October 9th 2024.
It seems that Americans are starting to turn away from fast-food chains like McDonald's, and this is starting to have an impact on companies that supply these chains with their products. One such company is Lamb Weston, the biggest producer of French fries in North America. They are a major supplier to fast-food chains, restaurants, and grocery stores, but unfortunately, they have recently announced the closure of one of their production plants in Washington state.
The reason for this is a decrease in customer demand, which has caused Lamb Weston to make some difficult decisions. They will be laying off around 400 employees and temporarily cutting production lines in order to adjust to the current situation. This news comes as a shock, especially since the company's shares have dropped by 35% this year.
The problem lies in the fact that there is currently an oversupply of potatoes, but the demand for them is not as high as it used to be. This is due to the fact that people are now more likely to eat out at restaurants, where prices have been increasing, rather than cooking at home. In fact, it is estimated that around 80% of French fries consumed in the US come from fast-food chains, which is a staggering number.
In an attempt to bring customers back, fast-food chains like McDonald's have started offering value menus. For example, they have launched a $5 meal, which includes a burger, fries, chicken nuggets, and a drink. While this may seem like a good deal for customers, it is not helping companies like Lamb Weston. This is because people are now opting for smaller portions of fries, which means less demand for their products.
Lamb Weston's CEO, Thomas Werner, spoke about this issue during an earnings call last week, saying that many customers are now choosing to downgrade from a medium to a small fry when they order these promotional meals. The company has not yet responded to requests for comment on the matter. It is worth noting that McDonald's is Lamb Weston's biggest customer, accounting for 13% of their sales. Therefore, any changes in McDonald's performance greatly affect the potato giant.
Unfortunately, McDonald's is also facing some struggles of its own. Their sales have declined by 0.7% in the last quarter, and fewer customers are visiting their restaurants. This has a direct impact on Lamb Weston's sales as well. Additionally, Lamb Weston is heavily reliant on other fast-food chains, which are also experiencing a decrease in customer traffic.
Overall, it is clear that the shift towards eating out at restaurants rather than cooking at home is having a negative effect on companies like Lamb Weston. While fast-food chains are trying to entice customers with attractive deals, this is not solving the underlying issue of declining customer demand. Only time will tell how this will affect the potato giant in the long run.
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