California’s fast-food industry is gearing up for major changes once the state’s new minimum wage goes into effect.
The Golden State’s decision to raise its minimum wage by nearly 25% for fast-food workers is already having a downstream effect on customers and franchise owners.
In April, California will increase its minimum wage from the average hourly wage of $16.21 to $20 for fast-food chains with 60 or more locations nationwide. In response, chains like McDonald’s, Jack in the Box, Shake Shack, and Chipotle Mexican Grill have confirmed they will be raising menu prices across the state.
“There’s certain areas in California which are going to have to go up a lot,” said Katherine Fogertey, chief financial officer at Shake Shack, The Wall Street Journal reported.
While the state’s fast-food workers will see a sharp pay increase, customers and franchise owners will ultimately be the ones bearing the higher costs. For instance, Chipotle plans to raise the price of its burritos by 5-9% once the new wage increase takes effect.
“Everyone is going to have to pay more,” said Jack Hartung, Chipotle’s chief financial officer, per WSJ.
It is not just customers facing increased costs, however, as franchise owners are forecasted to spend hundreds of millions more in annual labor costs.
According to the National Owners Association, an advocacy group comprising McDonald’s franchisees, the company forecasts an extra $250,000 in annual labor costs per California-based restaurant.
Due to the soaring cost of fast food in California, many customers may simply dial back how much they eat out each month. In fact, such a trend has already been playing out.
“Food away from home,” which includes food purchased at restaurants, buffets, café, vending machines, etc., rose 0.4% in November, 0.3% in December, and 5.2% over the last year, according to the latest consumer price index report.
“People are going to be able to eat out less and less,” suggested California resident Schirete Zick, per WSJ.