I use Apple pay on my iPhone every week at Shop Rite. You may have hit a defective terminal. I had your experience at a McDonald's one time, turns out it was the terminal.
Funny story, at aforementioned Shop Rite every time I get this one cashier and use the stores app to display the loyalty card, she makes a comment about technology. I don't think she pays attention when I use Apple pay with my phone to pay, but once I get my watch, she'll freak I'm sure.
Ok I'll try it again next time. Maybe the cashier has to do something special? Do you tell them you're going to use Apple Pay or NFC or something?