America’s french fry king sounds an alarm

Elbahrain.net Americans are revolting against McDonald’s and fast-food chains. That’s hurting french fry suppliers like Lamb Weston.

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

Shares of Lamb Weston (LW) have dropped 35% this year.

The potato giant is oversupplied at a time when demand is sluggish. Restaurant prices in recent years have increased faster than grocery store prices, leading customers to pull back at fast-food chains.

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

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. As McDonald’s goes, so goes Lamb Weston.

And McDonald’s is struggling. Sales at US restaurants open at least a year fell 0.7% last quarter from the same period a year earlier, dragged down by fewer customers visiting the chain.

Lamb Weston is also highly exposed to other fast-food chains, analyst R.J. Hottovy at analytics firm Placer.ai said in a research note to clients last week.

Customer traffic to fast-food chains dropped 2% last quarter and 3% the previous quarter compared to the same time last year, according to Lamb Weston.

Self-service kiosks at McDonald’s and other fast-food chains have loomed as job killers since they were first rolled out 25 years ago. But nobody predicted what actually happened.

In one of the earliest mentions of kiosks in fast-food settings in 1999, now-defunct trade industry publication Business Information said that McDonald’s was working to “develop an electronic order-taking system that may eventually replace some of its human equivalents.”

Instead, touchscreen kiosks have added extra work for kitchen staff and pushed customers to order more food than they do at the cash register. The kiosks show the unintended consequences of technology in fast-food and retail settings, including self-checkout. Chains are now experimenting with artificial intelligence at drive-thru lanes, and the experience with kiosks holds lessons for them.

Today, instead of replacing workers, companies deploy kiosks to transfer labor to other tasks like handing off pickup orders, help increase sales, easily adjust prices and speed up service. (Many chains, including Subway, Chick-fil-A and Starbucks, don’t use them much or at all.)

Kiosks “guarantee that the upsell opportunities” like a milkshake or fries are suggested to customers when they order, Shake Shack CEO Robert Lynch said on an earnings call last month. “Sometimes that is not always a priority for employees when you’ve got 40 people in line. You’re trying to get through it as quick as possible.” Kiosks also shift employees from behind the cash register to maintaining the dining area, delivering food to customers or working in the kitchen, he said.

Kiosks have also been threatened as a fast-food industry response to higher minimum wage laws.

“I told you so,” former McDonald’s CEO Ed Rensi said in 2016 after the company expanded kiosks. “I and others warned that union demands for a much higher minimum wage would force businesses with small profit margins to replace full-service employees with costly investments in self-service alternatives.”

California this year raised the minimum wage for the state’s fast food sector workers by $4 to $20. It raised a familiar refrain that those workers would be replaced by, such as kiosks.

But the quick-service and fast-casual segments of the restaurant industry continue to grow. Staffing levels were nearly 150,000 jobs, or 3%, above pre-pandemic levels, according to the latest Labor Department data.

Cans of Campbell’s cream of mushroom soup line a supermarket shelf in Bellingham, Washington, U.S. April 25, 2024.

Self-checkout also has not caused retail job losses. In some cases, self-checkout backfired for chains because self-checkout leads to higher merchandise losses from customer errors and more intentional shoplifting than when human cashiers are ringing up customers.

Fast-food chains and retailers need to do a better job communicating what the potential benefits of kiosks and self-checkout are to consumers and employees, Andrews said.

“What I think will be central for customers is that they see how this technology is providing them with more or better service rather than more unpaid busywork,” he said. “Otherwise, the public is just likely to view it as yet another attempt to reduce labor costs via automation and self-service.”