McDonald’s yesterday (5 February) reported its first revenue miss in three years, with sales in the Middle East faltering as the Israel-Palestine conflict continues and international boycotts intensify.
In Q4 2023, comparable sales rose by 3.4%, the fast food giant revealed, the slowest since Q4 2020.
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McDonald’s CEO Chris Kempczinski blamed a “meaningful business impact” in the chain’s Middle East market due to the war and the drop in demand in predominantly Muslim countries like Malaysia and Indonesia.
McDonald’s reported growth in most regions, but the company’s overall top line suffered primarily due to the conflict, says Ramsey Baghdadi, consumer analyst at GlobalData.
“According to McDonald's, the slowdown of the comparable sales growth for its international licensed markets was impacted by the Middle East conflict,” Baghdadi tells Investment Monitor. “The burger chain’s evidence was that all regions witnessed sales growth except for the Middle East, resulting in a much lower increase of 0.7% compared to 16.5%.”
McDonald's had not responded to request for comment at the time of publication.
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By GlobalDataHow have boycotts affected McDonald’s sales?
Direct sales decline in conflict-affected countries aside, boycotts and protests against McDonald’s alleged pro-Israeli stance following the local franchisee’s decision to give thousands of free meals to Israeli Defence Forces (IDF) personnel.
Approximately 1,400 Israelis and 26,600 Palestinians have been killed in the war so far.
Alleged complicity with Israel’s offensive in Palestine by the Boycott, Divestment and Sanctions (BDS) movement has led to consumers intentionally avoiding McDonald’s outlets.
The impact of boycotts has been primarily felt in McDonald’s markets with large Muslim populations, also including Kuwait, Pakistan, France and Singapore.
At the end of December, McDonald's Malaysia filed a $1.3m lawsuit against the BDS Malaysia movement for making “false allegations” that allegedly harmed its revenues. BDS Malaysia said “We categorically deny this,” in response on X.
Other franchisees in Saudi Arabia, the United Arab Emirates. Egypt, Jordan and Türkiye have collectively pledged millions of dollars in aid to Palestinians.
Baghdadi believes this dip is not just limited to McDonald’s, and not just attributable to boycotts.
“All regions saw a decline in growth compared to the sales performance witnessed in Q4 2022, which means that consumers continue to be impacted by the inflation crisis, and price sensitivity still influences purchase choices”, he says. “GlobalData’s Q4 2023 survey shows that 33% of consumers globally cope with inflation by having a stricter household budget.”
McDonald’s targets China
McDonald’s says it will target recovery through expansion within countries it already has a significant presence in.
Despite weak consumer sentiment, the chain is looking to expand its market share in lesser-known Chinese cities.
Chief financial officer Ian Borden said McDonald’s has ambitions to open around 1,000 restaurants in China this year, Bloomberg reported, accounting for two-thirds of all new outlets the company plans to open outside the US.
Expansion into China remains limited by a lack of job hirings in the country. GlobalData research shows McDonald’s job hirings remain focused on Western nations, led by the US and Canada.
“To witness further growth, McDonald's needs to expand its investments in leading markets such as the UK, Germany and Canada, with a loyal consumer base,” Baghdadi adds.
This is despite China being McDonald’s second-largest market after the US.
Just over 7% of all McDonald’s locations worldwide are in China – an issue for the company, as consumer spending in China has remained weak despite government support measures.
CEO Kempczinski also underlined the chain’s sub-par performance in France as a key market to target in 2024.
