How the Israel-Hamas war took a bite out of McDonald's

McDonald’s is facing a business slowdown in West Asia – and it is blaming the Israel-Hamas war. The fast food giant has witnessed a slump in sales in the region over the war in Gaza. Meanwhile, back home in the United States, fewer people are visiting stores. “I think we are moving into a 2024 that’s going to look more like what you would have considered a typical year prior to COVID and all the things that have gone on,” McDonald’s president and CEO Chris Kempczinski said during an investor call on Monday. But what happened? How has the Israel-Hamas war taken a bite out of McDonald’s? Let’s take a closer look: What happened? First, let’s take a brief look at McDonald’s. As per Forbes, the company has a market cap of $215.46 billion. It was 217 on the list of the world’s largest companies in 2023.

The company has over 40,000 outlets across 100 nations.

Of these 95 per cent are franchisees. As per the Wall Street Journal, 10 per cent of the company’s restaurants are in West Asia. The company found itself in hot water in the region after an Israel McDonald’s outlet in October declared it would give Israeli soldiers free meals. As per Economic Times, the franchisee on Instagram said it would give away thousands of meals every day to active duty soldiers. The franchisee added it would also offer military personnel visiting its outlets discounts. The news inflamed customers in the region and let to boycott calls. Meanwhile, franchisees in other several other nations announced donations to relief efforts in Gaza.

The Oman franchisee said it would donate $100,000f for Gaza relief efforts. A UAE McDonald’s gave $272,258 to the Emirates Red Crescent for the “Tarahum for Gaza” campaign.

McDonald’s in Turkey vowed to send $1 million to the people of Gaza.

At least one outlet has been targetted. In Lebanon, a McDonald’s outlet was reportedly attacked by Palestinian groups, as per Economic Times. [caption id=“attachment_13569492” align=“alignnone” width=“640”] McDonald’s has since witnessed its sales slowing down in Muslim-majority countries such as Malaysia and Indonesia as well as countries with large Muslim populations like France. Reuters[/caption] McDonald’s has since witnessed its sales slowing down in Muslim-majority countries such as Malaysia and Indonesia as well as countries with large Muslim populations like France. ‘Disheartening, ill-founded claims’ Kempczinski, the McDonald’s CEO, in a letter on LinkedIn last month, blamed the “war and associated misinformation” for dragging down the company’s performance. “We abhor violence of any kind and firmly stand against hate speech, and we will always proudly open our doors to anyone,” Kempczinski added. Kempczinski noted that some were claiming the company was backing Israeli soldiers despite no evidence. The CEO said the “disheartening and ill-founded” claims resulted in boycott calls in West Asia.

Kempczinski also said he doesn’t expect things to get better anytime soon.

“So long as this conflict, this war, is going on… we’re not expecting to see any significant improvement in this,” Kempczinski said. “It’s a human tragedy, what’s going on, and I think that does weigh on brands like ours.” As per Sky News, McDonald’s on Monday said the news was “positive… with the exception of the Middle East, which was impacted by the war in the region.” Experts agree with Kempczinski Brian Mulberry, a client portfolio manager at Zacks Investment Management, told Sky News: “The effects [of the war] on earnings durability would be our biggest concern. It looks like this is going to be an issue that persists past the next quarter or maybe even two.” The outlet quoted analyst Joshua Long as saying the company would take “some time” to recover. However, Long said he remained optimistic about the stock calling it “one of the best positioned brands” to navigate tough times. McDonald’s isn’t the only US company witnessing backlash from the war in recent months. Starbucks said last week that it faced boycotts in the West Asia and elsewhere because of its perceived support for Israel. In the US, McDonald’s same-store sales rose 4.3 per cent in the October-December period, fueled by price increases as well as successful promotions like its Happy Meal collaboration with artist Kerwin Frost. But Kempczinski said there were fewer visits and lower spending by customers earning $45,000 per year or less. Kempczinski said that as grocery inflation has retreated, those customers are more likely to eat at home. McDonald’s hopes to get those customers back into its stores this year with marketing that emphasizes low-cost options. “We certainly know consumers are more wary — and weary — of pricing and we’re going to continue to be consumer-led in our pricing decisions as we look forward to 2024,” Chief Financial Officer Ian Borden said. ‘50,000 restaurants by 2027’ In China, where consumer sentiment is at record lows, McDonald’s is also ramping up deals to match competitors, Borden added. “We continue to operate in a challenging environment with varying levels of headwinds across our markets,” Borden was quoted as saying by QZ. “Looking ahead to this year, we anticipate these headwinds will continue as the current macro dynamics continue to weigh on both our consumers and our business results, along with the war in the Middle East.” It was an unexpected end to an otherwise strong year for the burger giant. Viral marketing hits, like last spring’s Grimace shakes, and upgraded menu items helped to boost full-year revenue by 10 per cent to nearly $25 billion. McDonald’s revenue rose eight per cent to $6.4 billion in the fourth quarter, meeting analyst expectations. Net income was up seven per cent to $2 billion.

However, the company seems in no mood to slow down.

A spokesperson told Quartz the chain wants to have 50,000 restaurants by 2027. “We have confidence that our competitive strengths and our ability to continue to evolve to stay ahead of the customer positions us to succeed in any economic environment,” Borden added. With inputs from agencies