Fast-food giants are getting caught in the fallout from the Israel-Gaza war, but it isn’t having much effect on their bottom lines.
Consumers in Muslim nations have threatened to shun American brands, angered by U.S. support for Israel and lack of action to stop military action in Gaza. Meanwhile, many are watching whether the companies themselves take a stance on the war.
But the Middle East accounts for just a tiny percentage of sales for the biggest fast food companies. At
McDonald’s,
for example, the Middle East make up roughly 1% of its global sales, according to company filings and a Barron’s calculation.
Still, American companies are coming under attack. While most consumer brands have tried to stay clear from any political leaning, actions or remarks suggesting side-taking—or a lack of side-taking—have triggered criticism and calls for boycotts from supporters of both sides.
In October, McDonald’s Israel said it would provide free meals to Israeli soldiers during the conflict. The move angered many pro-Palestine consumers, even as McDonald’s franchisees in Muslim countries condemned the action and announced donations to relief efforts in Gaza.
McDonald’s franchise model means its restaurants in many international markets, including the Middle East, are independently owned and run by local partners, and their response to political issues isn’t reflective of the company’s official stance, the company said.
McDonald’s hasn’t issued any statements of support for Israel or for continuing war in Gaza. In a public letter in January, McDonald’s CEO Chris Kempczinski wrote that the backlash and associated misinformation is “disheartening and ill-founded.”
Likewise, after Pizza Hut’s Israeli operator shared an Instagram post of two soldiers holding stacks of pizza boxes from the chain in January, a call for boycott started trending on social media.
Starbucks
has no stores in Israel or Palestine—though they do have locations elsewhere in the Middle East. In October, Workers United, the union representing thousands of its baristas in the U.S., posted a pro-Palestine social media post, leading to allegations of antisemitism and support for terrorism.
“If you go to Starbucks, you are supporting killing Jews,” Florida state Rep. Randy Fine, a Republican, wrote in a tweet in October.
Aiming to distance itself from the political stance, Starbucks sued the union for trademark infringement. But the move only led to even more backlash—this time from supporters of Palestine—that the company supports the war in Gaza.
In a December statement, Starbucks says it has “no political agenda” and doesn’t use its profits to fund any government or military operations.
In their latest earnings reports, multiple fast-food companies reported a hit to their Middle East business. But so far, the damage seems negligible.
On Wednesday, Yum! Brand said sales for its KFC restaurants in the Middle East, Turkey and North Africa saw a 5% decline in the fourth quarter compared with a year ago. Pizza Hut, another Yum chain, saw revenue drop by 3% in the Middle East and Africa.
Earlier this week, McDonald’s and Starbucks both noted “meaningful” and “significant” disruptions at their Middle East locations in earnings reports, although they didn’t cite specific numbers.
McDonald’s international licensed markets accounted for 10% of the company’s revenue in 2022, and about 10% of those restaurants are located in the Middle East, making up 12% of the segment’s sales, according to company filings. That means the fast-food giant has just 1% sales exposure to the region.
Starbucks doesn’t break down sales numbers by region, but says it has nearly 2,000 stores across the Middle East and North Africa region run by licensed local partners. That’s less than 5% of the coffee giant’s total numbers of stores. On average, a licensed store generates about 15% of revenue as a company-operated store, according to company filings.
Yum! Brand probably has the most exposure. By the end of last year, the Middle East made up 6% and 4% sales of KFC and Pizza Hut, respectively, and those markets are growing fast. In the first three quarters of 2023, KFC restaurants in the region grew revenue by 24% from a year ago, while Pizza Hut saw a 15% year-over-year growth.
The impact on business remains tiny for now. But if the consumer boycott took off in larger markets like the U.S. and Europe, the public relations crisis could turn a financial problem for the fast food companies.
Already, companies are talking about some spillover in other regions. McDonald noted that nations with large Muslim populations like Malaysia, Indonesia, and France have seen weaker sales, and Starbucks said some customers in the U.S. are visiting less frequently due to misperception of its position on the war.
Write to Evie Liu at [email protected]
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