Pro-Gaza boycotts take a toll on US multinationals in the Middle East and wider Muslim world

Along Al-Irsal Street, in Ramallah — the city in the West Bank where you see the most American investment — a couple of dozen feet separate three fast food establishments. On one sidewalk, there’s a KFC and a Pizza Hut. Just across the street is a Popeyes.

Palestinian citizen Ahmed Mashal leaves the latter with a bag, rushing so that the fried chicken (very popular in the Arab world) will still be hot for his wife and children. He hasn’t chosen the restaurant by taste, but by principle: KFC and Pizza Hut are among the U.S. multinational chains — such as Starbucks, McDonald’s, Burger King and Coca-Cola — that are being boycotted by consumers of all religious and ethnic backgrounds from the Middle East and other Muslim-majority countries, due to America’s support of Israel. These conglomerates have already seen their bottom lines impacted. Top executives from these firms have had to admit this during their conferences with analysts and investors.

“I don’t want my money to end up paying for the bombs that kill children in Gaza,” Mashal emphasizes. “Nothing American has come into my house for four months. Not even Pringles.”

His case shows how the war in Gaza has, once again, put geopolitics on corporate board tables, where the shock caused by the invasion of Ukraine — which led several large Western multinationals to withdraw from Russia — hasn’t yet subsided.

The ongoing boycott campaign encourages punishment of generic Western brands and — in particular — American ones. Through local and broader initiatives, the campaign has specifically put the spotlight on companies that have made a name for themselves as supporters of Israel (either due to clumsiness, misunderstandings, or actual policies). Popeyes, for example, is as much an American franchise as KFC, but a rumor circulates in the Palestinian city of Ramallah that the earnings don’t reach the corporate headquarters. In Egypt, a campaign to support Palestine points out banned brands and local alternatives on large murals.

Several companies in the Middle East and in various parts of the wider Global South have benefited from changing consumer habits. The turnover of Astrolabe — a Jordanian coffee chain — has skyrocketed following the boycott of Starbucks. The same thing has occurred in Egypt, with the dramatic growth of the historic local soft drink brand, Spiro Spathis.

Affected companies have offered little specific information about the impact that these boycotts have had. At times, they have resorted to generalities or euphemisms, avoiding quantifying the losses. The first companies that faced calls for a boycott were McDonald’s and Starbucks.

The McDonald’s franchisee in Israel offered free meals to the Israeli Defense Forces (IDF), as well as discounts to soldiers and members of the security agencies. Up to 50% — as advertised on its illuminated signs — in line with the policy followed by other chains and cafes in the country since the invasion of Gaza began. From that moment on, there were calls for a boycott in other countries in the region. There were even attacks on certain American-owned franchises. The entire brand has become a target, despite criticism of Israeli actions and the support for Gazans expressed by other franchisees or licensees, such as those from Oman, Lebanon, Turkey, Saudi Arabia, Indonesia, Malaysia, South Africa, or Kuwait.

The company’s CEO — Chris Kempczinski — acknowledged that “the war and the disinformation associated with it” were harming the company in the Middle East. Recently, McDonald’s released its overall earnings and admitted that “beginning in the fourth quarter of 2023, the company’s system-wide sales and revenue were negatively impacted by the war in the Middle East.”

“The company is monitoring the evolving situation, which it expects will continue to have a negative impact on system-wide sales and revenues as the war continues,” the CEO added.

In a conference with analysts, Kempczinski and the rest of the company’s directors avoided giving details, but acknowledged that the impact on the bottom line has been “significant.” On TikTok, you can see several videos in various countries — such as Malaysia, Indonesia, Turkey and Saudi Arabia — where users first show an almost-empty McDonald’s and, just a few feet away, people queuing at another (usually local) fast food establishment.

In a message posted a few weeks ago on LinkedIn, Kempczinski stressed that McDonald’s franchises in Muslim countries that have faced calls for a boycott are owned by “local owner-operators who work tirelessly to serve and support their communities.” The CEO also condemned “violence” and “incitement to hatred” against his company.

In the case of Starbucks, the trigger for the boycott was a lawsuit filed by the corporate owners against Workers United — the union that organizes its employees — after a social media account belonging to said organization published a pro-Palestinian message in the wake of the conflict in Gaza. The company claims that the lawsuit is due to the improper use of its name and because it wants to stay away from taking political positions. Following calls for a boycott, CEO Laxman Narasimhan published an open letter to employees in December, stating that Starbucks condemns “violence against the innocent.”

