A major french fry supplier is shutting down one of its U.S. plants and cutting jobs as demand for fast food slows down.
Lamb Weston, the largest producer of french fries in North America and a major supplier to fast-food chains, restaurants, and grocery stores, announced its restructuring plan last week—which will involve the closure of an older production plant in Connell, Washington state.
The Eagle, Idaho-based company said it would temporarily reduce production lines and schedules in North America, resulting in approximately four percent of its global workforce being laid off in response to declining fast food sales in North America and sluggish restaurant traffic, according to an earnings report.
“Together, we expect these actions will help us better manage our factory utilization rates and ease some of the current supply-demand imbalance in North America,” said Tom Werner, Lamb Weston president and CEO, in an earnings call last week.
“We are also taking actions to reduce operating expenses, including reducing headcount and eliminating certain unfilled job positions, as well as reducing capital expenditures.”
In the first quarter, the company’s net sales were reported to have declined one percent to $1.65 billion compared to the same period in the previous year. They were down three percent in North America at $1.1 billion, but were four percent higher for the company’s international business at $550.4 million, according to the report. Income from operations declined 34 percent and its net income dropped 46 percent compared to the same period last year.
“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,” Werner said.
McDonald’s, Lamb Weston’s largest customer, contributed 14 percent of fiscal 2024 sales, but reported a 0.7 percent decrease in U.S. sales for Q2.
According to Revenue Management Solutions (RMS), customer traffic to fast food restaurants declined 2.3 percent in the second quarter of 2024.
“While prices are still higher, the rate of increases continues to decline,” RMS said. They noted that the trend is due to a small decline in price increases and customers selecting lower-priced menu items.
Several fast-food chains are now promoting meal deals. McDonald’s launched a $5 Meal Deal that includes a McChicken or McDouble sandwich, four-piece chicken nuggets, small fries, and a small soft drink.
In their report, Lamb Weston predicted that “volume will likely decline during the first half of fiscal 2025 due to the impact of market share losses and menu price inflation, which we expect will continue to affect global restaurant traffic and demand for frozen potato products.”
The company aims to secure around $55 million in pre-tax cost savings and a $100 million reduction in capital expenditures in the current fiscal 2025 period, according to the restructuring plan.