A boycott sparked by the war in Gaza helped contribute to McDonald’s first quarterly decline in same-store sales since the COVID outbreak in early 2020.
On Monday, the fast-food company known for its hamburgers and french fries reported a 1% decline in revenue across all its businesses. But the company pinned the blame on disproportionately lower demand abroad and especially in France, Europe’s third-largest economy behind Germany and the U.K.
Answering an analyst question during an investor call, CEO Chris Kempczinski addressed concerns over specific regional weakness cited in its earnings report. While China suffered from overall weak consumer sentiment, for example, France was more complicated, in his view.
He cited three issues that needed to be tackled to claw back share: The first was an aggressive rival that was competing on price. The second was the return of the €4 Happy Meal ($4.33) to attract the key family demographic as well as a third: its brand positioning.
The problem was that “France is one of the markets that has a higher Muslim population,” Kempczinski said. “And so when you think about the Middle East, the impact that we’re seeing in France has been more than maybe in other markets because of that population.”
“So there’s a lot that the team is looking at doing on, ‘How do we make sure we’re telling our story from a marketing standpoint at the local level?’” he said.
Fortune reached out to McDonald’s for further comment or clarification, but could not immediately reach a company official authorized to speak on its behalf.
France has one of the highest Muslim populations in Europe.
McDonald’s added that international sales in emerging markets saw the biggest percentage decline, at 1.3%, the result of both the war in Gaza as well as declines in China. By comparison, its domestic U.S. market suffered only a 0.7% decrease in like-for-like revenue as price hikes could not offset lower foot traffic.
It is not just lost turnover that threatens McDonald’s. The chain said that it will continue to provide assistance to its franchisees for the duration of the conflict in Gaza. This includes royalty relief and/or the deferral of cash collection for certain business owners in the Middle East, although the company characterized it as an “immaterial” amount.
“The company is monitoring the evolving situation, which it expects to continue to have a negative impact on systemwide sales and revenue as long as the war continues,” it said in its 8-K regulatory filing on Monday.
The owner of McDonald’s Israeli franchisee, Omri Padan, had sparked the boycott after offering thousands of free meals to soldiers in Israel’s military conducting operations in Gaza in the days following the Oct. 7 terror attacks by Hamas.
‘Feeling the BDS heat’
The national committee of Palestinian-led Boycott, Divestment, and Sanctions (BDS), a nonviolent movement aimed at pressuring Israel over its treatment of Palestinians, thereupon called on consumers worldwide to avoid dining at the fast-food chain. Some lawmakers in the U.S., the U.K., and Israel have accused the group of anti-Semitism, which it denies.
Kempczinski has argued the loss of business is the result of “misinformation” affecting a number of brands and which he called “disheartening and ill-founded,” adding the chain was proud to be represented by owner-operators supporting their local communities, including in Muslim ones.
“McDonald’s is now really feeling the BDS heat,” said Omar Barghouti, cofounder of the movement, in a statement to Fortune on Tuesday. “Its share price is rapidly declining, and its sales are falling globally, mainly due to the worldwide #BoycottMcDonalds campaign that we launched late last year.”
The stock has lost nearly 11% of its value since the start of January, heavily underperforming the 15% gain in the broader S&P 500 index.
In January, Kempczinski described Padan’s actions as having a “meaningful business impact.”
Four months later, McDonald’s said it had struck a deal with the CEO and owner of Alonyal Limited to acquire all 225 restaurants in Israel along with its more than 5,000 employees. It did not cite the reason for the unusual deal.
“We thank Alonyal Limited for building the McDonald’s business and brand in Israel over the past 30 years,” Jo Sempels, president of international developmental licensed markets at the Fortune 500 company, said at the time. He added his company remained committed to the Israeli market.
The deal is unusual given the chain is overwhelmingly dependent on third parties. According to McDonald’s, franchisees operate roughly 95% of its over 40,000 stores across 100 countries worldwide.
Licensing out its stores is also highly profitable compared with owning them: The bulk of all operating costs are borne by franchisees, who also pay a royalty to the multinational corporation based on a percentage of sales.
BDS has said it aims to maintain the boycott until headquarters severs all ties with Padan’s company, Alonyal Limited.
“McDonald’s is now realizing the steep price of accountability,” Barghouti said.
