Consumers are still splurging for a side of fries with their meals. That can have a positive read-through for the economy.
Frozen potato supplier Lamb Weston Holdings has seen the share of consumers ordering the iconic side with fast food meals — known as the fry attachment rate — remain above pre-pandemic levels, CEO Tom Werner told analysts on the company’s earnings call Thursday. That could indicate a resilient consumer even as inflation has pinched pocketbooks and fears of a recession have mounted.
“The global frozen potato category continues to be solid with overall demand and supply balanced,” Werner said. “Fry attachment rate, which is the rate at which consumers order fries when visiting a restaurant or other food service outlets across our key markets, [has] remained largely steady and above pre-pandemic levels.”
When consumers feel financial pressure, a natural reaction is to cut back on spending through measures such as trading down to cheaper brands or cutting extraneous expenses. In the case of Lamb Weston and fast-food companies, that can manifest in the form of customers opting to skip fries or other side orders in a bid to keep spending restricted.
The impact of inflation can affect the business in ways other than fry sales, of course. Lamb Weston saw little change in total traffic in key U.S. markets, but evidence of a shift in consumer behavior was there: Growth in quick-service food providers, which are typically more affordable, balanced out declines seen in full-service and casual-dining restaurants.
Werner also said inflation can continue to drive up costs for the company, specifically related to potato contract prices.
He pointed to June as a source of restaurant traffic weakness seen in the fiscal fourth quarter. But Werner said it has been reassuring to see trends improve since then, while remaining confident in the ability of the company’s potato offerings to weather an economic slowdown.
“We suspect that restaurant traffic trends will be volatile in the near term as high interest rates, high inflation and uncertainty continues to affect consumer,” Werner said. “That said, frozen potato demand has proven resilient during the most challenging economic times, and we continue to be confident in the long-term growth prospect for the global category.”
Lamb Weston stock jumped more than 9% in Thursday’s session. The stock has performed almost in line with the broader market in 2023, up almost 11% since the year began.
Read the full article here
