McDonald’s, the iconic burger chain, has reported a business impact in the Middle East due to growing tensions in the region. While the company experienced overall sales and earnings growth in the fourth quarter, it acknowledged that the ongoing tensions were affecting its sales in the Middle East. McDonald’s, which primarily licenses its brand to independent companies in the region, provided some financial assistance to franchisees in the form of royalty relief or deferred cash collection.
The Middle East market does not constitute a significant portion of McDonald’s overall business. However, the tensions in the region have had a noticeable impact on its licensed markets business, which includes most Middle East companies. In the last quarter, sales in this segment grew by a mere 0.7%, significantly lower than the more than 4% growth seen in the United States and other international markets. This decline is a stark contrast to a year ago when the licensed markets business was the best-performing unit, with over 16% sales growth.
The protests against McDonald’s in the Middle East have also affected its global sales. The company reported a 3.4% growth in sales at locations open for at least a year in the fourth quarter, falling short of analysts’ expectations. The ongoing war between Israel and Hamas has led to a “meaningful business impact” for McDonald’s in the Middle East. In response, McDonald’s Israel distributed thousands of free meals, as seen on social media. However, many franchise operators in the region distanced themselves from these actions, emphasizing that they did not share ownership with the Israeli franchise.
It is important to note that the majority of McDonald’s locations are operated by local franchisees who act as independent businesses. They have the autonomy to set wages, prices, and make statements or donations at their discretion. This decentralized approach has contributed to McDonald’s global success, with over 40,000 locations worldwide, including nearly 27,000 outside of the United States.
In the United States, McDonald’s largest market, sales increased by 4.3% in the fourth quarter. This growth can be attributed to price hikes, the expansion of delivery and digital orders, and clever marketing campaigns such as the viral phenomenon surrounding the Grimace milkshake. However, fourth-quarter sales were weaker compared to the previous quarter, which reported an 8.1% growth.
Despite the challenges posed by macroeconomic factors in 2024, McDonald’s CEO Chris Kempczinski expressed confidence in the resilience of the company’s business. The overall revenue for 2023 grew by 10% compared to the previous year, with McDonald’s reporting $25.49 billion in revenue.
In conclusion, McDonald’s has faced business challenges in the Middle East due to growing tensions in the region. While its overall sales and earnings have grown, the Middle East market has experienced a decline in sales. The protests against McDonald’s in the region have also impacted its global sales performance. However, the company remains confident in its ability to navigate these challenges and maintain its resilience in the face of macroeconomic factors.
