McDonald’s Sales Slump The Ripple Effect on the French Fry Industry

As fast-food prices soar, customers are rethinking their orders, leaving North America’s largest fry producer, Lamb Weston, grappling with the fallout. The company, which produces a staggering 250 million pounds of frozen potato products annually, recently announced it will lay off about 428 workers and close its Connell, Washington, plant.

Impact of Declining Fast-Food Traffic

In a recent earnings call, Lamb Weston CEO Tom Werner attributed the company’s struggles to a significant decrease in customer traffic at quick-service burger chains. McDonald’s, the company’s largest client accounting for 13% of its sales, reported a 1% decline in same-store sales last quarter. Overall, restaurant traffic dropped 2% year-over-year, a concerning trend for the industry.

Sky-high menu prices have transformed fast food into a luxury for many consumers. With inflation impacting everyday expenses, major players like McDonald’s and Wendy’s are finding it increasingly difficult to attract customers willing to splurge. While Yum Brands reported a slight revenue increase, it still fell short of expectations, highlighting the challenges across the sector.

Werner posits that french fry sales serve as a barometer of economic health. Typically considered an expendable side item, fries are often the first to be cut from orders when budgets are tight. Interestingly, while the “fry attachment rate” increased to 24% in 2022 up from 22% before the pandemic Lamb Weston continues to feel the pinch as consumers increasingly opt for home-cooked meals.

In response to the slowdown, fast-food chains have launched value promotions, such as McDonald’s $5 meal deal and Wendy’s two-for-$3 breakfast offer. Although these initiatives have succeeded in driving traffic, they haven’t significantly boosted fry sales, with many customers downgrading from medium to small sizes.

Despite the challenges, there is a glimmer of hope for Lamb Weston. The company has successfully expanded its partnerships with other chains, aiming to weather the storm. Industry expert Stephen Zagor believes the current downturn may be temporary, suggesting that McDonald’s will rebound as inflation stabilizes.

As the fast-food landscape continues to shift, the fate of Lamb Weston and its frozen fry products hangs in the balance. With consumers adapting to economic pressures, the coming months will be critical for both the fast-food giants and their suppliers. Only time will tell if the fry industry can regain its footing in a challenging economic environment.