Major French Fry Supplier Slashes Jobs as Fast Food Demand Wanes

As fast food chains are still struggling to get customers in the door, the ripple effect has impacted a leading producer of French fries in the United States, which recently had to lay off nearly hundreds of employees amid dwindling sales.

Lamb Weston is the largest producer of french fries in North America with its largest customer being McDonald's, accounting for 13 percent of its sales. However, the company, which also supplies to restaurants and grocery stores, is now closing a production plant in Washington state. Per CNN, the company announced plans last week to lay off nearly 400 employees—approximately 4 percent of its workforce—and temporarily cut production lines due to slumping customer demand.

The move unsurprisingly comes just months after McDonald's reported its first global drop in sales per store since the fourth quarter of 2020. Overall, U.S. restaurant sales among establishments that have been open for at least a year fell 0.7 percent last quarter, compared to the same period from the year before. Lamb Weston (LW) shares have likewise dropped 35 percent this year.

And direct consumer sales aren't picking up the slack, as Lamb Weston notes that people are less likely to cook french fries at home. The company estimates that about 80 percent of french fries consumed in the country are sold at fast-food chains.

Even the recent proliferation of value meals to lure back inflation-weary customers, such as McDonald's wildly popular $5 Meal Deal, aren't helping the big picture. This is because these meal deals typically include a smaller portion of fries that customers would normally purchase. For example, McDonald's promotion, which the company recently extended through December, includes a choice of a McChicken or a McDouble with a four-piece Chicken McNuggets, a small French fries, and beverage.

"Many of these promotional meal deals have consumers trading down from a medium fry to a small fry,” Lamb Weston CEO Thomas Werner pointed out on an earnings call last week.