Trump’s worldwide reciprocal tariffs continue to cause huge upset among targeted countries, while brands in the US are worrying about the potential problems that lie ahead.
One concern among analysts is the anti-American sentiment towards US brands likely to emerge, which could in turn result in a major price increase for customers at places like McDonald’s.
The effect of tariffs on commodity imports is generally small for food chains, as many of the ingredients used are domestically grown and most imports from Canada and Mexico are exempt from tariffs, under the United States-Mexico-Canada Agreement (USMCA).
But there are other worries plaguing brands like McDonald’s, Yum! Brands, Starbucks, and Domino’s. According to BTIG analyst Peter Saleh, customer pushback in international markets has the potential to be detrimental to American brands.
Saleh told Yahoo Finance, “The bigger issue, in my mind, is the anti-American pushback in these countries on Western or US brands … we’ll see … what companies say when they start reporting in the next couple of weeks if they’re starting to see that already.”
Foreign boycotts overall will cut US GDP by 0.1% to 0.3% this year, meaning a hit of roughly $28 billion to $83 billion, according to Goldman Sachs.
Analysts are also concerned about the tariff’s impact on consumer spending.
UBS analyst Dennis Geiger wrote in a note to clients on Monday, “We view the direct cost impact of tariffs on restaurants as manageable, with a focus on select commodity costs, but see the bigger risk as incremental pressure on consumer spending and industry demand.”
This comes at a time when fast food businesses are only just getting back on their feet after reeling from the covid pandemic.
McDonald’s global same-store sales grew 0.4% last quarter, a surprise considering the 0.91% decrease that Wall Street expected, but its US same-store sales were down 1.4% year over year, due to an E. coli outbreak in late October.
The brand’s international stores saw positive same-store sales growth in the Middle East, and there was more growth in Japan and “encouraging signs of stabilization” in China.
Last month it was announced that McDonalds was no longer the largest restaurant chain in the world, as it was taken over by Chinese bubble tea and ice cream chain Mixue Bingcheng.
The bubble tea chain currently has more than 45,000 restaurants worldwide as of September 2024, while the number of McDonald’s restaurants all over the world remains at around 41,800, according to Statista via Chowhound.
Meanwhile coffee giant Starbucks is still fighting to see a rebound in its international business. For the company’s Q1 results, total same-store sales were down 4% year over year and international same-store sales fell 4%, while China sales dropped 6%.
Starbucks CEO Brian Niccol said he visited China and saw firsthand “how dynamic the market is and the opportunities ahead,” as the brand continues to face lots of local competition in the country.
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