As fewer customers opt for large fries, McDonald’s primary french fry supplier, Lamb Weston, has shut down a production plant and introduced cost-cutting measures.
The Idaho-based company, which leads North America in french fry production, recently closed a facility in Connell, Washington. The closure comes as part of a restructuring plan to address demand shifts.
The announcement included the layoff of around 375 employees from the Washington plant, reducing Lamb Weston’s workforce by about 4%. Despite the closure, the company’s spokesperson, Teresa Paulsen, maintains confidence in the continued demand for fries.
She noted that the plant’s output represents less than 5% of Lamb Weston’s total capacity. Paulsen explained that the decision helps manage an imbalance between supply and demand in the current market.
Meal Deals a Double-Edged Sword?
Major fast-food chains have been increasingly promoting meal deals to attract customers, particularly as inflation and rising costs deter consumers. McDonald’s introduced a $5 meal deal earlier this year, featuring a McChicken or McDouble, four-piece chicken nuggets, fries, and a drink.
Initially launched in May, the agreement is set to continue through the end of the year, aiming to boost customer traffic and increase value for money.
However, the shift in consumer behavior linked to these deals has presented challenges for Lamb Weston. CEO Thomas Werner highlighted how promotional meal deals have affected fry sales during an earnings call.
He pointed out that while meal deals have improved traffic to fast-food restaurants, they’ve also led many customers to downsize their orders, opting for smaller fry portions.
“Promotional meal deals have led to customers choosing smaller serving sizes, which impacts our volume,” Werner explained.
Adjusting to Soft Demand
The shift in fry sizes coincides with a broader trend of decreased demand. Lamb Weston reported a 1% decline in net sales and a 46% drop in net income from the previous year’s quarter.
As the economic environment remains uncertain, Werner expects soft demand for frozen potato products to continue throughout fiscal 2025.
Lamb Weston’s stock has reflected these challenges, declining by 35% since the start of the year. Although the company has confidence in its future, the pressures of oversupply and reduced demand are evident.
McDonald’s Sales See Decline as Economic Concerns Persist
McDonald’s itself has faced similar headwinds. The fast-food giant reported a 0.7% decline in U.S. sales for the quarter ending in July, a contrast to the prior year’s 10.3% increase, driven by the popularity of the limited-edition Grimace Birthday Meal.
In a statement, McDonald’s U.S. President Joe Erlinger acknowledged the challenges posed by the current economic climate, noting that customers will likely feel the impact of higher living costs in the coming quarters.
McDonald’s is one of many offering promotional meal deals. Competitors like Popeye’s, Pizza Hut, Taco Bell, Wendy’s, and Burger King have rolled out similar offerings. The aim is to attract cost-conscious customers, but as seen with Lamb Weston, these promotions sometimes lead to customers downsizing their orders, which impacts suppliers.
What’s Next for Lamb Weston?
Despite the closure of its Connell plant, Lamb Weston remains optimistic about the ongoing demand for its products. The company believes adjusting to current market trends will allow it to manage production levels effectively.
As part of its restructuring, Lamb Weston is also looking to streamline its operations and focus on long-term growth strategies.
The closure of Lamb Weston’s facility signals the need for adaptability in a changing market. For the foreseeable future, the company will navigate supply and demand shifts influenced by consumer behavior and economic conditions.
However, its status as a leader in the industry offers a foundation for weathering these challenges and adjusting to future demands.
The ongoing shifts in consumer preferences and market dynamics remind us that even established brands like Lamb Weston and McDonald’s must continuously adapt to stay relevant in a competitive and fluctuating landscape.
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