McDonald’s and its primary french fry supplier, Lamb Weston, are encountering significant challenges as customer demand for fast food declines.
Rising inflation has led consumers to cut back on spending, resulting in Lamb Weston closing a production plant in Washington State and laying off nearly 400 employees—about 4% of its workforce.
New Meal Deals Struggling to Attract Customers
To address falling sales, McDonald’s has introduced a $5 Meal Deal that includes a McDouble or McChicken, a four-piece chicken nugget, small fries, and a soft drink. However, this initiative has not reversed the trend of decreasing customer traffic. In the last quarter, same-store sales in the U.S. dropped by 0.7% compared to the previous year, as many consumers are returning to home cooking.
Changing Consumer Preferences Affecting Fry Demand
Lamb Weston supplies around 80% of the french fries consumed in the U.S., but its shares have fallen nearly 35% this year. CEO Thomas Werner noted that the new meal deals are not boosting fry demand, as customers are opting for smaller portions. “Many promotional meal deals have consumers trading down from a medium fry to a small fry,” Werner explained during an earnings call.
Adapting to A Shifting Fast-Food Landscape
As consumer preferences shift towards home-cooked meals, Lamb Weston is adjusting its operations. The closure of its Connell, Washington plant has resulted in 375 job losses and a temporary reduction in production lines due to oversupply amid weak demand.
Analysts indicate that rising restaurant prices compared to grocery prices are driving customers away from fast-food chains.
A recent report showed that customer traffic at fast-food outlets fell by 2% last quarter and by 3% the previous quarter compared to the same time last year.
With McDonald’s being Lamb Weston’s largest customer—accounting for 13% of its sales—the current downturn presents significant risks for both companies. As McDonald’s navigates these challenges, the future of its french fries remains uncertain, highlighting broader issues faced by the fast-food industry amid economic pressures.
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