Lamb Weston, the main supplier of French fries to McDonald’s, is navigating a tough landscape with dipping sales.
Sales have taken a hit due to waning consumer interest and a drop in restaurant visits. Tom Werner, the CEO of Lamb Weston, noted in a recent announcement that although financial results improved in the first quarter of fiscal year 2025 compared to the last, the overall market remains tricky.
“Restaurant foot traffic and the demand for frozen potatoes continue to lag, and we foresee this trend persisting throughout fiscal 2025,” Werner stated.
The Idaho-based company also revealed a restructuring plan aimed at boosting its profitability by shuttering an older production facility in Connell, Washington, and reducing its workforce by 4%, among other strategies.
“These steps should help us better manage factory utilization and address the current supply-demand mismatch in North America,” Werner mentioned.
A decline in sales can also be attributed to falling restaurant traffic in the U.S. McDonald’s, which makes up 13% of Lamb Weston’s revenue, reported lower global sales numbers in July.
Despite McDonald’s launching a $5 meal deal in May to boost customer visits, the initiative has not significantly impacted Lamb Weston’s fries sales. According to Werner, while these promotions brought more customers in, they resulted in smaller fry orders.
“While increased traffic is great, many customers are opting for smaller portions, which partially offsets any volume gains,” he explained during an earnings call on October 2.
Lamb Weston attributed the current oversupply to slower overall demand, primarily caused by reduced restaurant attendance.
Additionally, the decline in fast-food popularity comes against a backdrop of rising prices. McDonald’s menu items have jumped about 40% since 2019, largely due to increasing input costs, Joe Erlinger, president of McDonald’s USA, earlier indicated. He added that customers are feeling the strain of higher living expenses and this trend is likely to continue in the competitive market.