People headed to the outdoor seating at McDonald's after going out on Saturday evening along Rothschild Street on June 11, 2022 in Tel Aviv, Israel.
Alexi Rosenfeld | Getty Images
McDonald's And Starbuckstwo of the largest U.S. restaurant companies, both said the war between Israel and Hamas late last year hurt their sales.
Shares of McDonald's fell 3% in morning trading on Monday, hours after it reported that a sales slowdown in the Middle East contributed to the fourth-quarter sales decline. Shares of Starbucks have fallen about 2% since Tuesday, when the company said the war also hurt U.S. sales in the final three months of the year.
The two restaurant giants have become some of the largest U.S. companies and say the conflict in the Middle East has hurt their sales — and will likely impact 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 cafes, posted in support of Palestinians, sparking backlash from conservatives. Starbucks tried 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 were struggling, but boycotts were also hurting U.S. cafes. The U.S. retail chain's U.S. sales rose 5% in its first fiscal quarter ended Dec. 31, but foot traffic fell.
The slowdown in U.S. foot traffic was largely due to customers visiting only occasionally, Narasimhan said. Starbucks wants to revive demand by offering more targeted promotions and introducing new drinks.
For its part, McDonald's saw sales in the Middle East decline in the fourth quarter after its Israeli licensee offered discounts to soldiers, prompting some boycotts from 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 global earnings before interest and taxes, according to TD Cowen analyst Andrew Charles.
McDonald's CEO Chris Kempczinski said on Monday that as a result the company saw weaker sales in the Middle East and most Muslim countries such as Malaysia and Indonesia. France, which has Europe's largest Muslim population, also saw weaker sales, although executives said price differences also contributed to weaker demand.
McDonald's does not expect sales in the Middle East to recover until the war is over.
“The continued impact of the war on the local operations of these franchisees is disheartening and unwarranted,” Kempczinski told analysts during the company's conference call.
Unlike Starbucks, McDonald's did not see any effect on US sales.
In addition to McDonald's and Starbucks, some activists have also called for boycotts Domino's Pizza, Papa Johns, Restaurant Brands International BurgerKing and Yum brands' Pizza Hut.
Yum Brands will report its quarterly results on Wednesday, while Restaurant Brands will announce its earnings on February 13. Domino's and Papa John's are not expected to report their fourth-quarter results until the end of the month.