McDonald's French Fries Supplier Cuts Jobs Amid Slump in Fast Food Demand

Inflation-battered consumers have pulled back sharply on spending at fast food restaurants, hurting Lamb Weston.

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As inflation pinches wallets and consumers rethink their spending habits, Lamb Weston, a major supplier of McDonald’s french fries, recently closed a factory and cut jobs. The company’s response highlights a shift in consumer behavior as more fast-food customers downsize their meals or skip sides like fries altogether.

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Why Are Consumers Buying Fewer French Fries?

With the cost of fast food meals rising, companies like McDonald’s have introduced promotional meal deals to attract price-conscious customers. McDonald’s launched a $5 Meal Deal that includes items like a McDouble, McChicken, or four-piece nuggets, a small fries, and a small drink. Competitors like Burger King and Wendy’s have followed suit, also featuring meal bundles with small fries.

However, these deals mean fewer medium or large fries are being sold. According to Lamb Weston’s CEO, Tom Werner, many customers have been opting for smaller fry portions to keep costs down. As a result, the overall demand for french fries has dropped significantly, affecting Lamb Weston’s business.

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Impact on Lamb Weston and the Fast Food Industry

Inflation is not only squeezing consumers, but also influencing labor costs for fast-food chains. In California, for example, a $20/hour minimum wage for fast food workers has further contributed to rising menu prices. Consequently, some customers are dining out less often, with many opting to cook at home instead.

This shift has been reflected in McDonald's recent earnings report, which showed a 0.7% decline in same-store sales in the U.S. Lamb Weston, which supplies around 80% of the fries sold at fast food chains across the country, relies heavily on McDonald’s. The declining demand for fries has hit Lamb Weston hard, with shares down nearly 35% this year.

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Lamb Weston’s Response to Declining Demand

In response to plummeting sales, Lamb Weston recently announced layoffs affecting 4% of its global workforce and the closure of its Connell, Washington plant, which resulted in the loss of 375 jobs. The company has also scaled back production lines to better align supply with the current, lower demand.

During a recent earnings call, Werner expressed concerns about the soft restaurant traffic and frozen potato demand and stated that the company expects these challenges to continue into fiscal 2025.

Financial Struggles and Future Outlook

For the recent quarter, Lamb Weston reported a 1% decline in net sales, a 34% drop in operating income, and a 46% plunge in net income compared to the previous year. The company’s earnings reveal just how impactful these shifts in consumer behavior have been on its bottom line.

Lamb Weston is now focusing on improving factory utilization rates to better manage the supply-demand imbalance. Whether or not consumer demand for fast-food french fries rebounds will likely determine the company's next steps. However, with current economic pressures, it may take some time before fast food sales recover, meaning that Lamb Weston—and its fast-food customers—could continue to face challenges in the months ahead.