McDonald's is encountering difficulties, as is its significant French fry provider.
Lamb's Largest, the leading manufacturer of french fries in North America, serving numerous fast-food chains, eateries, and supermarkets, is shutting down a plant in Washington state. The company revealed last week that it would let go of approximately 400 employees, equating to 4% of its workforce, and halt some production lines in light of decreased customer interest.
Lamb's shares (LL) have plummeted by 35% this year.
The potato maestro is grappling with an oversupply situation at a time when demand is decreasing. Over the past few years, restaurant prices have escalated faster than store prices, prompting customers to curb their spending at fast-food joints.
This trend has negatively impacted Lamb's as customers less often prepare french fries at home. It's estimated that around 80% of the french fries consumed in the U.S. come from fast-food outlets, as per Lamb's.
Fast-food giants like McDonald's are offering value deals to re-attract customers. McDonald's has launched a $5 package, which includes a McDouble cheeseburger or a McChicken sandwich, tiny french fries, 4-piece chicken nuggets, and a small soda. However, these discounts aren't benefiting Lamb's as customers opt for smaller fries servings.
As Lamb's CEO, Thomas Werner, put it last week during an earnings call, "Many of these promotional meal deals have consumers downgrading from a large fry to a small fry."
Lamb's did not provide immediate comment to CNN's request.
McDonald's, its primary customer, makes up 13% of Lamb's sales. So, any stumble for McDonald's influences Lamb's.
And McDonald's is currently stumbling. Sales at U.S. establishments established for a year or longer decreased by 0.7% last quarter compared to the same period last year, primarily due to fewer customers visiting the chain.
Lamb's also remains exposed to various other fast-food restaurants, according to R.J. Hottovy, an analyst at Placer.ai, in a client note last week.
Footfall at fast-food restaurants fell by 2% last quarter and 3% the previous quarter compared to the same time period last year, as per Lamb's.
The business decline at Lamb's Largest is reflected in the significant drop of their shares ('LL'), with a 35% plummet this year.
The decrease in customer interest has led Lamb's to halt production lines and let go of 400 employees, affecting 4% of its workforce.
