People dive into McDonald’s outdoor seating after takeout on a Saturday night along Rothschild Street on June 11, 2022 in Tel Aviv, Israel.
Alexi Rosenfeld | Getty Images
McDonalds and Starbuckstwo of the largest restaurant companies in the US, both said the Israel-Hamas war had hit their sales late last year.
McDonald’s shares fell nearly 4% on Monday after it said slowing sales in the Middle East contributed to a fourth-quarter revenue loss. Starbucks shares have fallen about 2 percent since Tuesday, when the company said the war had cut into its U.S. sales in the last three months of the year.
The two restaurant giants became some of the biggest US companies to say the conflict in the Middle East has hurt their sales – and will likely hurt demand in future quarters as well. It’s unclear whether other restaurant companies will see a similar downturn.
Starbucks became the target of a boycott after Starbucks Workers United, which represents hundreds of the chain’s unionized coffee shops, posted in support of the Palestinians, sparking backlash from conservatives. Starbucks tried to distance itself from the tweet, which the union deleted, and sued Workers United for trademark infringement.
Starbucks CEO Laxman Narasimhan said Tuesday that the company’s sales in the Middle East are struggling, but the boycotts are also affecting its coffee shops in the US. The chain’s U.S. same-store sales rose 5 percent in the fiscal first quarter ended Dec. 31, but foot traffic declined.
The lag in foot traffic in the US came largely from customers who only visited occasionally, according to Narasimhan. Starbucks is trying to revive demand by offering more targeted offers and introducing new drinks.
For its part, McDonald’s saw a drop in fourth-quarter sales in the Middle East after its Israeli franchisee offered discounts to soldiers, prompting some boycotts by customers opposed to the country’s offensive on Gaza. The Middle East typically accounts for about 2 percent of McDonald’s global sales and 1 percent of its global earnings before interest and taxes, according to TD Cowen analyst Andrew Charles.
McDonald’s Chief Executive Officer Chris Kempczinski said on Monday that the company saw weaker sales in the Middle East and Muslim-majority countries such as Malaysia and Indonesia as a result. France, which has Europe’s largest Muslim population, also saw weaker sales, although executives said the price reaction also contributed to softer demand.
McDonald’s does not expect its sales in the Middle East to recover until the war is over.
“The ongoing impact of the war on the local business of these franchisees is heartbreaking and untenable,” Kempczinski told analysts on the company’s conference call.
Unlike Starbucks, McDonald’s saw no impact on its US sales.
In addition to McDonald’s and Starbucks, some activists have also called for a boycott Domino’s Pizza, Papa John, Brands International’s restaurants Burger King and Yum Brands’ Pizza Hut.
Yum Brands is scheduled to report quarterly results on Wednesday, while Restaurant Brands is scheduled to share earnings on February 13. Domino’s and Papa John’s aren’t expected to report fourth-quarter earnings until the end of the month.
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