The boycott of brands that have publicly supported Israel in its war on Gaza or are nationals of countries that support the occupation has continued in the Middle East, causing these companies to lose sales in a region that includes about 500 million consumers, according to their disclosures in the summer earnings season of 2024.
According to a report by Samuel Wendel published in Al-Monitor, the second quarter of 2024 saw companies such as McDonald’s and Starbucks point to ongoing “challenges” or the “impact of war” in the Middle East while reporting disappointing overall results. This corporate double-talk refers to the consumer boycott that emerged in late 2023 amid widespread public anger over American support for Israel’s war on Gaza.
KFC reported a 3% drop in sales in the second quarter on Aug. 6, with the CEO of Yum Brands, which owns the fried chicken chain, saying the decline was largely due to a drop in sales in a number of markets linked to “the conflict in the Middle East,” as well as weak performance in the United States.
In general, companies caught in the crossfire share few details about how the boycott is affecting their public image, but the boycott joins broader challenges that affect their bottom lines and combine with other factors to disrupt the industry, Samuel Wendell writes in his report.
For example, Starbucks fired its CEO Lakshman Narasimhan on August 13, replacing him with Brian Niccol of Chipotle.
Although the regional boycotts have primarily targeted American brands with ties to Israel, they are also hitting local franchise partners.
An illustrative example is KFC, which has more than 1,000 outlets in the Middle East and North Africa and is operated by UAE-based Americana Restaurants, which revealed on July 30 that it was slowing its growth plans for 2024 after its net profit fell 41% in the second quarter.
As the war on Gaza approaches its first year, it seems unlikely that violent consumer reactions will subside in the second half, forcing major multinational companies to face regional calculations that will not be easy to overcome. Below is a closer look at the performance of major companies in mid-2024:
McDonald’s
McDonald’s reported a 1% decline in worldwide sales in the second quarter on July 29, its first quarterly decline since 2020, including a 1.3% decline in its international licensed markets segment.
The company blamed the “continuing impact of the war in the Middle East” as well as its performance in China (in Q2 2023, that segment was up 14% and saw strong regional sales).
McDonald’s CEO first acknowledged in January that several regional markets were seeing a “material business impact” amid the boycott, and February saw the company miss its first quarterly sales target in years. As of this writing, the company’s stock is down about 9% this year.
The burger giant’s Israeli branch sparked outrage in the Arab world in October after it gave thousands of free meals to the Israeli military, prompting a response from the company. In April, McDonald’s announced it would buy all 225 local franchise restaurants from Israeli operator Alunial Ltd.
Starbucks
The coffee chain reported on July 30 that global same-store sales fell 3% in the third quarter of 2024, while global same-store sales fell 7% year-over-year.
This came after Starbucks in April reported its first quarterly sales decline since 2020.
Declining sales in China were a major factor contributing to the disappointing third quarter, but former Starbucks CEO Lakshman Narasimhan also hinted at a boycott, saying during the third-quarter earnings call: “Headwinds continue to persist in the Middle East, Southeast Asia and parts of Europe driven by widely discussed misperceptions about our brand.”
Starbucks stock had fallen about 17% this year until it replaced its CEO, leading to a 24% surge on Aug. 13.
Starbucks has more than 1,900 stores in 11 markets across the Middle East and North Africa, operated by Kuwaiti retail giant Alshaya Group.
In March, Reuters reported that Alshaya Group was planning to lay off more than 2,000 people as the company struggled with the boycotts, with most of the job cuts concentrated in its Starbucks franchise.
Yam! Brands
The writer explained that the company that owns Taco Bell, Kentucky Fried Chicken and Pizza Hut restaurants reported a 1% decline in its sales worldwide during the second quarter.
“The impacts of conflict in the Middle East, combined with more cost-conscious consumers, have created headwinds for same-store sales,” CEO David Gibbs said during the company’s earnings call on Aug. 6.
The company’s CFO, Chris Turner, highlighted “uncertainty about the future path in the Middle East markets”, with around 210 restaurants temporarily closed in the Middle East, Malaysia and Indonesia.
“We remain on track to deliver 5% unit growth for the full year despite the extended impact of the conflict in the Middle East,” he added. The company’s stock has risen about 7% this year.
Americana Restaurants
The financial implications are more pronounced for Yum’s regional franchise partner, as Americana, along with KFC outlets, operates nearly 400 Pizza Hut restaurants, along with Krispy Kreme, Baskin Robbins and more, writer Samuel Wendell confirmed in his report published in Al-Monitor.
On July 30, Americana announced a 14.2% decline in second-quarter revenues and a 40.1% decline in net profit compared to the second quarter of 2023.
The company blamed the decline in sales on the “ongoing regional geopolitical situation.”
These results appear to be affecting its expansion strategy; in the first quarter, the company expected to open 200-225 new stores in 2024, but in the second quarter, it reduced that number to 174-185, and Americana shares fell by about 16% in 2024.
Giant beverage companies
PepsiCo reported that its Egypt subsidiary achieved revenue growth of more than 10% in the second quarter, although it did not break down the numbers.
This came as its net revenues in the second quarter grew by about 2% year-on-year in the Africa, Middle East and South Asia region, despite a decline in operating profits by about 4%.
Meanwhile, Coca-Cola reported that second-quarter can unit volumes were flat in Europe, the Middle East and Africa.
During the earnings call, CEO James Quincey noted that “geopolitical tensions and economic uncertainty in Eurasia and the Middle East continue to impact our business. We are working closely with our local partners to navigate these headwinds while investing for the long term.”
Snacks, shampoo and skin care
Major consumer goods brands continue to face boycotts, the Monitor report added; on July 30, Procter & Gamble reported net sales for fiscal year 2024 of $84 billion, up 2% from 2023, but cited problems in the Middle East.
During the earnings call, Procter & Gamble’s CFO noted that “consumption volume trends in some European, Asia-Pacific, Middle East and Africa companies such as Egypt, Saudi Arabia, Turkey, Indonesia, Malaysia and Russia remained weak.”
In 2023, 5% of P&G’s net sales came from India, the Middle East and Africa.
Unilever’s second-quarter results highlighted that growth in Southeast Asia was negatively impacted by a 5.7% sales decline in Indonesia, where “some consumers avoided multinational brands in response to the geopolitical situation in the Middle East,” the company said.
Nestlé said its reported sales in Africa, Oceania and Asia fell 6.8% in the first half of 2024, with the company’s CEO saying they were “seeing continued consumer hesitation in select markets as a result of the political situation in the Middle East.”
However, the CEO also claimed that they “don’t see things getting any worse at this point.”
Beyond the boycott
Writer Samuel Wendell focused on Maersk’s assertion that the Red Sea disruptions affecting global trade will continue into 2025. The Danish shipping giant updated its financial guidance for the full year of 2024 on August 1, but also reported that second-quarter revenue fell by about 2%, and profits fell by about 40% year-on-year to $963 million.
However, Maersk also raised its forecast for global container market growth in 2024 from 4% to 6%, from a previous estimate of 2.5% to 4.5%.
“Market demand has been strong and, as we have all seen, the situation in the Red Sea continues, putting continued pressure on global supply chains,” Maersk CEO Vincent Clerc said when announcing the results.
