Anti-Israel boycotts hurting McDonald’s, KFC

May 24, 2024 (MLN): US fast food brands, including McDonald’s and KFC, are facing a challenging operating environment in Asia, the Middle East and some parts of Europe weighed by calls to boycott their brands due to perceived links to Israel amid the conflict in Gaza, as Bloomberg reported.

In Pakistan, local water and soft drink brands at some grocery stores are being given prominent shelf space and preference instead of Coca-Cola and Pepsi, which have been popular drinks in the country for decades.

Can maker for Pepsi and Coca-Cola, Pakistan Aluminum Beverage Cans Ltd. (PSX:  PABC), saw its sales drop 11% in the quarter ended March 31 partly due to “dampened domestic demand” from reactions to the Middle East unrest.

Multiple posters circulated among Pakistani citizens that label large multinational companies, including both the US beverage brands, as Israeli-linked products.

The situation has inflamed tensions in the Middle East that has led to an outpouring of support for Palestinians.

Many Muslims in the region changed their consumption habits since the war started, slashing demand for fast food from American retailers.

McDonald’s became a target of boycotts after photos and videos on social media showed its franchised stores in Israel giving meals to the nation’s soldiers following the October 07 attack.

After that, the brand’s Saudi Arabia franchisee issued statements expressing sympathy for Palestinians and donated 2 million Saudi riyals ($533,248) to Gaza relief efforts.

Franchisees in other countries with large Muslim population followed suit, with several companies issuing public statements to emphasize their political neutrality.

“Everybody got impacted, this is something not many people realized, not just western brands, everybody got impacted by the conflict post October 07,” Brandon Guthrie, co-founder and general partner at Shatranj Capital Partners, said in a podcast with Bloomberg Intelligence Senior Analyst Michael Halen.

Still, the impact to McDonald’s and Starbucks was significantly higher as they were more exposed to Egypt, Jordan and Morocco, Guthrie said.

While McDonald’s Corp. did not reveal how much these boycotts cost the company during the fourth quarter, its CEO Chris Kempczinski said on an earnings call in February that “the most pronounced impact” was in the Middle East, and also see a hit in Muslim countries like Indonesia and Malaysia.

Some franchises of KFC in Southeast Asia have also not been spared from the boycotts. More than 100 KFC outlets in Malaysia were forced to close temporarily.

Malaysian operator QSR Brands (M) Holdings Bhd. appealed to its large Muslim consumer base that it has over 18,000 team members in the country, of which, approximately 85% were Muslims.

Much like in Asia and the Middle East, North Africa has also been a stage of boycotts with visible consequences.

KFC’s debut store in Algeria was temporarily closed amid nationwide protests in April, according to a report in Arab News.

In Europe, where public opinion is less homogenous, the impact of boycotts is harder to ascertain. Warsaw-listed AmRest Holdings SE, one of the largest fast food operators in Europe with brands including Burger King, KFC and Pizza Hut, said in its first-quarter report that the war in the Middle East can “affect consumer confidence, changing their propensity to consume and the way they consume,” though it stopped short of quantifying how this uncertainty has so far impinged on performance.

One European country where the impact is “meaningful” is France, according to McDonald’s CEO Kempczinski. Drop in sales “depends very much on where the restaurant is located and if it’s in a Muslim area,” he said.

While “everybody is on a trendline that is recovering,” McDonald’s and Starbucks may take until the end of the year to recover as the setback was bigger for them, Guthrie said.

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