McDonald's: Behind the fast-food firm's boycott controversy

The unexpected move by McDonald's to assume control of its branches in Israel has brought Alonyal, the franchise company, and its CEO Omri Padan into the limelight.

McDonald's is set to repurchase all of its Israeli restaurants following a global decline in sales attributed to a boycott against the brand, stemming from perceived alignment with Israel during its conflict with Hamas in Gaza, said the BBC.

Operating under a franchise system, the fast-food giant grants licences to individual operators to manage outlets and employ staff. However, criticism arose against the parent company after Mr. Padan extended free meals to Israeli forces at the outset of the Israel-Gaza conflict on 7 October.

The boycott gained momentum after Muslim-majority nations like Kuwait, Malaysia, and Pakistan distanced themselves from the company, citing perceived support for Israel.

Mr Padan, however, is not new to controversy related to the Israeli-Palestinian conflict. In the 30 years the businessman has been operating restaurants for McDonald's in Israel, he has been at the centre of a number of disputes.

In 2013, the Israeli businessman angered Israel's settler movement when he refused calls to open a branch of the fast-food chain in the settlement of Ariel in the occupied West Bank. Mr Padan's company Alonyal was asked to set up a restaurant in a shopping centre but declined, saying the firm had a policy of staying out of the occupied territories.

At the time, the firm said the decision had not been coordinated with McDonald's headquarters in the US.

Israel has built about 160 settlements housing some 700,000 Jews since it occupied the West Bank and East Jerusalem - land the Palestinians want as part of a future state - in the 1967 Middle East war.

The vast majority of the international community considers the settlements illegal under international law, although Israel disputes this.

Mr Padan is one of the founders of the group Peace Now, which opposes all settlements and views them as obstacles to peace. Peace Now says he is no longer a member of the group, which was founded in 1978.

A leader of the Yesha Council, the settlers' umbrella organisation, said at the time that McDonald's had gone from being a for-profit company to one with an "anti-Israeli political agenda".

Alonyal's decision resurfaced in 2019 when McDonald's won a tender to run a restaurant and hot dog stand at Israel's Ben-Gurion Airport.

In response, several letters of protest were sent by settlement leaders in the West Bank that called on the finance and transportation ministries, as well as the Israel airport authority, to block the move. Protests were also held outside the fast-food chain's restaurants in Tel Aviv.

And on Thursday, it was abruptly announced that Alonyal would sell the sprawling franchise back to the US food giant.

The terms of the deal were not disclosed by McDonald's, although a reputation management expert, who has worked on behalf a number of large companies but did not want to speak on the record, said that those outraged by the decision to offer free meals to Israeli forces may be "angry that this deal makes Mr Padan possibly a very rich man".

They might be pleased though, about the effect the boycott has had.

Mr Padan's departure comes after McDonald's said that the Israel-Gaza conflict had "meaningfully impacted" performance in some overseas markets in the fourth quarter of 2023.

For the unit that includes the Middle East, China and India, sales growth stood at 0.7% in the fourth quarter of 2023 - far below market expectations.

At the start of the year, McDonald's chief executive Chris Kempczinski blamed the backlash on "misinformation".

The boycott was also described as "disheartening and ill-founded" by the firm, which relies on thousands of independent businesses to own and operate most of its more than 40,000 stores around the world. About 5% are located in the Middle East.

The brand management expert said: "I get it. They are buying back the franchises to regain control but I'm not sure they have."

They also questioned where the company might draw a line: "Does this mean [McDonald's] will now need to act and offer deals in other areas where reputational damage has been caused?"

On Thursday, McDonald's said that it "remains committed to the Israeli market and to ensuring a positive employee and customer experience in the market going forward."

It also thanked Alonyal for building the brand in Israel, while Mr Padan said: "We are encouraged by what the future holds."

BBC News did not receive further comment from Mr Padan or Alonyal through McDonald's.