America's french fry king is sounding the alarm

new York
CNN
—

Americans are revolting against McDonald's and fast food chains. This is hurting french fry companies like Lamb Weston.

Lamb Weston, the largest french fry maker in North America and a major supplier to fast food chains, restaurants and grocery stores, is closing a manufacturing plant in Washington state. The company announced last week that it would lay off nearly 400 employees, or 4% of its workforce, and temporarily reduce production lines in response to slowing customer demand.

Lamb Weston (LW) shares are down 35% this year.

The potato giant is oversupplied at a time when demand is sluggish. Restaurant prices have risen faster than grocery store prices in recent years, causing customers to turn away from fast food chains.

This change has taken a toll on Lamb Weston as people are less likely to make french fries at home. According to Lamb Weston, around 80% of French fries consumed in the US come from fast food chains.

Fast food chains like McDonald's offer inexpensive menu items to lure customers back. McDonald's has launched a $5 meal that includes a McDouble cheeseburger or a McChicken sandwich, small fries, 4-piece chicken nuggets and a small soft drink. But these deals aren't helping Lamb Weston because people are buying smaller portions of fries.

“Many of these meal specials have consumers switching from a medium fry to a small fry,” Lamb Weston CEO Thomas Werner said on an earnings call last week.

Lamb Weston did not immediately respond to CNN's request for comment.

McDonald's, its largest customer, accounts for 13% of Lamb Weston's sales. Like McDonald's, so does Lamb Weston.

And McDonald's has problems. Sales at U.S. restaurants open at least a year fell 0.7% in the most recent quarter compared with the same period a year ago, reflecting fewer customers visiting the chain.

Lamb Weston also has significant stakes in other fast-food chains, analyst RJ Hottovy of analytics firm Placer.ai said in a research note to clients last week.

Customer traffic to fast-food chains fell 2% in the most recent quarter compared to the same period last year and 3% in the previous quarter, according to Lamb Weston.