Are pro-Palestinian consumers bidding goodbye to Starbucks forever?

Across the Middle East and Asia, social media posts and boycotts have taken a heavy toll on American fast food chains over their perceived support for Israel.

At least 30,000 people have been killed in Israeli attacks on Gaza since October 7, according to the latest data from the Palestinian Ministry of Health.

Already incensed by the massive death toll, consumers escalated their boycotts after Pizza Hut’s and McDonalds' Israel franchises reportedly provided free meals to the Israeli military.

The boycott action is being promoted by the Palestinian-led Boycott Divest Sanctions (BDS) movement. For nearly 20 years, BDS has put pressure on Israel to meet its obligations under international law, including withdrawing from the occupied Palestinian territories and granting equal rights to all its citizens, including Arab ones.

Far-reaching impact

Seattle-based Starbucks, a prime boycott target, saw its shares tumble 8.96 percent within a span of 19 days in November 2023, accounting for $11 billion in losses. This marked the longest decline in the company’s history.

Its latest earnings report in January also yielded grim results, as Starbucks fell short of financial expectations at home in the US as well as abroad.

During its earnings call, Starbucks' CEO Laxman Narasimhan said that events in the Middle East had a negative impact on its traffic and sales in the region, as well as in the US, and were driven by "misperceptions" about the coffee chain's position.

Activists have argued that Starbucks’ former CEO Howard Shultz, the largest private owner of the company’s shares, invests heavily in Israel’s economy.

The company has now lowered its domestic and international 2024 sales growth targets, while its Middle East franchisee AlShaya Group plans to lay off over 2,000 people amid boycott woes.

McDonald's too is feeling the heat, after witnessing its first quarterly sales miss in nearly four years in February 2024, which sent the company's shares down about 4 percent.

Its business in Muslim countries like Malaysia and Indonesia have been affected, with the biggest impact felt in the Middle East.

“So long as this conflict, this war, is going on, we’re not making any plans, we’re not expecting to see any significant improvement," McDonald’s president and CEO Chris Kempczinski said during a call with investors in February.

Sales growth for the fast-food chain’s division, which includes the Middle East, China, and India during October-December 2023 stood at 0.7 percent — far below market expectations of 5.5 percent.

Uzma Farhan, a Pakistan-based brand strategy consultant said that McDonalds was already facing a lot of competition from local brands with healthier options.

Speaking to TRT World, she said, "(McDonalds) had become a weekend activity for many — a habit which has now been broken for months. Breaking a consumer habit can prove fatal for any brand. The taste for local brands has increased. People found cheaper alternatives.”

Apart from fast-food chains, Coca-Cola saw its stock plummet seven percent in 2023. During its fourth quarter 2023 earnings calls, the beverage giant said geopolitical tensions in the Middle East had "resulted in some shifts in consumer behaviour" which impacted its business.

Coca-Cola wasn’t alone. Nestle has also seen hesitancy among consumers and a preference for local brands in the Middle East since the start of the war.

“The conflict in the Middle East has led to some pressure on global consumer brands. Some of our product offerings have been impacted in a few markets in the fourth quarter,” Nestle’s chief financial officer Francois Roger said in February.

In a move to win back customers, Starbucks Egypt slashed prices of some menu favourites by a staggering 78 percent in November.

In the same month, McDonald's Pakistan launched discounts of almost 60 percent after experiencing widespread boycotts in the country.

"Offering discounts shows that the boycott has affected sales. It gave consumers the assurance that their efforts were working and empowered them to continue,” Farhan said.

She added that at the beginning of the boycotts, people stood outside McDonald's branches in Pakistan to prevent others from going inside.

"McDonald's has not done a single social media or mainstream communication other than the discounts. This is interpreted by the consumer as their win and has made McDonald's look desperate."

The American fast-food giant was forced to temporarily close its branch in Khyber Pakhtunkhwa, Pakistan’s fourth largest province which borders Afghanistan, after protesters placed banners on its building.

Activists urge focus

Jinan Deena, a Palestinian American activist and chef with almost 6,000 followers on Instagram, has been boycotting Israeli products/companies since 2003 — the year Rachel Corrie was murdered by a Caterpillar bulldozer in Palestine.

Over the years, she said she has become a deliberate, conscious consumer, researching brands before purchasing and encouraging others to do the same.

Speaking to TRT World, Deena said, "I focus on boycotting companies that directly fund the occupation, which are listed by the BDS movement on their website. Recently, people have boycotted brands for statements made in support of Israel, and in the case of Starbucks, for their lack of."

"While I agree they need to be boycotted for moral reasons, these boycotts are not as effective as those listed on the BDS site. People have been swept up by social media sensationalism, and they need to refocus their efforts to make a true impact."

A force to reckon with

The war on Gaza has revived a boycott movement that started as early as 1945, when the Arab League began ostracising Israeli companies and Israeli-made goods. Driven by one of the League’s original goals — to prevent the breakup of Palestine and the establishment of a Jewish state — the economic boycott was an effort to isolate and weaken Israel.

