America's French Fry King Raises the Alarm

 Americans are turning away from McDonald's and other fast-food chains, impacting suppliers like Lamb Weston, the largest producer of French fries in North America. Last week, the company announced the closure of a production plant in Washington state and plans to lay off nearly 400 employees, or 4% of its workforce, due to declining customer demand.

Lamb Weston’s shares have fallen 35% this year, reflecting an oversupply of potatoes amid sluggish demand. Over recent years, restaurant prices have risen faster than grocery prices, leading consumers to cut back on fast-food dining.

The rise of self-service kiosks at McDonald's and similar establishments has also negatively affected Lamb Weston, as fewer people are preparing French fries at home. According to Lamb Weston, around 80% of French fries consumed in the U.S. are sourced from fast-food chains.

In an effort to attract customers back, McDonald's has introduced a $5 meal deal that includes a McDouble cheeseburger or McChicken sandwich, small fries, chicken nuggets, and a soft drink. However, these promotions have led to customers opting for smaller portions of fries, further hurting Lamb Weston. “Many of these promotional meal deals have consumers trading down from a medium fry to a small fry,” said Lamb Weston CEO Thomas Werner during an earnings call.

Lamb Weston relies heavily on McDonald's, which constitutes 13% of its sales. As McDonald's struggles—reporting a 0.7% decline in same-store sales last quarter due to fewer customers—Lamb Weston feels the effects.

Additionally, the company is vulnerable to other fast-food chains, as noted by analyst R.J. Hottovy from analytics firm Placer.ai. Customer traffic at fast-food restaurants dropped by 2% last quarter and 3% in the previous quarter compared to the same period last year, further challenging Lamb Weston’s position.