America’s french fry king sounds an alarm
CNN
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Americans are revolting against McDonald’s and fast-food chains. That’s hurting french fry suppliers like Lamb Weston.
Lamb Weston, the largest producer of french fries in North America and a major supplier to fast-food chains, restaurants and grocery stores, is closing a production plant in Washington state. The company announced last week that it would lay off nearly 400 employees, or 4% of its workforce, and temporarily cut production lines in response to slowing customer demand.
Shares of Lamb Weston (LW) have dropped 35% this year.
The potato giant is oversupplied at a time when demand is sluggish. Restaurant prices in recent years have increased faster than grocery store prices, leading customers to pull back at fast-food chains.
This shift has taken a toll on Lamb Weston because people are less likely to cook french fries at home. Around 80% of french fries consumed in the United States come from fast-food chains, according to Lamb Weston.
Fast-food chains like McDonald’s are dangling value menus to try to lure customers back. McDonald’s has launched a $5 meal, which includes a McDouble cheeseburger or a McChicken sandwich, small french fries, 4-piece chicken nuggets and small soft drink. But these deals aren’t helping Lamb Weston because people are buying smaller portions of fries.
“Many of these promotional meal deals have consumers trading down from a medium fry to a small fry,” Lamb Weston CEO Thomas Werner said last week on an earnings call.
Lamb Weston did not immediately respond to CNN’s request for comment.
McDonald’s, its largest customer, accounts for 13% of Lamb Weston’s sales. As McDonald’s goes, so goes Lamb Weston.
And McDonald’s is struggling. Sales at US restaurants open at least a year fell 0.7% last quarter from the same period a year earlier, dragged down by fewer customers visiting the chain.
Lamb Weston is also highly exposed to other fast-food chains, analyst R.J. Hottovy at analytics firm Placer.ai said in a research note to clients last week.
Customer traffic to fast-food chains dropped 2% last quarter and 3% the previous quarter compared to the same time last year, according to Lamb Weston.
McDonald’s largest french fry supplier shutters factory, CEO blames meal deals
The CEO of Idaho-based Lamb Weston said promotional deals by fast-food giants have hurt sales because more people are getting small fries instead of larger orders.
Less Americans want large fries with that, which has factored into McDonald’s largest french fry supplier shuttering a production plant and cutting costs, according to the company’s CEO.
Idaho-based Lamb Weston, the largest producer of french fries in North America, announced a restructuring plan on Oct. 1 that included immediately closing a production plant in Connell, Washington, and cutting 4% of its workforce, according to a news release. About 375 employees were laid off by the plant closing, according to NBC Washington affiliate NBC Right Now.
Lamb Weston is confident in the world’s ongoing love of fries — the closure of one of our older facilities accounts for less than 5% of our production capacity, so this adjustment simply helps address a current supply-and-demand imbalance,” Lamb Weston spokesperson Teresa Paulsen said in a statement to TODAY.com.
The cost-cutting comes at a time when many large fast-food chains have created meal deals to spur demand after rising prices turned off customers and resulted in less foot traffic. McDonald’s announced a $5 meal deal in May that features four items: the choice of a McChicken or McDouble, a four-piece chicken nuggets, fries and a drink.
The fast-food giant then announced in September the deal will remain through the end of the year. McDonald’s, which accounts for 13% of Lamb Weston’s sales, did not immediately respond to a request for comment from TODAY.com.
Popeye’s, Pizza Hut, Taco Bell, Wendy’s and Burger King also created promotional deals. Lamb Weston president and CEO Thomas Werner said the offerings by various fast-food chains have caused a drop in volume for the french fry supplier.
“Many of these promotional meal deals have consumers trading down from a medium fry to a small fry,” Werner said on an earnings call on Oct. 2. “So while we benefit from improving traffic trends, consumers trading down in serving size acts as a partial headwinds for our volumes.”
Werner also said demand has been sluggish at a time when Lamb Weston is oversupplied. The company announced net sales declined 1% and net income declined 46% from the prior year quarter.
“Restaurant traffic and frozen potato demand, relative to supply, continue to be soft, and we believe it will remain soft through the remainder of fiscal 2025,” Werner said in a statement in the news release.
Lamb Weston’s stock is down 35% since the beginning of the year.