The strategy, adopted by all Arab states in the Middle East and North Africa, lost momentum in recent years as some nations negotiated deals and normalised relations with Israel.

However, the latest campaigns have demonstrated the growing purchasing power of the world’s two billion Muslims, a demographic that spent $2.29 trillion in 2022 across various categories, according to US-based research firm DinarStandard.

“Muslims have a huge buying power," said Ayub Khan Zakori, CEO of Zakori Group, a diversified company that operates four fast-food chains in Pakistan.

Speaking to TRT World, he said, "This is a power that has rarely been spoken of before. But when you look at history, Muslims have always been among the strongest economically.

"Unlike Western economies, Muslims around the world don’t depend as heavily on plastic money and mortgages. They’re often cash-rich, so there’s a big difference in financial strength. This is also why global fast-food chains are obtaining halal certification — they know that a large part of the consumer base is Muslim."

Notably, while many pro-Palestinian consumers are no longer spending money at US-based eateries, they are still spending money.

Experts say some have shifted their spending towards local brands. And it’s not just consumers. In 2023, Türkiye saw its parliament, local municipalities, state railways, and Turkish Airlines all joining the movement.

This change has benefitted dozens of homegrown brands. In the UAE, local eatery Drip Burgers opened its second location in Dubai in January after experiencing a surge in customer traffic, while Saudi Arabian fast-food chains Al Baik and Al Tazaj opened several new branches in the kingdom to cope with the spike in demand.

Meanwhile in Pakistan, local beverage brands Fizup and Pakola replaced soft drinks like Coca-Cola and Aquafina in weddings, which are typically large celebrations in the country that are comprised of at least three events.

Inside the country, the Zakori Group witnessed a 40 to 50 percent increase in sales across its two fast-food brands: Ranchers Cafe, a burger chain with 11 branches in Pakistan, and Piyali, a restaurant in Peshawar.

To cater to the increasing demand, the group has hired 700 Ranchers employees since October, increasing its workforce to 2,200 people. It also implemented special software to help digitalise its finance, supply chain and production processes.

"We’ve evolved a lot in the past six months," Zakori said. "Ranchers is now one of the fastest growing fast-food chains in Pakistan. We have seven branches under construction, which we’re going to launch during Ramadan and after Eid. By the end of this year, we’re planning to open our first overseas outlet in the UK or US.”

Emotional movement

Zakori also operates two international fast-food franchises, British fish and chips brand Mr. Cod and Finnish coffeehouse chain Robert’s Coffee, which got caught in the boycotts.

"In Robert’s Coffee, we saw sales dip 8 to 9 percent, even though people know these brands have no affiliation with Israel. But just because it’s an international brand, people were avoiding it,” Zakori said.

This is where consumers need to be practical and weigh the consequences of their boycotts, he added.

"At Ranchers for example, we employ 2,200 people, which means 2,200 families and God knows how many people connected to that — and we only have 11 branches. Whereas McDonald's has hundreds of branches. Can you imagine what kind of employment they’re generating?

"So, this is something that must be carefully considered. Right now, it’s an emotional movement. We want to avoid certain brands but are we damaging ourselves? Looking at Pakistan, an import-based economy, is it sustainable for us? Is the local policy at a stage where it can support the local ecosystem?" he said.

A permanent change?

Whether consumers’ new purchasing habits will become permanent and boost the local ecosystem will depend on how well local brands do in maintaining the quality of their products, said Dr. Mohamed Aly Fattah, a lecturer at the American University of Cairo and chairman of Egyptian NGO Nahdet El Mahrousa.

Speaking to TRT World, he added, "The wise companies are those that temporarily increased their production and used the extra income to ensure a better quality of product and service that can compete in the longer term. The unwise ones invested heavily in growth and could face a cash flow problem once the boycott is over."

Zakori said he expects to see a lot of people going back to the boycotted international brands once the war on Gaza is over. “We forget things very easily, including previous wars, genocides and even Covid, which was just a couple of years ago. Do we take precautions anymore? We move on quickly.”

Fattah said he also believes the movement will gradually lose steam as it was more of an emotional reaction to the brutality happening, especially to children.

"Once the war is over, I expect it to lose momentum and it won't be as powerful as when it started. Western brands that will lose will be those that have been successfully replaced by a local brand; otherwise, they will slowly come back to business.”

Deena noted that the pressure from organisers has so far forced people to stay the course in boycotts, because nobody wants to feel shame while others are still avoiding certain brands. “I think those who have joined this movement because of mass pressure will revert to consuming these brands again.

“The only ones I see continuing to boycott will be Palestinians and strong allies, who understand that this work is long-term and needs sustenance for it to be effective,” she said.

Farhan is also cautiously optimistic, believing the boycotts will have long-lasting effects even when the conflict is over. "The (war) has evoked an emotional outbreak and this will not be easily forgotten with the kind of visuals we have seen coming out of Gaza."

Zakori hopes that consumers who frequent newfound local brands stick around.

"The boycotts have given people the opportunity to try local brands. Now it depends on whether the businesses can retain those customers. That can only happen if we’re delivering on quality and service."