New York CNN –
Americans revolt against McDonald’s and fast food chains. This hurts french fries suppliers such as Lamb Weston.
Lamb Weston, the largest French fries producer in North America and a major supplier to fast food chains, restaurants and grocery stores, has decided to close a production plant in Washington state. The company announced last week that it would lay off nearly 400 employees, or 4% of its workforce, and temporarily cut production lines in response to slowing customer demand.
Shares of Lamb Weston (LW) are down 35% this year.
The potato giant is in oversupply at a time when demand is slowing. Restaurant prices have risen faster in recent years than grocery store prices, prompting customers to back away from fast food chains.
This shift has negatively affected Lamb Weston because people are less likely to cook French fries at home. About 80% of French fries consumed in the United States come from fast food chains, according to Lamb Weston.
Fast food chains like McDonald’s are offering discounted value menus to try to attract customers back. McDonald’s has launched a $5 meal, which includes a McDouble Cheeseburger or McChicken Sandwich, small fries, 4 chicken nuggets and a small soft drink. But these deals aren’t helping Lamb Weston because people are buying smaller quantities of french fries.
“Many of these promotional meal deals are causing consumers to trade up from medium to small potatoes,” Lamb Weston CEO Thomas Werner said last week on an earnings call.
Lamb Weston did not immediately respond to CNN’s request for comment.
McDonald’s, its largest customer, accounts for 13% of Lamb Weston’s sales. As McDonald’s goes, so goes Lamb Weston.
And McDonald’s is struggling. Sales at U.S. restaurants open at least a year fell 0.7% in the fourth quarter compared to the same period a year earlier, due to a decline in the number of customers visiting the chain.
Lamb Weston is also highly exposed to other fast food chains, analyst RJ Hottovy at analytics firm Placer.ai said in a research note to clients last week.
Customer traffic to fast-food chains fell 2% last quarter and 3% in the previous quarter compared to the same period last year, according to Lamb Weston.
