US restaurant chains feeling impact of Middle East war, protests

Major U.S. restaurant chains are seeking innovation in 2024 to grow their brands as they say sales have taken a hit by the ongoing war in the Middle East. McDonald’s, Starbucks, Taco Bell and Burger King have released quarterly reports, showing the Israel-Hamas conflict has impacted their bottom line.

Yum Brands — which owns Taco Bell, Pizza Hut and KFC — missed Wall Street estimates, with revenue coming at $2.04 billion as opposed to the expected $2.11 billion.

“Before I discuss our results, I want to express our continued concern for those impacted by the ongoing conflict in the Middle East,” Yum CEO David Gibbs said to the company’s regional workers in a Feb. 7 investor call. “We continue to prioritize the safety and well-being of our franchisees and employees in the region.

“During the quarter, top line sales were impacted by the conflict in the Middle East region with varying degrees of impact across markets in the Middle East and Malaysia and Indonesia. This represented a low single-digit headwind to Yum’s overall sales growth.”

Yum’s Pizza Hut division was the target of a boycott after Pizza Hut Israel posted a now-deleted Instagram story appearing to show employees handing out free pizzas to Israel Defense Forces soldiers. The hashtag #BoycottPizzaHut became a trending topic on X.

Israeli soldiers expressing gratitude to Pizza Hut franchises in Israel for providing free meals to military bases. pic.twitter.com/kTYp1I7hNW

— Quds News Network (@QudsNen) January 19, 2024

McDonald’s is facing a similar situation in the Middle East. While the company’s global same-stores sales grew last quarter by 3.4%, it was short of estimates of 4.7%.  

The company faced boycotts from Muslim-majority countries late last year after an Israeli licensee offered discounts to IDF soldiers. McDonald’s shut down some locations temporarily for the safety of its employees.

In a message posted to LinkedIn last month, McDonald’s CEO Chris Kempczinski said he recognized “several markets in the Middle East and some outside the region are experiencing a meaningful business impact due to the war and associated misinformation that is affecting brands like McDonald’s.”

Kempczinski continued, calling the effects “disheartening and ill-founded.”

He echoed those sentiments during the most recent investor call.

“We recognize that families and their communities in the region continue to be tragically impacted by the war and our thoughts are with them at this time,” Kempczinski said. “McDonald’s has always been a beacon in our communities around the world, led by local franchisees who work tirelessly to serve and support. The ongoing impact of the war on these franchisees’ local businesses is disheartening and ill-founded. As our values state, McDonald’s will always proudly open our doors to everyone.”

Like McDonald’s, Starbucks’ global same-store sales increased in the last quarter, though only by 5%, short of estimate the 7.2% estimate.

Starbucks CEO Laxman Narasimhan said the coffee chain is experiencing the effects of “misperceptions” about the company’s stance on the war as well as a slowdown in foot traffic in U.S. stores.

“We saw a negative impact to our business in the Middle East. Second, events in the Middle East also had an impact in the U.S., driven by misperceptions about our position,” Narasimah said during the conference call. “Our most loyal customers remain loyal and in fact, increased their frequency of spend in the quarter. But we did see a softening of U.S. traffic. Specifically, our occasional U.S. customers, who tend to visit at the afternoon, came in less frequently.”

The controversy surrounding Starbucks began just two days after the October terrorist attack by Hamas, when Starbucks Workers United — a union representing hundreds of workers — posted “Solidarity with Palestine” on X.

While the post was taken down 40 minutes later, Starbucks said it led to more than 1,000 complaints and acts of vandalism at stores. The company sued the union for trademark infringement.

“Our position remains unchanged,” Starbucks said in a December 2023 statement. “Starbucks stands for humanity. We condemn violence, the loss of innocent life and all hate and weaponized speech. Despite false statements spread through social media, we have no political agenda. We do not use our profits to fund any government or military operations anywhere and never have.” 

The week of Feb. 18, Restaurant Brands International — the parent company of Burger King — released its latest quarterly figures. Despite beating Wall Street estimates, the Middle East war still left a mark on the company’s overall business. CEO Josh Kobza said the impact was felt in “upward of a dozen countries.”

“We are not going to speculate on how long this headwind may last,” Kobza said on the conference call. “In the impacted countries, our entire focus is on the safety of our team members and partners.”

The war is now in its fourth month, and with no cease-fire plan in place, these U.S. restaurant chains are turning to new ideas and products to keep their sales from slipping at home and abroad. McDonald’s is planning to open more than 2,100 new U.S. locations this year and has recently released an updated version of its famous hamburger.

Burger King is set to remodel nearly 400 of its locations — some with what the company calls the “Sizzle” prototype — as it tries to freshen up its brand’s image. Starbucks is thinking beyond the coffee cup and adding new food items to its menu.

Yum Brands is looking to combat sales softening at its restaurants through new food offerings and loyalty rewards programs.

Taco Bell is planning to release one new product every five weeks. It unveiled this year’s upcoming menu items at an event in Las Vegas during Super Bowl week dubbed “Live Más Live,” in the vein of Apple’s product announcements.

Yum also spent money for a Super Bowl commercial advertising Pizza Hut’s new hot honey pizza and wings.