McDonald’s announced last week that it had missed its quarterly profit estimates for the first time in two years.
CEO Chris Kempczinski cited “consumer pressures” and “a difficult macro environment for the industry” as the reasons behind the challenges during a post-earnings call last week.
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However, the company has also faced public backlash for its perceived Israeli sympathies and has become the target of major boycotts, particularly by customers in the Middle East.
The first quarter of 2024 also saw McDonald’s global comparable sales growth slide again to 1.9%, making it the fourth consecutive quarter in which the company has seen a decline in growth.
At the end of Q1 2024, McDonald’s adjusted per-share profit was $2.70, below an estimated $2.72.
McDonald’s boycotts and the Middle East
GlobalData analyst Hannah Cleland comments: “McDonald’s disappointing Q1 is a culmination of contemporary macroeconomic pressures. Firstly, the geopolitical Middle East situation has caused supply chain disruption from war and ensuing inflation, but most significantly has resulted in a boycott by many consumers in the region.”
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By GlobalDataAmid debate on the effectiveness of boycotts, Cleland points out that the strong sentiment around the war is shared by the majority of consumers. According to GlobalData’s 2023 Q2 global consumer survey, 69% of consumers in the Middle East or Africa somewhat or strongly agree that they will boycott a brand which doesn’t align with their values or beliefs.
When asked about the impact of protests on international trade, McDonald’s Kempczinski said: “If you look at the impact of some of the boycotts in a few of our markets, I wouldn’t say that things are getting any worse there.”
He continued: “We’re not expecting to see any meaningful improvement in the impact until the war is over, and we continue to have that outlook with what the Middle East conflict is going to do to our trend.”
In a LinkedIn post in January, Kempczinski wrote that McDonald’s was seeing a “meaningful” hit to business, blaming “misinformation that is affecting brands like McDonald’s”.
His comments were in response to consumer boycotts, sparked by McDonald’s provision of thousands of free meals to IDF soldiers in the days after October 7 and escalated when the pro-Palestinian Boycott, Divestment and Sanctions (BDS), officially called for a boycott of the brand in January. The prompted owners of franchises in Muslim-majority countries including Kuwait, Malaysia and Pakistan to put out statements distancing themselves.
In April, McDonald’s announced that it would buy back its 225 franchise restaurants in Israel from local owners.
Cleland believes that boycotting has had an impact, noting that Starbucks – which is also being boycotted – experienced a weak Q1 too.
“The risk for McDonalds is that other consumers may see the impact of boycotts and follow suit,” he said. “In this more volatile era of cancel culture, brands will have to pre-empt events, potentially requiring specific roles in corporate structures to manage this issue, as has been done in recent years for ESG issues.”
Tighter budgets
McDonald’s earnings call included little discussion of the Middle East. Instead, Kempczinski focused on the budget constraints faced by many customers. He noted that “consumers continue to be even more discriminating with every dollar that they spend as they face elevated prices in their day-to-day spending, which is putting pressure on the QSR industry.”
According to GlobalData analysis, there has been a shift in purchasing habits as consumers tighten their belts. The 2024 Q1 global consumer survey found that 64% of consumers reported that they had either stopped eating out at restaurants, never had, or were doing so less frequently; 65% said the same about takeaways.
The point was echoed by McDonald’s executive vice president and chief financial officer Ian Borden, who also spoke on the post-earnings call. He also considered the financial pressures faced by consumers to be the reason behind a drop in growth.
He told investors: “As customers continue to be more intentional with the dollars that they spend in a pressured economic landscape, we expect moderated topline growth this year.”
