Domino effect: could McDonald's close its branches in Israel because of the war?

The geopolitical landscape undoubtedly affects strategic moves taken by many global companies, including McDonald's . In response to Russia's invasion of Ukraine, McDonald's took an unprecedented step – closing its restaurants across Russia. This departure from Russia, carried out in May 2022, testified to its commitment to ethical considerations in the midst of geopolitical crises.

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Another key example is McDonald's decision this month to purchase its restaurants from Israeli franchisee Omri Padan, a step that highlights the success of significant financial pressure on the company. This action by the company is not an isolated strategic maneuver, but part of a broader narrative shaped by changes in consumer behavior and geopolitical tensions.

What led to the decision made by McDonald's? Against the background of the Iron Swords War, there was considerable support from the Israeli McDonald's ("Aluniel") in the State of Israel and the IDF in particular. This support sparked a wave of boycotts of the brand by consumers around the world, and especially in Arab-Muslim countries towards the McDonald's brand A "consumer boycott" is a multi-dimensional tool of influence. It means a joint effort to avoid purchasing a product from a particular company. This action usually comes from a protest or a demonstration of dissatisfaction by consumers , this could significantly damage the brand/company. In fact, as a result of a consumer boycott against the McDonald's brand, there was a significant damage to its profits.

In the last quarter of 2023, McDonald's faced a noticeable decrease in sales, which was due to various factors, including changing consumer preferences and intensifying competition. Moreover, the acute impact following a boycott initiated by Muslim and pro-Palestinian consumers was evident, which reflected the connection between business decisions and socio-political contexts. The chain's sales have indeed decreased by a few percent on a global scale, but when it comes to a company whose sales turnover crossed the $25 billion mark in 2023, a drop of a single percent is equivalent to approximately $250 million. In the Arab world, the scope of the decline in sales is double-digit and in some cases reached 50% and even more.

As a result of this injury, and due to the significant pressures exerted on it, McDonald's worldwide decided to purchase Eloniel (the Israeli franchisee of McDonald's), even though the global brand has enjoyed profits thanks to the activity of the Israeli franchisee for more than the last 30 years. This decision by McDonald's worldwide highlights the dilemma of a business brand between market presence and socio-political sensitivities. The prospect of more drastic measures, such as exiting the Israeli market, looming on the horizon, reflects the complex interrelationship between business strategies and geopolitical reality.

McDonald's marketing strategy, Glocal, consists of combining two strategies: global (standardization) and adaptation (localization). The global side is reflected in maintaining the uniformity of the logo, the design of the restaurants and more. The local side is reflected in the adaptation of the product to local tastes (the size of the meals, the variety of the menu, etc.). Despite the many advantages inherent in the combination of the two strategies, the global strategy is preferable in geopolitical crises similar to those experienced by McDonald's. why? McDonald's and similar chains are global by nature but due to the need to adapt their products to local tastes, customs, and needs, they are sometimes perceived as local to a certain extent, especially when the franchisee is a local citizen (as is the case in the vast majority of cases). Studies indicate that adherence to a global strategy, despite the shortcomings of this strategy, will make it easier for companies to survive geopolitical crises.

In conclusion, geopolitical crises may have far-reaching consequences for global companies despite their great power. At the same time, companies in general and global companies in particular, have a social responsibility that, among other things, includes safeguarding the rights of citizens who are not involved in one or another conflict. Based on its past decisions, there is a reasonable chance that the next step will be the closing of the company's branches in Israel and, in an extreme but possible case, a general exit from the country. The taking of steps of this type may lead to a domino effect that will not benefit the Israeli consumer.

Dr. Willy Avraham is the head of the technological marketing department at Sapir Academic College and an expert in consumer behavior
Noa Barnea Levy is a lecturer in the Department of Administration and Public Policy at Sapir Academic College