It seems that, no, fast-food eaters wouldn’t like fries with that. As extra prospects lose their urge for food for quick meals over sky-high costs, North America’s largest fry producer is reeling from the slowdown.
Lamb Weston, which may churn out 250 million kilos of frozen potato merchandise yearly at only one facility, introduced earlier this month that it might lay off 4% of its workforce (about 428 staff) and shut down its Connell, Washington, manufacturing plant. For the reason that starting of the 12 months, its share worth has plummeted by about 33%.
A Lamb Weston spokesperson advised Fortune the closed plant was an older facility representing solely 5% of the corporate’s capability.
CEO Tom Werner stated on an Oct. 1 earnings name that quick-service burger chains particularly are accountable for Lamb Weston’s hunch. Visitors at these eating places decreased 3% within the firm’s first quarter, whereas restaurant site visitors total slumped 2% year-over-year. Werner expects site visitors to proceed to falter by means of fiscal 2025.
McDonald’s is Lamb Weston’s largest buyer, accounting for 13% of its gross sales. The potato processor additionally produces fries for Yum Manufacturers, which owns KFC and Taco Bell.
Menu worth inflation has turned quick meals right into a luxurious for a lot of shoppers, that means business titans like McDonald’s and Wendy’s have struggled to draw shoppers, not to mention get them to splurge. McDonald’s same-store gross sales shrank 1% final quarter, and whereas Yum Manufacturers reported a 4.5% bump in year-over-year income for its second quarter, it fell in need of expectations attributable to disappointing gross sales.
“On the finish of the day, we anticipate prospects will proceed to really feel the pinch of the economic system and the next price of residing for no less than the subsequent a number of quarters on this very aggressive panorama,” McDonald’s U.S. President Joe Erlinger advised buyers in July.
French fries as an financial indicator
Werner argues that french fry gross sales are typically a superb indicator of financial well being. They’re normally one of many extra expendable fast-food aspect objects and are nixed from orders when shoppers really feel penny-pinched. However throughout wholesome financial instances, they’re the primary aspect that prospects add to their order. Werner known as this the “fry attachment price” in a CNBC interview final October.
Regardless of the fry attachment price truly growing to 24% in 2022, in comparison with 22% earlier than the pandemic, Lamb Weston has continued to wrestle because the fast-food business adapts to a troublesome surroundings. McDonald’s CEO Chris Kempczinski acknowledged in February extra shoppers are turning to home-cooked meals to save cash. Past that being dangerous information for McDonald’s, it’s additionally hassle for Lamb Weston, which stated that 80% of all frozen fries merchandise consumed within the U.S. comes from fast-food eating places.
The fast-food business slowdown has additionally sparked a worth warfare and the introduction of promotional meal offers to lure again prospects, together with the McDonald’s $5 meal deal and the Wendy’s two-for-$3 breakfast deal. However whereas such enticements have helped improve retailer site visitors, the promotions haven’t been of a lot assist to Lamb Weston, as restaurant guests aren’t desperate to improve to bigger fry sizes.
“It’s essential to notice that many of those promotional meal offers have shoppers buying and selling down from a medium fry to a small fry,” Werner stated.
There’s a silver lining for Lamb Weston, nevertheless. Werner stated that along with sustaining its restaurant companions through the troublesome stretch, the corporate additionally expanded enterprise with different chains this previous quarter.
Stephen Zagor, a meals and restaurant advisor who teaches at Columbia Enterprise College, stated the fast-food slowdown, no less than for McDonald’s, can be short-lived, significantly as inflation cools.
“It’s going to be a blip,” he advised Fortune in July. “They’re going to return again. They at all times come again.”
McDonald’s and Yum Manufacturers didn’t reply to Fortune’s request for remark.
