The recent decline in fast-food consumption signals that fewer Americans are opting for the traditional side of fries, a shift that is cooling the market for restaurant suppliers. Despite a recent easing of inflation to a more manageable 2.5 percent annual rate after nearly two years of relentless price increases, many diners seem either oblivious to this relief or have simply adapted to dining out far less frequently. This downturn has resulted in diminished foot traffic at restaurants, particularly within the fast-food sector, compelling leading French fry manufacturer Lamb Weston to initiate a challenging restructuring process to adapt to ongoing consumer reticence.
Headquartered in Idaho, Lamb Weston has announced the closure of a production facility in Washington State, along with layoffs affecting about 4 percent of its approximately 10,700 employees. This decision coincided with the company’s disclosure of disappointing first-quarter results for fiscal year 2024, which included a 1 percent decrease in sales and a staggering 46 percent plunge in net income. According to CEO Tom Werner, the measures of reducing workforce, shutting down the aging plant, and scaling back production are anticipated to yield $55 million in pretax savings for fiscal 2025 and cut capital expenditures by $100 million.
This recalibration is not due to a waning enthusiasm for crispy fries. Rather, an increasing number of diners are reluctant to absorb the escalating prices of their meals—whether at sit-down establishments or fast-food outlets. Werner does not foresee a turnaround in this trend anytime soon.
“Restaurant traffic and frozen potato demand, relative to supply, continue to be soft, and we believe it will remain soft through the remainder of fiscal 2025,” he noted in the report.
The underlying pessimism stems, in part, from Lamb Weston’s reliance on McDonald’s, which constitutes approximately 13 percent of the company’s annual French fry sales. Following a projection of slowed growth in the first quarter of 2024, McDonald’s reported a 1.1 percent decline in sales during the second quarter, starkly contrasting with the impressive 11.7 percent increase recorded during the same period in 2023.
As McDonald french fries’ performance falters, so too does the broader fast-food sector—an ominous sign for those involved in the French fry industry.
A myriad of other fast-food chains are also reporting declines in customer traffic and sales. Data from Revenue Management Solutions indicates a collective drop of 3.5 percent in first-quarter 2024 and a 2.5 percent contraction in the second quarter.
Several casual dining chains are experiencing similar stagnation. Darden Restaurants recently announced a same-store sales decrease of 1.1 percent in the latest quarter, with traffic to its Olive Garden brand down by 2.9 percent. Collectively, U.S. restaurants faced a 3 percent decline in the first quarter and a 2 percent decrease in Q2 compared to the same periods in 2023.
While the popularity and cost-effectiveness of French fries have made them a staple in fast-food and casual dining, Lamb Weston has learned that demand for these beloved potatoes plummets when restaurant patronage dwindles. Over the past ten months, high inflation has compelled numerous consumers to significantly cut back on dining out—or forgo it entirely.
Since mid-2020, the general inflation rate has surged by more than 20 percent, resulting in price hikes that have left budget-conscious consumers feeling the pinch. According to Restaurant Business Online, the cost of eating at both fast-food and sit-down establishments has risen by 25 percent over the past four years, with a 4 percent increase occurring in the last year alone. Such steep price escalations have led many to perceive dining out as prohibitively expensive.
A poll conducted earlier this year revealed that nearly 80 percent of respondents now view fast-food purchases as a “luxury”—an additional expense that many are choosing to forgo.
The downturn in customer traffic has adversely affected all restaurant suppliers, but Lamb Weston, as North America’s largest French fry producer, is particularly susceptible. Not only are 80 percent of these golden, crunchy potatoes consumed during restaurant meals, but those opting to dine at home are seldom inclined to fry a batch themselves.
What about the $5 value menus introduced by McDonald french fries, Burger King, Wendy’s, KFC, and others to entice budget-conscious diners? Unfortunately for Lamb Weston, those options offer little solace. While these economical deals may attract some price-sensitive patrons, they typically include either scant servings of fries or none at all. Who is likely to pay for a larger portion when opting for budget-friendly meals?
This context elucidates the challenges faced by the nation’s leading supplier of the beloved side dish, especially as an increasing number of diners adjust to the notion of enjoying “eating out” within their own fry-free homes.