Starbucks, Coke boycotts over Israel-Hamas war are boosting Middle East rivals
Bloomberg News January 29, 2024
(Tribune News Service) — Since the Israel-Hamas war began in October, Nayera Ahmed, a 19-year-old mass communications student in Cairo, has stopped hanging out at her local Starbucks. The American coffee chain has appeared on several consumer boycott lists being circulated on Egyptian social media.
“Me and my friends, we used to go to Starbucks all the time, now it’s a shame if you’re seen at one of those,” Ahmed said. “It’s the least we can do. Why would I buy from these Western companies?”
It’s a trend playing out in parts of the Middle East and even beyond. Driven by a wellspring of anger against the U.S. and Europe for not doing more to get Israel to end its offensive in Gaza, many shoppers in the region as well as Muslim nations like Pakistan are shunning big foreign brands, damping sales of some and creating PR headaches for others.
In Cairo, on a recent weekday, dozens of usually bustling Starbucks and McDonald’s stores visited by Bloomberg stood completely empty. The manufacturer of a local Egyptian soda brand said its sales have tripled since the war began because consumers are shunning Coca-Cola and Pepsi.
In recent weeks, McDonald’s Corp. Chief Executive Officer Chris Kempczinski has warned that his firm is seeing “meaningful business impact” in the Middle East due to misinformation spreading about his company.
Meanwhile, shares of Americana Restaurants International Plc — the Middle East franchise operator for KFC, Pizza Hut, Krispy Kreme and Hardee’s — declined as much as 27% on the Saudi stock exchange in the months after the war started, with some analysts predicting a hit to its profits from boycotts.
It’s a backlash that reflects a new era of crisis management for the world’s biggest consumer brands — and particularly American ones — as emotionally charged shoppers conflate their businesses with government policies. Companies have issued public statements to emphasize their political neutrality. Yet the movement has steadily picked up steam in the three months since the war began, with boycott calls still spreading.
Fawaz Gerges, Middle Eastern politics professor at the London School of Economics, said the present boycotts are particularly striking because they are intense, transnational and led by youthful populations.
“So far, whether McDonald’s or Starbucks, they’re hurting,” since young people who are the big spenders are conscious of what’s happening and they feel very active and invested, said Gerges. A perception that Washington favors Israel “really affects these corporations because America is implicated and the CEOs are part of this American empire —- commercial, financial, soft-power empire.”
Amid rising geopolitical upheaval, global brands are increasingly being forced to grapple with polarizing scenarios amplified across borders by social media. Over the past two years, dozens of companies, from McDonald’s to Coca-Cola Co., have pulled out of Russia amid global criticism of Vladimir Putin’s invasion of Ukraine.
The Middle East offers brands tens of millions of young consumers to drive growth at a time when developed markets are saturated. Still, the region has particularly deep political and operational complexities. The war started when Hamas militants from Gaza rampaged through southern Israel on Oct. 7, killing 1,200 people. Israel’s retaliatory offensive on Gaza has killed more than 25,000 people, according to health officials in the Hamas-run territory. The dire situation has inflamed tensions in the Middle East and led to an outpouring of support for Palestinians. The U.S. and European Union consider Hamas a terrorist organization, and it is still holding more than 100 hostages from its incursion. While U.S. and EU officials have supported Israel’s right to protect itself, they have begun ramping up calls to protect civilians in Gaza and pushed for a two-state solution with the Palestinians.
On Jan. 11, hours before facing airstrikes from the U.S. and UK, the Houthi rebels conducting shipping attacks in the Red Sea in support of the Palestinians called for consumers in the Middle East to keep shunning foreign goods. “The scope of the boycott of American and Israeli goods must expand in the Gulf countries,” Abdul Malik al-Houthi, the militant organization’s head, said in a televised speech.
In Jordan, many Starbucks and McDonald’s stores are still standing largely empty even though boycotts began in October. Onlookers usually see only empty stools and booths occupied by workers, with cashiers slouched at their counters. Supermarkets in Jordan also have tags hanging on a large number of foreign brands describing them as “boycotted goods.” In Kuwait, normally packed Starbucks outlets in busy areas have seen trickles of walk-in customers since early October. The boycott has boosted sales for homegrown coffee stores.
Starbucks referred Bloomberg News to statements posted on its website, including one that reads: “We have no political agenda. We do not use our profits to fund any government or military operations anywhere – and never have.” It has no stores in Israel.
The current hit to sales could lessen the appetite of franchisees to expand in parts of the Middle East, said Mark Kalinowski, president and CEO of Kalinowski Equity Research, though the geographical diversification of brands like McDonald’s will limit the impact on total results.
