McDonald’s says Middle East turmoil is hurting its business

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McDonald’s recently announced that the crisis in the Middle East affected its operations in the region. While overall sales and profits were good in the fourth quarter, the burger giant experienced a decline in sales due to geographic issues in the Middle East. While the Middle East accounts for a small portion of McDonald’s global market, the company licenses its brands to independent entities in the region.

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In response to challenges faced by franchisees in the Middle East, McDonald’s is offering financial assistance including holiday pay and overdue cash collection. However, the impact on sales in the region is clear, with business in the licensing sector, where most organizations in the Middle East operate, growing by just 0.7% last quarter. This compares with growth of over 4% in the US and other markets around the world.

It is worth noting that a year ago, the licensed business was the most successful, with sales increasing by more than 16%. Growth in the quarter was affected by tensions in the Middle East, and global sales at McDonald’s stores open at least a year rose 3.4%, below expectations. Total revenue of $6.41 billion fell slightly short of analysts’ expectations, causing McDonald’s shares to fall slightly in premarket trading.

Last month, McDonald’s admitted it was experiencing “significant business disruption” in the Middle East due to the conflict between Israel and Hamas. The company has taken steps to clarify its intentions and distance itself from McDonald’s Israel’s actions of giving away free food following the Hamas attack on Israel on October 7. National franchise groups, including Kuwait and Pakistan, publicly state that they do not share ownership with Israeli franchises.

Despite these challenges, sales in the United States, McDonald’s largest market, rose 4.3%, driven by factors such as higher prices, the growth of delivery and digital orders, and business start-up plans. However, sales in the fourth quarter were below the 8.1% growth reported in October in the previous quarter.

Looking ahead, McDonald’s CEO Chris Kempczinski said the company is confident its business performance will be good amid the macro competition expected in 2024. The company announced that its total revenue increased 10% to $25.49 billion in 2023, compared to $23.18 billion in 2022.