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.


Anonymous Anonymous said...

Well there is certainly macdonalds in Beirut (random clip from blogger)

MacDonalds’ delivery: this is something I couldn’t comprehend. In Lebanon there’s so much competition over fast food services, that even McDonalds offers delivery.

(which I assumed - Beirut was quite "well developed" from what I gather)

and I would be quite surprised if Israel didn't have McDonalds.

of course, there probably wasn't much economic integration between the two - trade etc. but then again, few countries were as integrated as Palestine and Israel used to be, with so many Palestinians going across the border to work etc. Now in the last few years Israel seems to have closed them out, and imported Chinese laborers to fill the gap, but Palestine is of course still ridiculously dependent on Israel.

something that would be interesting to look at what how this all impacts israel's economy. a graph of the israeli stock market / gdp growth etc, with an overlay of significant historical events (the yom kippur war, the oslo agreement, the beginning of the new intifada, the invasion of lebanon etc).

I have a feeling though, that Israel is a bit of an anomaly on a lot of levels.


12:35 AM, July 25, 2006  
Anonymous Anonymous said...

Interesting... last time I checked, Israel did have McDonald's restaurants, including at least one strictly kosher location in Jerusalem.

So, Thomas Friedman's theory may have to admit an exception here...or maybe not... It really depends on your take of the events in Israel and Lebanon.

If you conceive of the events in the Middle East as a War between Israel and Hezbollah, as opposed to Israel and Lebanon, then technically the Golden Arches theory still stands unblemished, as I don't think Hezbollah operates any McDonalds franchises...

10:59 AM, July 29, 2006  
Anonymous Wojciech said...

Thanks for the comments.

I think the theory applies to countries and war, so I don't know if it applies to a "non-state actor" like a terror network or social movement. Not sure where Hezbollah fits in.

With regards to Stian's comment - I like your suggestion and tried to look for historical GDP data and also visited the Tel Aviv Stock Exchange (TASE) site. They have some interesting indices, but their historical data option doesn't seem to be cooperating with either FireFox or Internet Explorer. Too bad, because that would be interesting too see.

11:07 AM, July 30, 2006  

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