McDonald's, KFC Sales Hit by Anti-Israel Boycotts in Asia, Mideast, Europe

Key Takeaway

• McDonald's and KFC face significant boycotts in Asia, the Middle East, and parts of Europe due to the Gaza conflict, impacting sales.
• McDonald's CEO highlighted pronounced effects in the Middle East and Muslim-majority countries like Indonesia and Malaysia; KFC closed over 100 outlets in Malaysia.
• Beverage brands Coca-Cola and Pepsi also see reduced demand in Pakistan, with local brands gaining preference amid boycott calls.

Boycotts Impact Fast Food Brands

US fast food brands, including McDonald’s and KFC, are experiencing a challenging operating environment in Asia, the Middle East, and parts of Europe due to calls for boycotts linked to the conflict in Gaza. The situation has led to a significant shift in consumer behavior, particularly among Muslims in the Middle East, who have altered their consumption habits in support of Palestinians.

McDonald’s faced backlash after social media posts showed its franchised stores in Israel providing meals to soldiers following the October 7 attack. In response, McDonald’s franchisees in Saudi Arabia and other countries with large Muslim populations issued statements of sympathy for Palestinians and made donations to Gaza relief efforts. Brandon Guthrie, co-founder and general partner at Shatranj Capital Partners, noted, “Everybody got impacted, this is something not many people realized, not just western brands, everybody got impacted by the conflict post October 7.” He added that McDonald’s and Starbucks were more significantly affected due to their exposure in Egypt, Jordan, and Morocco.

McDonald’s CEO Chris Kempczinski mentioned on an earnings call that the most pronounced impact was in the Middle East, with additional effects in Muslim-majority countries like Indonesia and Malaysia. KFC franchises in Southeast Asia also faced boycotts, with over 100 outlets in Malaysia temporarily closing. QSR Brands (M) Holdings Bhd., the Malaysian operator, highlighted that approximately 85% of its 18,000 team members in the country are Muslims.

Beverage Brands Face Similar Challenges

In Pakistan, local water and soft drink brands are being given preference over Coca-Cola and Pepsi, which have been popular for decades. Posters circulating among Pakistani citizens label these multinational companies as Israeli-linked products. Pakistan Aluminum Beverage Cans Ltd., a can maker for Pepsi and Coca-Cola, reported an 11% drop in sales for the quarter ended March 31, partly due to “dampened domestic demand” from reactions to the Middle East unrest.

North Africa has also seen boycotts with visible consequences. KFC’s debut store in Algeria was temporarily closed amid nationwide protests in April, according to Arab News. In Europe, the impact of boycotts is less clear-cut. AmRest Holdings SE, a major fast food operator in Europe, noted in its first-quarter report that the war in the Middle East could affect consumer confidence and consumption patterns, though it did not quantify the impact.

Financial and Operational Implications

McDonald’s CEO Chris Kempczinski indicated that the impact in France was “meaningful,” with sales drops varying based on the restaurant’s location and its proximity to Muslim communities. Brandon Guthrie suggested that while recovery trends are visible, McDonald’s and Starbucks might take until the end of the year to fully recover due to the significant setbacks they faced.

Street Views

• Brandon Guthrie, Shatranj Capital Partners (Neutral on the impact of Middle East conflict on Western brands):

  "Everybody got impacted, this is something not many people realized, not just western brands, everybody got impacted by the conflict post October 7."

Management Quotes

• Chris Kempczinski, CEO of McDonald’s:

  "The most pronounced impact was in the Middle East, and also see a hit in Muslim countries like Indonesia and Malaysia."
  "Drop in sales depends very much on where the restaurant is located and if it’s in a Muslim area."