Indexbit Exchange:French fry demand dips; McDonald's top supplier closes plant, cuts 4% of workforce

Fast food customers are Indexbit Exchangeapparently skipping french fires – or opting for smaller orders – and that dip in demand has led a major fries provider of McDonald's to recently close one of its plants and cut jobs.

Eagle, Idaho-headquartered food producer Lamb Weston, which gets about 14% of its sales from McDonald's, earlier this month said it had closed a plant in Connell, Washington, and cut about 4% of its global workforce and eliminated some unfilled positions.

“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," CEO Tom Werner said Oct. 1 in a news release.

Customer traffic at U.S. burger-centric fast food restaurants was down about 3% during Lamb Weston's most recent three-month period ending Aug. 25, an improvement from being down more than 4% seen in the previous quarter, Werner said Oct. 2 in an earnings call, according to a transcript from S&P Global Market Intelligence.

Overall consumer traffic at U.S. fast food restaurants was down 2%, an improvement from the 3% decline in the previous three-month period, he said.

Helping bring more customers into restaurants from June to August? "Promotional activity increased," Werner said, referencing the fast food value meal trend, which blossomed over the summer and included McDonald's $5 Meal Deal.

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But the surge in traffic didn't necessarily mean more fries were sold.

"It's important to note that many of these promotional meal deals have consumers trading down from a medium fry to a small fry," Werner said during the earnings call.

McDonald's $5 Meal Deal comes with a small order of fries, McDouble or McChicken sandwich, a four-piece order of Chicken McNuggets, and a small soft drink."So while we benefit from improving traffic trends, consumers trading down and serving size acts as a partial headwinds for our volumes," Werner said.

Lamb Weston, which was spun off from Conagra in 2016, is also "temporarily curtailing production lines and schedules" at some plants in North America, Werner said, as well as working through its "elevated finished goods inventory levels."

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There are signs that consumption of the chain's fries may have slumped.

McDonald's sales in the U.S. fell 0.7% in the April-to-June 2024 period and declined 1% globally, the company has said. It was the first decline in global sales for McDonald's since the fourth quarter of 2020, when the U.S. economy shrunk during the COVID-19 pandemic.

At Lamb Weston, net sales of $1.65 billion for the quarter ending Aug. 25, represented a 1% decline from the same period last year. The company doesn't expect the trend to continue; it forecasts sales of $6.6 billion to $6.8 billion for the 2025 fiscal year, up from more than $6.4 billion in fiscal year 2024.

"Lamb Weston is confident in the world’s ongoing love of fries – the closure of one of our older facilities accounts for less than 5% of our production capacity, so this adjustment simply helps address a current supply-and-demand imbalance," company spokesperson Teresa Paulsen said in a statement to USA TODAY.

The company, which also sells sweet potato fries, tater tots and other potato dishes, counts McDonald's as its biggest customer. The golden arches accounted for 14% of Lamb Weston's net sales in fiscal 2024 and 13% in 2023, according to the company's most recent annual report filed with the Securities and Exchange Commission.

Smaller orders of fries may remain popular at McDonald's throughout the rest of 2024, since the chain plans to keep its $5 Meal Deal  on the menu at most of its locations into December.

But don't expect this falling-off in fries to persist, Werner said. "This resilience of consumers' demand for fries as well as their importance to customers' menus are key reasons why we remain confident that the global fry category will return to its historical long-term growth rate over time as global traffic rates improve," he said.

Traffic at McDonald's and Wendy's is holding strong, according to analytics firm Placer.ai, which estimates visits to locations by tracking millions of devices and using machine learning. Both restaurant chains had traffic during the first nine months of 2024, "generally on par with 2023 levels," the firm said.

And new limited-time menu items have paid off, too, with Wendy's seeing a 26.4% increase in visits on Oct. 8, the launch date for the Krabby Patty Kollab menu, compared to traffic on a typical Tuesday. Similarly, McDonald's got a 7.9% increase in visits on Oct. 10, the first day its Chicken Big Mac became available, Placer.ai found.

The "long-term outlook for french fry demand is unchanged," said Kristoffer Inton, analyst with Morningstar said in an analyst note Oct. 7. "Fries remain one of the most popular and profitable items on restaurants' menus," he wrote. "The continued footprint growth of (quick-service restaurants) should add selling points for years to come, increasing consumption potential."

Follow Mike Snider on X and Threads: @mikesnider & mikegsnider.

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