Apparently, weak restaurant traffic is bad for French fry sales.
That is the news from Lamb Weston, which reported its fiscal fourth quarter earnings this week. Net sales at the Eagle, Idaho-based company declined 4% in the quarter, which ended May 26.
“The operating environment has changed rapidly over the past 12 months as global restaurant traffic and frozen potato demand softened due to menu price inflation,” CEO Tom Werner said in a statement. And he noted that a “supply-demand imbalance” in the frozen potato market could be expected to continue for most, if not all, of the remaining fiscal year.
There were other factors in what he called “unacceptable” financial results, but the impact of quick-service traffic on revenues was a major reason. Lower traffic means restaurants are selling fewer orders of fries.
“The downward traffic trends accelerated during the back half of the [fiscal] year and into early fiscal '25,” Werner told analysts, according to a transcript on the financial services site AlphaSense.
The company, he said, is dependent on traffic from quick-service restaurant chains, which account for 80% of fry sales.
U.S. restaurant traffic was down 3% during the company’s fiscal fourth quarter, and at quick-service burger chains it was down 4%. What’s more, Werner said, that traffic worsened as the quarter went on, declining nearly 6% in May.
That traffic decline has prompted a value war as restaurant chains seek to regain lost customers.
“We’re encouraged that the QSR chains, including QSR hamburger chains, have increased promotional activities to drive restaurant traffic,” Werner said. He said Lamb Weston has not received data that would indicate the promotional efforts are driving traffic, but “we expect these promotional efforts” will ultimately generate customer growth, as they have done in the past.
Werner believes the traffic challenges at U.S. restaurants are “temporary” and that global fry demand will “return to its historical growth rate as consumers continue to adjust to higher menu prices.” But Lamb Weston is taking a “cautious view of the consumer” and expects its volume to decline over the next six months.
The results demonstrate that the decline in restaurant traffic isn’t just creating problems for operators and their franchisees, but the suppliers that sell products to those companies and depend on them for sales.
While brands have largely made up for lost traffic with higher prices, the lower traffic still means they’re selling fewer fries, which means reduced volume for companies like Lamb Weston. And that weak quarter sent the company’s stock down 27% on Wednesday.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.