Meanwhile, several local Middle Eastern businesses said they are profiting from the pushback against overseas brands. Moath Fauri, the founder of Astrolabe, a Jordanian coffee chain, is cutting out American and French products as much as possible across seven branches in Amman and sourcing ingredients like flavored syrups regionally.
He says his business has boomed after the boycotts, with sales surging 30% at some locations as locals snubbed Starbucks. In Egypt, Spiro Spathis, a 100-year-old local soda brand, which had been struggling to revive its waning popularity, has seen sales skyrocket over the last three months, according to Youssef Atwan, its commercial director.
“Suddenly we were bombarded with orders from supermarkets, restaurants, we were trying hard to cope with the demand,” Atwan said. “Clients would go to restaurants and either ask for our brand or at least refuse to drink those on the boycott list.”
With more than 105 million people, Egypt is the region’s most populous nation, with 60% of its people below the age of 30. Brands there are up against the zeal of consumers like Sara El-Masry, a project manager in a cultural organization, who has completely changed her consumption habits since the war started.
Her favorite dishwasher tablet brand was Fairy, which is manufactured by Procter & Gamble Co. But since October, El-Masry has stopped buying the product, which is also on a boycott list. Looking for an alternative, a relative gave her a recipe to make at home. She now mixes baking soda, citric acid and dish soap and packs it in an ice cube tray to create her own dishwashing soap. P&G didn’t comment.
In Turkey, some officials have pushed for a boycott of Coca-Cola. While the drink is still widely available in supermarkets and restaurants, the Turkish parliament in November said it would remove Coke from its cafeterias. The impact will become clearer when the U.S. soda companies report earnings in February, but a plunge in sales of Coke’s Turkey distributor, where fourth-quarter volumes fell 22% “certainly raises a red flag,” said Garrett Nelson, a beverage industry analyst at CFRA. Coca-Cola and PepsiCo. didn’t comment.
Fallouts from boycotts have been seen largely in countries like Jordan, Kuwait and Egypt. In the United Arab Emirates — home to only about 10 million people, many of whom are expats — there’s been little dramatic impact seen.
Yet even there some small-business owners have chosen to take a stand. Bait Maryam, a Dubai restaurant, replaced all fizzy drinks with local brands in early October. A spokesperson said its customers support the change.
In the Middle East’s largest economy, Saudi Arabia, the effects have been harder to assess. There have been few public calls for boycotts on social media in the kingdom, where the government tries to control most types of activism. Yet several outlets for U.S. chains visited by Bloomberg News stood largely empty.
The Middle Easts boycotts “are ultimately a low-risk form of protest in a region with a very low tolerance for activism,” said Robert Mogielnicki, a senior resident scholar at the Arab Gulf States Institute in Washington. McDonald’s became the target of boycotts in parts of the region after photos and videos on social media showed franchised stores in Israel giving meals to the nation’s soldiers following the Oct. 7 attack.
After that, the brand’s Saudi Arabia franchisee issued statements expressing sympathy for Palestinians and donated 2 million Saudi riyals ($533,000) to Gaza relief efforts. Franchisees in other countries with large Muslim populations took similar actions.
McDonald’s Corp. is not funding or supporting any governments involved in this conflict, the company said. “We are dismayed by the disinformation and inaccurate reports regarding our position in response to the conflict in the Middle East,” the chain said in an emailed statement. Independent franchisees operate its business in the region and make their own decisions.
The problems for brands have extended beyond the Middle East. In Pakistan, posters describing large multinational brands, including American ones like Pepsi and Coca-Cola, as Israeli products have circulated. European brands like French supermarket chain Carrefour SA, which last year entered Israel via a partnership with a local player, have also appeared on the list of the Palestinian-led Boycott, Divestment, Sanctions movement, which calls for broad economic and cultural boycotts of Israel and Israeli settlements in the West Bank. Carrefour declined to comment. The grocery chain is present in nine Middle Eastern countries including Jordan and Egypt via a local partner as well.
Americana Restaurants, the largest operator of U.S. restaurant chains in the Middle East, is expected to see a short-term negative impact on sales and earnings from the boycotts, said Fahad Irfan Qureshi, senior analyst at Aljazira Capital. “This is driving the negative stock performance,” the analyst said, adding that earnings should recover eventually. In a statement, Americana said it will provide details on its business performance in its upcoming full-year 2023 results.
“At times, people disagree with U.S. policy, and what’s a way that they vent their rage? One way is they stop buying from brands that are headquartered in America,” Kalinowski said.
With assistance from Brett Pulley, Leslie Patton, Fahad Abuljadayel, Beril Akman, Fiona MacDonald, Farah Elbahrawy and Faseeh Mangi.
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