Gaza boycott continues to weigh on McDonald's sales

Chief executive is 'not expecting to see any meaningful improvement … until the war is over'

A McDonald's logo in the Israeli Dead Sea resort town of Ein Bokek in March 2021. AFP

McDonald's reported a modest increase in quarterly profits on Tuesday despite a boycott stemming from the Israel-Gaza war, which is expected to drag on sales for the foreseeable future.

While the boycott is not “getting worse”, chief executive Chris Kempczinski does not have a timeframe for a return to normal conditions.

“We're not expecting to see any meaningful improvement in the impact … until the war is over,” he told analysts on a conference call.

Sales of McDonald's were dented after its Israel franchise in October announced it had given thousands of free meals to the Israeli army.

That move was followed by relief pledges to Gaza from McDonald's Kuwait and McDonald's Qatar, both of which are managed separately from the Israeli business.

Most McDonald's restaurants in the Middle East are operated under a franchise agreement in which the corporate parent does not invest capital, McDonald's said in a securities filing.

This month, McDonald's agreed to acquire Alonyal, which has over 30 years built the McDonald's brand to 225 restaurants in Israel, employing more than 5,000 people.

McDonald's has said the boycott's greatest impact was in the Middle East, while also pointing to effects in markets such as Malaysia and Indonesia, and in parts of France where the Muslim population is higher.

The big fast-food chain experienced a dip in comparable sales in “nternational developmental licensed markets”, which comprises emerging markets.

“The continued impact of the war in the Middle East more than offset positive comparable sales in Japan, Latin America and Europe,” McDonald's said of the division.

Overall, profits in the first quarter rose 7 per cent to $1.9 billion on a 5 per cent increase in revenue to $6.2 billion.

The chain scored higher comparable sales in the US – where results were boosted by “strategic” price increases – and in the “international operated markets” division, where gains in Britain and Germany compensated for negative sales in France.

Chief financial officer Ian Borden said sales in the US and in many other large markets will probably be “below” the historical range in 2024 due to the cumulative effects of inflation on customers.

“Affordability is clearly an area where consumer expectations are heightened,” Mr Borden said.

“Obviously [consumers] are getting hit across their full basket of goods and services by all the inflationary impacts.”

Shares of McDonald's declined 0.1 per cent in midday trading.