McDonald’s Faces Continued Sales Impact from Gaza Boycott

McDonald’s Corporation reported a modest increase in quarterly profits this Tuesday, despite a continuing boycott affecting its sales due to the company’s involvement in the Middle East conflict. The fast-food giant has not seen the boycott worsening, but CEO Chris Kempczinski indicated that a return to normal sales levels would not be anticipated until the conflict concludes.

Background of the Boycott

The boycott began following the decision by McDonald’s Israel franchise to provide thousands of free meals to the Israeli army in October. This move prompted a strong reaction across various regions, particularly in the Middle East, where McDonald’s Kuwait and McDonald’s Qatar also issued relief pledges to Gaza. These actions have led to a significant drop in sales across McDonald’s locations in these areas.

Operational Structure and Response

Most of McDonald’s restaurants in the Middle East operate under franchise agreements, meaning the corporate parent does not invest capital in these branches. Earlier this month, McDonald’s took a significant step by agreeing to acquire Alonyal, which has been responsible for expanding McDonald’s brand to 225 restaurants in Israel over the past 30 years.

Widespread Impact

The impact of the boycott has been felt not only in the Middle East but also in other markets with significant Muslim populations, including Malaysia, Indonesia, and parts of France. This regional backlash has contributed to a dip in comparable sales within the company’s “International Developmental Licensed Markets” segment, which includes several emerging markets.

Despite these challenges, McDonald’s reported overall profits rising by seven percent to $1.9 billion and a revenue increase of five percent to $6.2 billion in the first quarter. These gains were largely driven by higher comparable sales in the United States, supported by strategic price increases, and in “International Operated Markets” like Britain and Germany, which helped offset the declines in France.

Future Outlook

Chief Financial Officer Ian Borden expressed concerns about the future, noting that sales in the United States and other major markets are expected to remain “below” historical ranges in 2024. This outlook is influenced by the cumulative effects of inflation, which has heightened consumer expectations about affordability. Borden highlighted the broad impact of inflation on consumers’ overall spending across goods and services.