The war in Gaza has taken its toll on McDonald's results. The company's CEO, Chris Kempczinski, had already stated a few weeks ago that “the war and the disinformation associated with it” were harming the company in the Middle East, in part due to calls for a boycott against American companies accused of supporting Israeli soldiers.
The results published this Monday by the company certify that McDonald's turnover grew in all geographical areas during the fourth quarter of the year, except in the Middle East, and that there was a slowdown in all areas. Despite this, the group increased its profit by 37% in 2023 as a whole, up to 8,468.8 million dollars (about 7,880 million euros at the current exchange rate).
McDonald's has notified the Securities and Exchange Commission (the SEC) that “as of the fourth quarter of 2023, the company's system-wide sales and revenue have been negatively affected 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,” he adds.
The McDonald's franchisee in Israel offered free meals to the Army and discounts to soldiers and security agents. From that moment on, there were calls for a boycott in other countries in the region and even attacks on some of its restaurants.
In his letter 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 operators who work tirelessly to serve their communities while employing thousands of their fellow citizens.” . The manager also condemned “violence” and “incitement to hatred.”
In the conference with analysts this Monday, Kempczinski and the rest of the company's directors avoided giving details, but they acknowledged that the impact is being “significant.” McDonald's shares have opened lower on the stock market, with a fall of up to 3.9%.
McDonald's explains that the bulk of the impact occurs in a segment in which the affected restaurants work under franchise, so the group does not invest any capital, and receives a fee based on a percentage of sales, as well as initial opening fees. of a new restaurant or the granting of a new license.
Starbucks CEO Laxman Narasimhan admitted last week in a conference call with analysts that calls to boycott the coffee chain have hurt his business. Those calls had “a negative impact” on his business in the Middle East, which then, in turn, “had an impact in the United States, driven by misperceptions” about Starbucks' position, according to Narasimhan.
Support for franchises
Franchise restaurants represented approximately 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 has provided “a negligible amount of assistance, including waiving fees and/or deferring cash collection for certain franchisees affected by the war in the Middle East,” according to has communicated to the SEC. “This aid can continue and increase as long as the war continues,” the company adds. In the conference with analysts, managers pointed out that this type of support is common, but at the same time they highlighted that the company has “very strong and well-capitalized franchisees in the Middle East.”
For a global company like McDonald's, present in 115 countries, the two major war fronts open in the world have been a burden. The 2022 results fell 18%, to 6,177.4 million dollars (about 5,750 million euros at the current exchange rate) due to the exchange rate impact, the extraordinary derivatives of Russia's departure and the effect of a multimillion-dollar tax inspection in France. In 2023, however, despite the slowdown in the fourth quarter in the Middle East, net profit increased by 37%, to $8,468.8 million. The group's income, for its part, increased by 10%, to a record of 25,493.7 million, according to the accounts communicated this Monday to the SEC, with a 9% increase in comparable sales in the system as a whole. Without the extraordinary items of each year, the operating result would have grown by 16% in 2023, according to the company.
“We have an incredibly resilient business model,” Chris Kempczinski said at the conference with analysts. “If you look at the last few years, we have had to work through a number of different external challenges. And I believe that the geographic breadth, the size and scale of our business and our financial strength means that we are in a position of strength to work with any of these challenges, including the one we are currently facing in the Middle East,” he added.
underlined in a statement the “proven agility with a relentless focus on the customer.” “By evolving the way we work across the system, we remain confident in the resilience of our business amid the macro challenges that will persist into 2024,” he added.
The slowdown in sales is clearly seen in the fourth quarter accounts. In it, global comparable sales increased by 3.4% (compared to 9% for the year as a whole). The United States grew by 4.3% (8.7% in 2023 as a whole), the International Operated Markets segment increased sales by 4.4% (compared to 9.2% annually) and the International Markets segment increased sales by 4.4% (compared to 9.2% annually). Development License, which grew 9.4% for the year as a whole, grew only 0.7% in the fourth quarter, due to the impact of the war in the Middle East.
The countries with the most McDonald's
McDonald's closed 2023 with a total of 41,822 restaurants in 115 countries, 1,547 more than a year earlier. Of them, 13,457 are in the United States. The second country with the highest number of stores is China, with 5,903 and where 925 openings have been concentrated in the year. It is 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), Spain (605), India (581) and Poland (546), among the countries with more than 500 stores.
The company expects to open more than 2,100 restaurants in 2024 around the world, 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 operates with franchises. Discounting closures, the group expects about 1,600 net openings this year.
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