Lamb Weston, one of McDonald’s largest french fry suppliers, is feeling the pinch as demand for fast food declines across the U.S., prompting significant layoffs and plant closures. The potato-processing giant announced last week that it would shut down one of its facilities in Connell, Washington, leading to the loss of approximately 375 jobs, or 4% of its global workforce. This drastic measure follows a disappointing earnings report that highlighted weaker demand for frozen potato products, particularly french fries.
The primary reason for this decline is reduced customer traffic at fast-food chains like McDonald’s, which accounts for 13% of Lamb Weston’s sales. The shift in consumer habits is largely due to inflationary pressures that have pushed restaurant prices higher than grocery store prices, leading many Americans to cut back on dining out. McDonald's itself reported a 0.7% decline in U.S. sales last quarter, further exacerbating Lamb Weston’s woes.
McDonald’s french fries supplier suddenly shutters factory, slashes job https://t.co/LXIg0LWzRF pic.twitter.com/5OiBW5boOr
— New York Post (@nypost) October 8, 2024
In response to these trends, McDonald's and other fast-food chains have been offering value meals in an attempt to lure customers back. The fast-food giant, for instance, launched a $5 meal that includes a McDouble or McChicken, small fries, nuggets, and a drink. However, these promotional deals have not provided relief for suppliers like Lamb Weston. Consumers have been “trading down” from medium to small fries, further hurting the bottom line for suppliers dependent on higher-volume sales.
Lamb Weston’s CEO, Thomas Werner, addressed these challenges in a recent earnings call, acknowledging that the demand for frozen potato products remains sluggish relative to the company’s supply. He noted that these market conditions are unlikely to improve in the near term, suggesting that the reduced demand may persist through the rest of the fiscal year.
McDonald’s fries have 19 ingredients.
Seed oils, fake beef flavoring, and chemicals.
These were just potatoes, beef tallow, and salt before 1990. pic.twitter.com/azXFSqfJUX
— Paul Saladino, MD (@paulsaladinomd) June 9, 2023
The company’s decision to cut jobs and scale back production comes amid a broader trend of reduced traffic at fast-food chains across the country. According to industry analysts, fast-food customer visits dropped by 2% in the last quarter alone, contributing to the overall decline in demand for frozen potato products.
While McDonald’s and Lamb Weston are both exploring ways to manage the downturn, the situation reflects a significant shift in consumer spending habits. With inflationary pressures showing no signs of abating, the affordability of eating out has become a growing concern for many Americans. As a result, McDonald's value menus and other promotions may continue to struggle to bring in the same level of foot traffic they enjoyed in previous years.
In addition to layoffs, Lamb Weston has been forced to reassess its production strategies. The closure of the Washington state plant is intended to help the company better align its output with current demand, but it’s unclear how long these measures will suffice as market conditions remain challenging.
As McDonald's and other fast-food chains continue to grapple with a more frugal customer base, Lamb Weston’s future profitability may depend on broader economic trends, including inflation and the general cost of living. Until these factors stabilize, the company will likely face ongoing hurdles in maintaining its dominant position as North America's leading french fry supplier.
