While fast food chains are still trying to get customers in the door, the ripple effect has affected the leading French fries manufacturer in the US; The company recently had to lay off almost hundreds of employees due to declining sales.
Lamb Weston is the largest manufacturer of french fries in North America, and its largest customer is McDonald's, which accounts for 13 percent of its sales. However, the company, which also provides supplies to restaurants and markets, is now closing a production facility in Washington state. Per CNNThe company announced last week that it plans to lay off about 400 employees (about 4 percent of its workforce) and temporarily cut production lines due to a drop in customer demand.
The move, unsurprisingly, comes just months after McDonald's reported its first global decline in sales per store since the fourth quarter of 2020. Overall, U.S. restaurant sales among establishments open at least a year fell 0.7 percent from last quarter. period of the previous year. Lamb Weston (LW) shares have likewise fallen 35 percent this year.
Direct-to-consumer sales aren't filling the gap either, as Lamb Weston notes that people are less likely to cook fries at home. The company estimates that about 80 percent of french fries consumed in the country are sold in fast food chains.
Even recent increased value meals to lure back inflation-weary customers, such as McDonald's wildly popular $5 Meal Deal, don't help the big picture. That's because these meal deals often include a smaller portion of fries that customers would normally buy. For example, McDonald's promotion, which the company recently extended through December, includes four-piece Chicken McNuggets with McChicken or McDouble, a small selection of fries, and a drink.
“A lot of these promotional meal deals are causing consumers to switch from medium fries to small fries,” Lamb Weston CEO Thomas Werner said in an earnings call last week.