Sales in the fast food industry are slowing down, and it’s impacting not only restaurant chains but also companies like Lamb Weston, the largest producer/supplier of potato and fries in North America. The company is witnessing a huge decrease in demand, especially from quick-service restaurants.
According to CNN, at the beginning of the month, Lamb Weston announced that it would be closing its production plant located in Connell, Washington, and will also be laying off more than 350 employees. This is reported in their Restructuring Plan to be approximately 4% of their global workforce.
The potato company, as reported by Fortune, has the capacity to produce over 200 million pounds of frozen potatoes in just one of its factories in a single year. This company has strong ties to the fast food industry, claiming that about 80% of the french fries consumed by customers in the United States originate from fast food chains.
However, the appeal of casual dining is waning as menu prices at fast food establishments have risen faster than grocery store prices in recent years. As a result, budget-conscious consumers are choosing to eat at home more frequently. This trend has hit Lamb Weston particularly hard, leading to a 33% drop in the company’s share price starting from January 2024.
Despite its massive presence across the country, McDonald’s, which is one of Lamb Weston’s biggest customers, has been affected by a slight dip in U.S. sales, about 0.7% less than last year. To attract customers back, many fast-food chains have introduced value menus and promotional deals.
For example, McDonald’s launched a fall deal four months ago that runs through December, offering a $5 meal that includes a sandwich, small fries, chicken nuggets, and a soft drink.
These tactics, however, have had unintended consequences for Lamb Weston. CEO Thomas Werner pointed out that the promotional meal deals offered by fast-food chains are causing consumers to opt for small fries instead of medium, which is impacting the company’s sales.
The challenges facing Lamb Weston go beyond just McDonald’s, as the company also supplies fries to other major players in the fast food industry, such as Yum Brands, owner of KFC and Taco Bell. With these chains struggling to maintain customer traffic due to rising prices, Lamb Weston is getting caught in the crossfire.