Few menu items so singularly express our collective surrender to fat and carbs than the habitual ease with which we order french fries. We can’t get enough of them. At the McDonald’s I worked at one summer in high school, I recall heaving what seemed like an endless bounty of golden fries into the fry station knowing that a red box of them would find itself in the paper bag of pretty much every customer that placed an order.
For every 100 potatoes grown in the US in 2019, 37 were used for french fries, edging out “fresh” potatoes (29) and chips (16)1. The journey from a bulbous starchy tuber to the crispy grease-laden strips piled alongside your burger begins with the planting of seed potatoes (small potatoes with a few protruding buds) in loose, nutrient-rich soil sometime in March or April. Some potatoes – small and thin-skinned ”new potatoes” – are pulled out of the ground as early as July, but most are harvested between August and October. Those fated for frozen products, 85% of which fries, are transported by farmers to a facility owned by a processor like Lamb Weston, where they are separated from vegetation and rock; inspected for size, defects, and solidity; exposed to high-pressure steam that peels away skin; dunked in a salt bath; and shot by high speed water jets through knives that cut them into fries.
Short, thin riff-raff is shook out and smooshed into hash browns and potato puffs. The remaining premier cuts are immersed in hot water to remove excess sugar, dried and covered in a batter to create a crispy shell, and partially fried in cooking oil to set the external texture and shorten cook time for restaurants. The mass production of such a simple product requires a surprising amount of sophisticated machinery. In 2016, management disclosed that a typical plant accepts over 2mn pounds of potatoes per day and is outfitted with optical systems that verify size and a “defect removal system” capable of ablating a 1/4 inch blemish on a single fry moving at 100 inches per second.
Fries that make it through LW’s rigorous quality standards are packed into bags, boxed, and shipped to a warehouse before eventually making their way to one of three channels, as historically reported by Lamb Weston (before the company switched to a far less helpful geographic-based segmentation):
Global (56% of fy23 revenue; 43% of segment level profits): the top 100 North American Quick Service Restaurants (”QSRs”, like McDonald’s and Burger King) and full-service chains, as well as LW’s international business, which latter has historically accounted for 40% of segment sales. Dominated by QSRs, who account for 83% of all fries sold in the US and have the scale to negotiate favorable unit prices, Global’s contribution margins (revenue – cost of sales – advertising & promotion costs) are the lowest of all reported business units, averaging about 19% since fy16 (year ending May 2016).
Foodservice (29%; 38%): mostly consists of smaller restaurant chains and food service distributors, like Sysco and US Foods, who distribute to restaurant chains. School cafeterias, hotels, and sporting venues are also included here. In most years, this segment is the most profitable of the three, averaging 33% margins since fy16.
Retail (15%; 19%): grocers, mass merchants, and specialty retailers. Frozen potato products are either white labeled by the retailers’ brands, sold under the licensed brands of North American restaurants, or tagged with LW’s in-house brand labels, Grown in Idaho (mainstream) and Alexia (premium). Industry wide, about 10% of US frozen french fries are sold in supermarkets and other retail outlets.
In North America, where Lamb Weston derives nearly 70% of revenue and 80% of segment-level EBITDA, frozen potato processing is an oligopoly dominated by 3 key players with histories going back nearly a century. The leader, Lamb Weston, with 40% share, was founded by Frank G. Lamb in 1932 as fresh fruit packing and shipping company. Ten years later, the company expanded into vegetable packing with the acquisition of a defunct plant in Weston, Oregon, which was soon thereafter converted into a frozen pea processing facility. During the 1960s, under the leadership of Frank’s son, Gilbert, the enterprise pushed into potatoes, capitalizing on one of the Pacific Northwest’s abundant agricultural crops and the exploding popularity of fast food (McDonald’s added French Fries to its menu in 1949 and switched to frozen fries in 1966).
Throughout the ‘70s and ‘80s, Lamb Weston acquired and opened processing plants in Washington, Idaho, and Oregon, equipping them with “water guns”, a labor-saving invention patented by Gilbert that shot potatoes into knives at high speed. Most of the US potato crop used in frozen products is grown in the Columbia Basin and Idaho, where a temperate climate and plentiful water produce among the highest quality potatoes in the world. By all accounts, Lamb Weston has the leading presence in this region (for more details about Lamb Weston’s history, see Encyclopedia.com).