Americans are revolting against McDonald’s and other fast-food establishments. This is harming French fry suppliers like Lamb Weston.
Lamb Weston, North America’s largest manufacturer of french fries and a significant supplier to fast-food chains, restaurants, and grocery stores, is closing a production facility in Washington state. Last week, the company stated that it would lay off almost 400 employees, or 4% of its workforce, and temporarily shut down manufacturing lines in response to falling customer demand.
Lamb Weston (LW) shares have plummeted 35% this year.
America’s French Fry King Sounds An Alarm
The potato giant is oversupplied at a time when demand is low. In recent years, restaurant prices have risen faster than grocery store prices, prompting shoppers to avoid fast-food establishments.
This move has had an impact on Lamb Weston because individuals are less inclined to prepare French fries at home. According to Lamb Weston, fast-food restaurants account for around 80% of all french fries consumed in the United States.
Fast-food restaurants, such as McDonald’s, are offering bargain menus to entice customers back. McDonald’s has introduced a $5 meal that contains a McDouble cheeseburger or a McChicken sandwich, small french fries, four chicken nuggets, and a small soft drink. However, these promotions are not benefiting Lamb Weston because customers are purchasing fewer portions of fries.
“Many of these promotional meal deals have consumers trading down from a medium fry to a small fry,” Lamb Weston CEO Thomas Werner stated during an earnings call last week.
Lamb Weston did not immediately reply to CNN’s request for comment.
McDonald’s, Lamb Weston’s largest customer, accounts for 13% of revenue. As McDonald’s goes, so does Lamb Weston.
America’s French Fry King Sounds An Alarm
And McDonald’s is struggling. Sales at US restaurants open at least a year declined 0.7% last quarter compared to the same period a year ago, dragged down by fewer consumers visiting the brand.
Lamb Weston is also heavily exposed to other fast-food companies, according to analyst R.J. Hottovy of analytics firm Placer.ai, in a research note to clients last week.
Customer traffic to fast-food restaurants fell 2% last quarter and 3% the prior quarter compared to the same period last year, according to Lamb Weston.
SOURCE | CNN
