Monday, July 24, 2006

Iraq and Fast Food

The first time I ever read about the political power of fast food was in Thomas Friedman's The Lexus and the Olive Tree. His "Golden Archs Theory" stated that any two countries with McDonald's franchises have not gone to war because of, to keep things simple, globalization.

This thought returned to me today when I was waking up and thinking about the recent violence in Israel, Gaza, and Lebanon. I work in an area with a great deal of ethnic restaurants and always look forward to lunch. Today, I wondered, "How do large-scale political events affect ethnic restaurants?"

The best example, of course, is the War in Iraq, when French Fries became "Freedom Fries" and even French's Mustard brand suffered, though they're not actually French. I wonder - how will the recent violence in Middle East affect fast food chains or small restaurants? Unfortunately, Google Scholar had little to say on the subject, so I began to do my own (extremely limited) research.

Since data on small, ethnic restaurants is scarce, I had a look at the fast food chains' stock prices instead. While I will not theorize how they're related, their stock performance is, at the very least, a grim but very real look at two different parts of the world during major humanitarian crises.

The first event is a bit old - the Ethiopian Famine of 1984/1985. From the beginning of 1984 to the end of 1985, McDonald's and Wendy's stock prices rose by 81.61% and 64.76%, respectively (using adjusted closing prices due to stock splits). Good times for the fast food industry, I guess.

During the War in Iraq, investors would also be happy, if investing in some of the major fast food brands. If you invested on March 20, 2003 (the day the War in Iraq officially began with the Shock and Awe campaign), your returns a year later would be:
Heck, even short-term investors would be happy. If you invested on March 19, 2003 and sold on March 21, 2003, you'd get the following growth rates:
Pretty good, considering that's a two-day period. Everyone seems to have felt good during this time. From March 2003 to April 2003, consumer sentiment rose by 10.82%, while the entire first year of the War in Iraq saw sentiment increase by a total of 23.45% (according to the University of Michigan Survey of Consumers). Happy times.

By no means am I trying to say there's a serious connection between the fast food industry and the US military, but it's interesting to look at the above nonetheless.