McDonald’s saw its first quarterly fall in same-store sales since the COVID outbreak in early 2020, partly due to a boycott caused by the Gaza war.
The fast-food chain famous for its french fries and hamburgers revealed a 1% drop in revenue across all of its divisions on Monday. However, the business blamed abnormally low demand outside of Europe, particularly in France, the continent’s third-largest economy after the United Kingdom and Germany.
CEO Chris Kempczinski addressed worries about a particular regional weakness mentioned in the company’s earnings report while responding to an analyst inquiry during an investor call. He believed France was more complex than China, which suffered from generally low consumer sentiment.
He identified three challenges that necessitated resolution in order to regain market share. The first was a price-focused competitor who was aggressive. In order to appeal to the vital family audience, the second was the return of the €4 Happy Meal ($4.33), and the third was its brand positioning.
According to Kempczinski, the issue was that “France is one of the markets that has a higher Muslim population.”
“And so when you think about the Middle East, the impact that we’re seeing in France has been more than maybe in other markets because of that population.”
“So there’s a lot that the team is looking at doing on, ‘How do we make sure we’re telling our story from a marketing standpoint at the local level?'” he said.
When Fortune tried to contact a McDonald’s representative who was authorized to speak on the company’s behalf, they could not respond immediately.
Among the largest Muslim populations in Europe is France.
According to McDonald’s, the war in Gaza and the decreases in China combined caused the most significant percentage decline in foreign sales—1.3%—among emerging markets. In contrast, its home U.S. market saw a mere 0.7% decline in like-for-like revenue as price increases did not offset lower foot traffic.
McDonald’s faces more than just a decline in sales. The chain declared that it would continue to help its franchisees throughout the Gaza conflict. For Middle Eastern business owners, this entails reducing royalties and postponing payment collection; however, the corporation described the sum as “immaterial.”
“The company is monitoring the evolving situation, which it expects to continue to have a negative impact on systemwide sales and revenue as long as the war continues,” it said in its 8-K regulatory filing on Monday.
The boycott was started by Omri Padan, the owner of the McDonald’s franchise in Israel, who gave away hundreds of free meals to Israeli military personnel operating in Gaza in the days after Hamas terror strikes on 7 October.
Mcdonald’s Feeling the BDS Heat
Following that, customers all around the world were urged to refrain from dining at the fast-food restaurant by the national committee of the Palestinian-led Boycott, Divestment, and Sanctions (BDS), a nonviolent movement meant to put pressure on Israel over its treatment of Palestinians. Legislators from the United States, the United Kingdom, and Israel have charged the group with anti-Semitism, a charge it disputes.
Kempczinski asserts that “misinformation” impacting several companies is to blame for the decline in sales, calling it “disheartening and ill-founded.” He also says the company is honored to have owner-operators who support their local communities, especially Muslim ones.
“McDonald’s is now really feeling the BDS heat,” said Omar Barghouti, co-founder of the movement, in a statement to Fortune on Tuesday.
“Its share price is rapidly declining, and its sales are falling globally, mainly due to the worldwide #BoycottMcDonalds campaign that we launched late last year.”
Since 1 January, the stock has dropped by about 11% of its value, significantly lagging the 15% increase in the S&P 500 index.
Kempczinski stated in January that Padan’s actions had a “meaningful business impact.”
After four months, McDonald’s declared that it had agreed with the CEO and proprietor of Alonyal Limited to purchase all 225 stores in Israel, together with their workforce of over 5,000 workers. It didn’t explain why this was such an odd bargain.
“We thank Alonyal Limited for building the McDonald’s business and brand in Israel over the past 30 years,” Jo Sempels, president of international developmental licensed markets at the Fortune 500 company, said at the time. He went on to say that his business is still focusing on the Israeli market.
The chain is heavily dependent on other partners. Thus, this transaction is rare. McDonald’s claims franchisees run almost 95% of its 40,000+ locations in 100 countries.
Compared to owning the stores, licensing them out is also far more profitable because franchisees bear most of the operational expenses and provide the international company a fee based on a portion of sales.
According to BDS, the boycott will continue until the organization’s headquarters severs all connections with Padan’s business, Alonyal Limited.
“McDonald’s is now realizing the steep price of accountability,” Barghouti stated.
