McDonald’s and Starbucks blame Israel-Hamas war for slower sales

People sit outside a McDonald's restaurant after going out on a Saturday evening along Rothschild Street on June 11, 2022 in Tel Aviv, Israel.

Alexi Rosenfeld | Getty Images

McDonalds And Starbuckstwo of America's largest restaurant companies, both said the war between Israel and Hamas had hurt their sales late last year.

McDonald's shares fell nearly 4% on Monday after it reported that a slowdown in sales in the Middle East contributed to its fourth-quarter profit shortfall. Shares of Starbucks have fallen about 2% since Tuesday, when the company said the war also reduced its U.S. sales in the last three months of the year.

The two restaurant giants have become among the largest U.S. companies to say the Middle East conflict has hurt their sales — and will likely also affect demand in coming quarters. It's unclear whether other restaurant businesses will experience a similar downturn.

Starbucks became the target of boycotts when Starbucks Workers United, which represents hundreds of the chain's unionized coffee shops, showed support for the Palestinians, provoking a backlash from conservatives. Starbucks sought to distance itself from the tweet, which the union deleted, and sued Workers United for trademark infringement.

Starbucks CEO Laxman Narasimhan said Tuesday that the company's sales in the Middle East have struggled, but boycotts have also hurt its U.S. coffee shops. The chain's U.S. same-store sales rose 5% in the fiscal first quarter ended Dec. 31, but foot traffic declined.

The lag in foot traffic in the United States largely came from customers who only visited occasionally, according to Narasimhan. Starbucks is looking to revive demand by offering more targeted promotions and introducing new drinks.

For its part, McDonald's saw fourth-quarter sales decline in the Middle East after its Israeli dealership offered discounts to soldiers, prompting a boycott by some customers opposed to the country's offensive in Gaza. The Middle East typically accounts for about 2% of McDonald's global sales and 1% of its global earnings before interest and taxes, according to Andrew Charles, an analyst at TD Cowen.

McDonald's CEO Chris Kempczinski said Monday that the company has seen lower sales in the Middle East and Muslim-majority countries, such as Malaysia and Indonesia, as a result. France, which has Europe's largest Muslim population, also saw a drop in sales, although executives said the price reaction also contributed to slowing demand.

McDonald's does not expect its Middle East sales to recover until the war ends.

“The current impact of the war on these franchisees' local operations is discouraging and ill-founded,” Kempczinski told analysts on the company's conference call.

Unlike Starbucks, McDonald's saw no effect on its U.S. sales.

Besides McDonald's and Starbucks, some activists have also called for a boycott of Domino's Pizza, Papa Johns, Restaurant Brands International's Burger King and Yum the brands Pizza Hut.

Yum Brands is expected to report quarterly results on Wednesday, while Restaurant Brands is expected to share results on February 13. Domino's and Papa John's are not expected to report fourth-quarter results until the end of the month.

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