#188 McDonald’s caught between frontlines

Sales figures are rising, and consumers are just “lovin’ it”. Everything runs smoothly until events occur over which you have no control. First there was Russia’s invasion of Ukraine in February 2022. And then came October 7, 2023, when the radical group Hamas sparked a brutal conflict between Israel and Palestine. Like many global consumer goods companies, global fast food chain McDonald’s was caught between the warring parties and found that Pulitzer Prize winner Thomas Friedman’s once famous “Golden Arches Theory” – that two countries that both have McDonald’s have never gone to war with each other – proved to be false.

Shortly after the Ham’s attack on Israel on October 7, 2023, a local McDonald’s operator quickly jumped into action, offering discounts to soldiers, rescue workers and security forces, and by the end of October, 100,000 free meals were reportedly given out. On the other hand, McDonald’s outlets in Saudi Arabia, Oman, Kuwait, the United Arab Emirates, Jordan, Egypt, Bahrain and Turkey have distanced themselves from their Israeli franchise brethren, and some have even openly donated funds to support Palestine. The world community has been quick to react and condemn the global fast food chain, mostly portraying it as an Israel-friendly company. Despite a clear statement by McDonald’s corporate, saying that it “is not funding or supporting any governments involved in this conflict”, online calls for boycotts and protests on the ground continued around the world.

At issue here is McDonald’s franchise model, in which independently owned and operated franchisees must strictly adhere to certain guidelines, but otherwise make decisions separately from its franchisor. Due to the uniform global appearance, customers are generally unaware of this detail. While the franchise approach has helped McDonald’s grow into the global giant that it is, it is now working against them in this complicated web of geopolitical dynamics.

While McDonald’s is trying hard to downplay the issue, it certainly didn’t help that McDonald’s missed analysts’ expectations by a wide margin at the end of 2023, when the company reported lower sales in its international division. The decline may have been due to a number of factors, such as stronger domestic competition in some markets like China, but the cat is out of the bag and consumers are seeing what they want to see and hearing what they want to hear. McDonald’s felt compelled to take a clear stance on the war between Israel and Hamas, and did so in an interesting move in the spring of 2024: after months of boycotts, declining sales, anger and strategizing, McDonalds decided to buy back all of its 225 restaurants in Israel. After more than 30 years of successful partnership with master franchisee Alonyal, Ltd., 5,000 burger-flipping employees will now receive their paychecks directly from McDonald’s. Will this help overcome the boycotts? Will sales recover? We will see, but for now, the only McDonald’s in Palestine will continue to be the one in Palestine, Texas.

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