McDonald’s Says Middle East Turmoil is Hurting its Business

Fast-food giant McDonald’s has reported that its business is being affected by the escalating tensions in the Middle East. While announcing overall growth in sales and earnings for the fourth quarter, the company highlighted that the regional turmoil has put pressure on its sales in the Middle East, prompting McDonald’s to closely monitor the evolving situation.

While the Middle East constitutes a relatively small portion of McDonald’s global business, the company operates in the region by licensing its brand to independent companies. In response to the challenges, McDonald’s has provided some financial assistance, including royalty relief or deferred cash collection.

Sales in McDonald’s licensed markets business, which includes the Middle East, grew only 0.7% in the last quarter, a significant drop from the over 4% growth reported in the United States and other international markets. The tensions have led to a less favourable business environment in the licensed markets, impacting overall global sales growth.

Despite global sales at McDonald’s locations increasing by 3.4% in the fourth quarter, slightly below analysts’ expectations, the Middle East predicament played a role. The company’s revenue reached $6.41 billion, falling slightly below projections. The stock experienced a modest decline in premarket trading.

Last month, McDonald’s acknowledged a “meaningful business impact” in the Middle East due to the conflict between Israel and Hamas. The company had joined Starbucks in addressing misconceptions and boycotts that affected the brands. McDonald’s Israel distributed free meals in response to the conflict, leading to some franchise operators distancing themselves from those actions.

The majority of McDonald’s locations are operated by local franchisees, acting as independent businesses. In the United States, McDonald’s largest market, sales increased by 4.3%, supported by various factors, including price hikes, growth in delivery and digital orders, and effective marketing strategies.

While the company expresses confidence in the resilience of its business amid ongoing challenges, CEO Chris Kempczinski acknowledges the macro challenges that will persist in 2024.