Fries in Trouble: McDonald’s Fry Supplier Faces Layoffs as Inflation Hits Fast-Food Demand
The fast-food industry is experiencing a slowdown, with one of its most iconic offerings—french fries—becoming a casualty of rising costs and changing consumer habits. Lamb Weston, the largest supplier of frozen fries to McDonald’s and other fast-food chains, recently announced the closure of its Connell, Washington, plant, laying off 4% of its workforce. This closure comes amid declining fast-food traffic, a trend that has accelerated as inflation makes even traditionally affordable meals seem like a luxury.
This economic downturn has far-reaching consequences, especially for companies like Lamb Weston that rely heavily on quick-service restaurants. Since the beginning of 2024, Lamb Weston’s stock has dropped by 33%, reflecting its struggle to adapt to the changing market. As fast food giants like McDonald’s and Yum Brands (owners of KFC and Taco Bell) feel the pinch, the question becomes: How will these shifts in consumer behavior impact the broader food industry?
The Role of Inflation in the Fast-Food Industry Decline
Inflation has hit the fast-food sector hard, with rising menu prices forcing consumers to reconsider their spending habits. Many now view fast food as a luxury, opting for home-cooked meals as a way to save money. The impact is clear: McDonald’s reported a 1% drop in same-store sales last quarter, while Yum Brands, despite a 4.5% year-over-year revenue bump, fell short of expectations due to disappointing sales.
This trend affects not only the fast-food chains but also suppliers like Lamb Weston. Promotional deals, such as McDonald’s $5 meal deal, may help increase foot traffic but haven’t significantly boosted demand for fries. In fact, Tom Werner, CEO of Lamb Weston, noted that these deals often lead customers to trade down to smaller fry portions.
McDonald’s and the Fry Attachment Rate
Lamb Weston’s success has long been tied to McDonald’s, which accounts for 13% of its total sales. However, french fries—often seen as a discretionary side—serve as a strong indicator of broader economic trends. The “fry attachment rate,” which refers to how often fries are included in a fast-food order, peaked at 24% in 2022, up from 22% pre-pandemic. This spike suggested a temporary recovery, but as inflation worsens, the attachment rate is likely to fall.
Werner highlights that fries are usually the first item dropped from orders when customers feel financially constrained. As traffic at burger chains continues to decline (down 3% in Lamb Weston’s first quarter), the company faces a tough road ahead, relying on fast-food chains that are also struggling.
The Shift to Home-Cooked Meals and Its Ripple Effect on Suppliers
The shift towards home-cooked meals is a significant factor in the decline of fast-food sales. More consumers are cutting back on dining out in response to rising living costs, a trend that has worsened since the pandemic. McDonald’s CEO, Chris Kempczinski, acknowledged earlier this year that more Americans are opting to cook at home to save money, impacting both restaurant traffic and suppliers like Lamb Weston.
Lamb Weston’s challenges are compounded by the fact that 80% of frozen fries in the US are consumed in fast-food restaurants. With fewer customers frequenting these establishments, the company faces a significant drop in demand. Despite efforts to maintain relationships with its restaurant partners, including McDonald’s, the future remains uncertain as fast-food chains adapt to an increasingly frugal consumer base.
Can Fast Food Recover?
Looking ahead, industry experts predict that the fast-food industry slowdown may be temporary, especially as inflation cools. Some analysts, such as Columbia Business School’s Stephen Zagor, believe McDonald’s and other major players could see a resurgence as economic conditions stabilize.
However, for suppliers like Lamb Weston, the road to recovery may be more challenging. While the company has successfully maintained its relationships with major chains and expanded to other partners, it will need to adapt quickly to survive this downturn. With fast food sales closely tied to consumer confidence and economic stability, Lamb Weston’s success will depend heavily on how quickly these trends shift.
While promotions and value deals may offer short-term relief, the long-term recovery of the fast-food industry—and its suppliers—will ultimately depend on the economic outlook and how quickly consumers regain their appetite for eating out.
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