FT: Widespread boycotts in Muslim countries hammer western brands

Boycotts of western food and drinks brands in Muslim countries are hitting the revenues of multinationals and their franchise operators, exacerbating the impact of a global consumer slowdown on their bottom line, writes ‘Financial Times’.

From Egypt to Indonesia and Saudi Arabia to Pakistan, consumers are shunning goods produced by companies such as Coca-Cola, KFC, Starbucks, Mondelez and Pizza Hut, in protest against their perceived support for Israel in the war in Gaza.

“This event is unprecedented. The length of this conflict is unprecedented. The intensity is unprecedented,” said Amarpal Sandhu, chief executive of Americana Restaurants, which operates brands such as KFC, Pizza Hut and Krispy Kreme across the Middle East and Kazakhstan, on an earnings call.

During second-quarter earnings updates, many multinationals were hesitant to address the issue head on, referring vaguely to geopolitical tensions, while a few attempted to directly quantify the impact.

Luca Zaramella, chief financial officer of snack maker Mondelez, said the boycotts “remained a headwind”, weighing down Middle East sales growth by 2 per cent in the second quarter. Beauty group L’Oréal equally said the boycotts had a 2 percentage point drag on growth in the first half of the year.

“The overarching strategy that many of these companies have undertaken is to suppress the noise around the boycotts,” said Danilo Gargiulo, an analyst at Bernstein. “The last thing you want to do is reveal the impact, and potentially bring further action against their brands.”

Americana Restaurants, which is owned by the Saudi sovereign wealth fund and Dubai-based investor Mohamed Alabbar said its second-quarter profits were down 40 per cent compared with the same period last year, despite opening 81 restaurants in the first half of this year.

“The impact varies across geographies, but we would say the boycott is still there,” Sandhu told analysts.

Western brands that have spoken out on the boycotts have strongly rejected the perception that they support a particular side in the conflict. Chris Kempczinski, chief executive of McDonald’s, who said at half-year earnings that the war was still “negatively impacting” the business, has previously denounced “misinformation” that was hitting its local operators.

In Pakistan, home of the world’s second-largest Muslim population after Indonesia, the government in July promised to form a committee to identify and boycott products of companies that “directly or indirectly” support Israel or its army.

The move came after thousands of activists from an Islamist party last month shut down a thoroughfare near the capital of Islamabad for a week to demand that the government ban all products tied to Israel.

Coca-Cola İçecek, the bottler of Coca-Cola in Pakistan, reported sales volumes in the country fell almost a quarter year on year in the first three months of 2024, which it blamed on “macroeconomic headwinds” without mentioning fallout from the war in Gaza.

Some stores replaced Coke drinks with less stigmatised local alternatives, but those that continue to stock Coca-Cola products have faced harassment, the person added.

In Malaysia, Starbucks’s local operator Berjaya Food reported a second consecutive quarterly loss in May due to the boycotts. It posted a loss of RM30mn ($6.7mn) in the quarter ended March 31, while revenue tumbled 48 per cent.

Starbucks in Indonesia has repeatedly said it is not affiliated in any way with the war in the Middle East. In the capital Jakarta, many Starbucks stores carry signage on doors and tables clarifying the company’s position on the conflict.

Bursts of anti-western sentiment have sometimes ignited violence. A mob attacked a Starbucks in south-eastern Turkey this week after the assassination of Hamas’s political leader Ismail Haniyeh, local media reported.

In Egypt, meanwhile, PepsiCo faced a backlash in May when it launched an ad campaign with giant billboards and the slogan “stay thirsty”, which appeared to taunt boycotters. Television adverts for Pepsi featuring big stars such as singer Amr Diab and Mo Salah, the Egyptian Liverpool footballer, drew massive criticism from social media users.

“Over the past 10 years we have seen the narrative shifting towards more protectionism, tradition, national champions and local brands,” said Bernstein’s Gargiulo. “The narrative that western brands are premium, while local goods are of lesser quality and cheaper [has receded].”

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