Stale

Fast-food earnings grow stale as Middle East turmoil curbs appetite for Western brands

Monday, February 12, 2024 by Snacks
A McDonald’s location in Riyadh, Saudi Arabia (Lynsey Addario/Getty Images)

A McDonald’s location in Riyadh, Saudi Arabia (Lynsey Addario/Getty Images)

Drive-thru doldrumsMcDonald’s stock had its worst one-day drop in over a year last week after conflict in the Middle East took a toll on sales abroad, contributing to the chain’s first quarterly sales miss in nearly four years. US traffic also slipped as consumers with lower incomes cut back after price hikes (see: $3 hash browns). A common factor cited by fast foodies for weaker sales was division stoked by the Israel-Hamas war. American brands like McD’s are associated with the US.

  • Crunch: Yum Brands (parent of Taco Bell, KFC, and Pizza Hut) also missed estimates as the war hurt sales in countries like Malaysia and Indonesia, which don’t recognize Israel. Starbucks also disappointed and cut its annual sales forecast, citing the conflict.

  • Bowlin’: Rival Chipotle crushed estimates after foot traffic grew 7%.  So far, the US-centric burrito icon hasn't been impacted by the global turmoil.

Tough order… Western fast-food giants have unintentionally become embroiled in tensions overseas. Last month, McDonald’s said the Israel-Hamas war caused a “meaningful business impact” as franchisees in the Middle East weighed in on opposing sides. FYI: 90% of McD’s restaurants are owned by franchisees. In October, McDonald’s Israel donated thousands of meals to the Israeli army, resulting in backlash from franchisees in countries including Saudi Arabia, Oman, Jordan, Kuwait, and Pakistan. Starbucks stores were boycotted and vandalized after misinfo suggested the chain was taking sides. Starbucks sued the union organizing its workers after the group used the company’s logo to express solidarity with Palestine.

THE TAKEAWAY

The “Golden Arches Theory” isn’t so golden anymore… Since the ’90s, some economists have backed a globalization theory that states that countries that have McDonald’s don’t go to war against each other. But the theory showed cracks when Russia invaded Ukraine (resulting in McD’s leaving Russia). While fast-food chains want to be seen as neutral parties, reliance on local owners to run franchises abroad can complicate perceptions and hurt sales.