hours to serve breakfast before lunch begins, said Elmer Potter, the franchisee. The Greece Wal-Mart is considering the option of opening at 7 a.m., as are many Wal-Marts around the country. That could prompt reappraisal of the breakfast menu, Potter said.

Wal-Mart Supercenters operate 24 hours a day, but it is undetermined whether any of the planned McDonald's will open in them. Besides the restaurants operating within Wal-Mart discount stores, franchisees also own McDonald's in Wal-Mart's four former hypermarkets, which have been converted to supercenters.

Because of space limitations, the Greece McDonald's serves no milk shakes or sundaes. However, the McDonald's kept hot dogs, popcorn and Icees from the old Wal-Mart menu, Potter said. Some other McDonald's in Wal-Marts have kept pretzels as well, and the Greece store might restore them, Potter said.

The Lawrence McDonald's offers the hotdogs, pretzels, popcorn and Icees from the standard Wal-Mart snack bar menu. Opening at 8 a.m. with the store, that McDonald's offers a limited breakfast menu of muffin products.

Potter operates eight other franchised McDonald's, but the closest is two miles from Wal-Mart. In some cases, another McDonald's is right outside the Wal-Mart door, Potter said.

McDonald's leases the space from Wal-Mart, Potter said, and he, as a franchisee, pays rent to McDonald's.

The Wal-Mart restaurant, opened two months ago, "is meeting our expectations," Potter said. Because of the limitations on breakfast menu and operating hours, it won't generate as high a return on investment as a freestanding restaurant, Potter said.

But putting a store in a Wal-Mart fits into McDonald's strategy of pushing for special situations. "McDonald's wants to go where the people are" to take advantage of the traffic Wal-Mart generates, Potter said.