Gaza war slows McDonald’s sales economy

The war in Gaza has impacted McDonald’s results. The company’s CEO, Chris Kempczinski, had said just weeks earlier that “the war and its associated disinformation” were hurting the company in the Middle East, partly due to calls for a boycott of American companies accused of supporting Israeli troops. ,

The results published by the company this Monday testify that McDonald’s business grew in all geographic regions during the fourth quarter of the year, and there was a slowdown in all regions, except the Middle East. Despite this, the group projected its profit in 2023 to increase by an overall 37% to $8,468.8 million (about 7,880 million euros at the current exchange rate).

McDonald’s has told the Securities and Exchange Commission (SEC) that “beginning in the fourth quarter of 2023, the company’s system-wide sales and revenues have been adversely impacted by the war in the Middle East.” He added, “The company is monitoring the evolving situation, and expects the war to continue to have a negative impact on system-wide sales and revenues as long as it continues.”

McDonald’s franchises in Israel offered free meals to the military and discounts to soldiers and security agents. From that moment on, there were calls for boycotts in other countries in the region and even attacks on some of its restaurants.

In his letter a few weeks ago on LinkedIn, Kempczinski emphasized that the McDonald’s franchises in Muslim countries that have faced calls for boycotts are owned by “local operators who employ thousands of their fellow citizens.” “Work tirelessly to serve their communities.” The manager also condemned “violence” and “incitement to hatred”.

On a conference call with analysts this Monday, Kempczinski and the rest of the company’s directors avoided giving details, but acknowledged that the impact is being “significant.” McDonald’s shares opened at a lower level in the stock market, falling by 3.9%.

McDonald’s explains that most of the impact occurs in the area in which the affected restaurants operate under franchise, so the group makes no capital investment, and receives a fee based on a percentage of sales, plus an initial opening fee. Is. Granting a new restaurant or a new license.

Starbucks CEO Laxman Narasimhan acknowledged in a conference call with analysts last week that calls for a boycott of the coffee chain have hurt his business. According to Narasimhan, those calls had a “negative impact” on its business in the Middle East, which, in turn, had an impact in the United States “fueled by misperceptions” about Starbucks’ position.

Support for franchisees

Franchise restaurants represented about 95% of McDonald’s worldwide at the end of last year. The company’s business model is largely based on franchising. In the fourth quarter, the group “provided a negligible amount of assistance, including waiver of fees and/or deferral of cash collections, for certain franchisees affected by the war in the Middle East,” it told the SEC. “This assistance may continue and increase as long as the war continues,” the company says. On the conference call with analysts, managers explained that this type of support is common, but also highlighted that the company has “very strong and well-capitalized franchises in the Middle East.”

For a global company like McDonald’s present in 115 countries, two big war fronts open in the world have been a burden. 2022 results fell 18% to $6,177.4 million (about 5,750 million euros at the current exchange rate) due to exchange rate effects, Russia’s departure from extraordinary derivatives and the impact of a multimillion-dollar tax inspection in France. However, in 2023, net profit rose 37% to $8,468.8 million, despite a slowdown in the fourth quarter in the Middle East. Group revenue, according to accounts reported this Monday to the SEC, rose 10% to a record P25,493.7 million, with comparable sales in the system as a whole rising 9%. According to the company, without exceptional items each year, operating results would have increased 16% in 2023.

“We have an incredibly flexible business model,” Chris Kempczinski said on a conference call with analysts. “If you look at the last few years, we have had to grapple with many different external challenges. And I believe that the geographic expansion, the size and scale of our business and our financial strength mean that we are in a position of strength to deal with any of these challenges, including those that We are currently facing that in the Middle East,” he said. Added.

A statement highlighted its “proven agility with a relentless focus on the customer”. “By evolving how we work within the system, we are confident of the resilience of our business amid the broader challenges that will persist through to 2024,” he said.

The slowdown in sales is clearly visible in the fourth quarter accounts. This included global comparable sales growth of 3.4% (compared with 9% for the full year). Sales in the United States increased by 4.3% (up 8.7% overall in 2023), International Driven Markets segment sales increased by 4.4% (compared to 9.2% year-over-year) and International Driven Markets segment sales increased by 4.4% (compared to 9.2% year-over-year). Development licenses, which grew 9.4% for the full year, increased only 0.7% in the fourth quarter, due to the impact of the war in the Middle East.

Countries with the most McDonald’s

McDonald’s closes 2023 with a total of 41,822 restaurants in 115 countries, up 1,547 from a year earlier. Of those, 13,457 are in the United States. The second country with the highest number of stores is China, with 5,903 stores and 925 stores opened in the year. It was followed by Japan (with 2,982 restaurants), France (1,560), Canada (1,466), United Kingdom (1,436), Germany (1,385), Brazil (1,130), Australia (1,033), Philippines (740), Italy (709). Are. ), Spain (605), India (581) and Poland (546), are among the countries with more than 500 stores.

The company expects to open more than 2,100 restaurants worldwide in 2024, 500 of them operated by the group in the United States and other markets where it operates directly and another 1,600 in markets where it works with franchisees. . Discounting closings, the group expects about 1,600 net openings this year.

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