“Our values enable us to deliver performance through the lens of humanity,” he maintained. “We value our craft.  We value the results we achieve when we bring focus, integrity, and drive to our greatest ambitions. We value courage. We value belonging. And we value joy. [...] We pursue ambitious goals for our partners and stakeholders with intention, transparency and accountability”

Protests

That letter, however, didn’t serve to calm things down. Several Starbucks coffee shops have been the targets of protests in the United States. Days later, Narashiman published a new message, in which he denounced the “misrepresentation” of his position:

“I am concerned about the state of the world we live in. There are conflicts in many parts. It has unleashed violence against the innocent, hate and weaponized speech, and lies — all of which we condemn. Cities around the world — including here in North America — have seen escalating protests. Many of our stores have experienced incidents of vandalism. We see protestors influenced by misrepresentation on social media of what we stand for. We have worked with local authorities to ensure our partners and customers are safe. Nothing is more important. Our stance is clear. We stand for humanity.”

Narasimhan admitted in a conference with analysts that calls to boycott the coffee chain had “a negative impact” on its performance in the Middle East, which then, in turn, “had an impact in the United States, driven by misconceptions” about Starbucks’ position.

“Our most loyal customers remain loyal and, in fact, increased their frequency and spending in [the past] quarter. But we’ve seen a decrease in traffic in the United States. Specifically, our occasional American customers — who usually visit us in the afternoon — came less frequently,” he added.

In reality, the most affected is an Arab-owned company — Americana Restaurants — listed on the Riyadh Stock Exchange. American chain restaurants such as KFC, Pizza Hut, Hardee’s, Krispy Kreme and TGI Friday’s have operated in the region for half-a-century, under the control of this firm. Americana Restaurants has given the most cohesive information regarding the impact of the boycotts. Comparable sales were growing at full speed during 2023, but in October, they fell by 9.4%. In November, they fell by 29.3% while in December, by 26.6%. These statistics were provided to analysts. The total impact is estimated to be around $128 million since the outbreak of the war in Gaza.

The Saudi group has classified the countries where it operates based on the strength of the ongoing boycotts. The most impact has been felt in Egypt, Oman and Jordan. These countries are followed by Lebanon, Kuwait, Qatar, Bahrain and Morocco. Meanwhile, it has been least notable in Saudi Arabia, the United Arab Emirates, Iraq and Kazakhstan. By chain, the impact on comparable sales has been similar in all brands: a 22.6% decline in sales at KFC and Hardee’s; a 22.4% drop at Pizza Hut and a 21.7% at Krispy Kreme.

In the United States, Yum! Brands — the owner of the KFC and Pizza Hut brands — was less explicit. “Sales were affected by the conflict in the Middle East, with varying degrees of impact in the [Arab], Malaysian and Indonesian markets. This represented a low-single-digit (1% to 5%) headwind to Yum!’s overall sales growth at the same locations in the fourth quarter. This trend has continued in the first quarter [of 2024, although] we expect the impact on sales to decrease throughout 2024,” said CEO David Gibbs, in a conversation with analysts. He has assured investors that he’s prioritizing the safety of his franchises and employees in the various affected regions.

Impact

Other affected companies have also not provided many details about the impact of the boycott campaign, which has mainly been carried out by young people and amplified via social media. Joshua Kobza — the CEO of Restaurant Brands International (the company that owns Burger King) — admitted that sales had been hit by “the effect of the conflict in the Middle East in upwards of a dozen countries.”

“We estimate that the conflict has led to a decline of 1.5 points in comparable sales and a three-point impact on traffic this quarter. We are not going to speculate on how long this headwind may last. In the impacted countries, our entire focus is on the safety of our team members and partners.”

James Quincey — the president of Coca-Cola, the most-recognized American consumer brand — was brief when he spoke to investors: “In the Middle East, tensions have caused some changes in consumer behavior that have had an impact on our business.” Chief Financial Officer John Murphy was somewhat more detailed: “We estimate that the ongoing conflict in the Middle East had approximately one point of impact on volume growth during the fourth-quarter of 2023. It’s unclear how long this impact will last,” he admitted. Pepsico, for its part, didn’t even refer to the Middle East in its end-of-year report, although its sales disappointed the market in the fourth-quarter.

Coca-Cola and Pepsico aren’t among those formally targeted by the Boycott, Divestment, Sanctions (BDS) movement, which is leading calls to abandon companies that allegedly collaborate with Israel. And retailers aren’t the only ones being protested: for instance, a Spanish construction firm (CAF) appears on a long blacklist for its contract to build a light rail system in Jerusalem, which crosses over occupied Palestinian territory. Generally, however, the impact on non-consumer goods is smaller.

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