A timely article in the WSJ
https://www.wsj.com/business/hospitality/california-minimum-wage-workers-prices-c3aef6b4
Burritos and Big Macs to Cost More in California as Pay Rises
Minimum wage for fast-food workers jumps to $20 an hour in April, chains plan to increase prices
By
Heather Haddon
Feb. 4, 2024 - 9:00 am EST
California restaurants are some of the most expensive places to eat out in the country—and they are about to get pricier.
Minimum wage for California fast-food workers is set to rise to $20 an hour in April, a 25% increase from the state’s broader $16 minimum wage. Restaurants including McDonald’s, Chipotle, Jack in the Box and others say they will raise menu prices in California in response, with some McDonald’s franchisees estimating hundreds of thousands of dollars per restaurant in added labor costs.
“Everyone is going to have to pay more,” said Jack Hartung, chief financial officer of California-based Chipotle Mexican Grill. Chipotle has raised its menu prices four times in the past two years and expects to increase them a further 5% to 9% in its California restaurants to cover the higher pay required for workers.
California for decades has been a fast-food stronghold, with more people working in restaurants and bars than in any other state, according to the Labor Department. It is the birthplace of McDonald’s, In-N-Out Burger and other chains, and fast-food and other takeaway restaurants employ about 761,900 people in the state, according to California’s employment department.
In 2022, California passed a law instituting new oversight of the fast-food industry through state-appointed councils that could have raised sector pay to as much as $22 an hour. The restaurant industry dedicated tens of millions of dollars to invalidating the law before industry members, union representatives and the governor’s office last year negotiated a compromise.
That deal set the new $20 minimum wage, and put a cap on annual increases beginning in 2025. Democratic California Gov. Gavin Newsom said the law would improve wages and working conditions for hundreds of thousands of fast-food employees in the state.
Restaurant owners since then have been calculating the cost. The National Owners Association, a group of McDonald’s franchisees, estimated it will cost Golden Arches operators an additional $250,000 annually per restaurant, an amount that can’t readily be absorbed, according to an email from the group last September.
McDonald’s Chief Executive Chris Kempczinski said during an October earnings call that prices would go up at California restaurants as a result, but the company hadn’t determined by how much. McDonald’s said it is working with franchisees to help offset some of the added costs.
About 43% of Jack in the Box’s 2,200 restaurants are located in California, while nearly one-fifth of Starbucks’s U.S. cafes are located in the state, according to industry research firm Technomic. Chipotle, Shake Shack, KFC and Taco Bell also have at least 11% of their U.S. restaurants in California, Technomic said.
“There’s certain areas in California which are going to have to go up a lot,” Shake Shack financial chief Katherine Fogertey said about menu prices at an investor conference in November.
For every dollar in hourly wage increases, a restaurant needs to increase prices by 2% to make up for the additional cost, industry consulting firm Revenue Management Solutions said. Jack in the Box told investors in November that its prices will rise 6% to 8% companywide this year, primarily to cover increased wages and other costs in California.
Some California consumers said they supported the idea of workers earning more—given the state’s high cost of living—but wished they didn’t have to pay more to dine out. California restaurants already have some of the highest fast-food prices in the country, according to Revenue Management Solutions.
“People are going to be able to eat out less and less. We are going to be eating at 99-cent stores,” said Schirete Zick, a writer from Los Angeles who lives alone and prefers restaurants over filling her fridge with food that might spoil.
Economists have long debated whether minimum-wage increases help or hurt businesses, along with their impact on employment. A 2021 study by the nonpartisan Congressional Budget Office found that raising the federal minimum wage to $15 an hour could lift hundreds of thousands of people out of poverty but could also cause prices to rise, slow overall economic output and cost 1.4 million Americans their jobs.
Few states or municipal areas have raised the minimum wage for workers to the degree that California is poised to do for fast-food employees. Localities typically increase minimum wages by 12% to 15% a year, according to the Economic Policy Institute, which studies wage increases.
Fast-food prices already have been running high nationwide, and consumers are increasingly fatigued by the higher costs, leading to fewer restaurant visits or smaller orders, industry data shows.
“I am expecting to step on an escalator of ever-rising prices,” said Andrew Strenk, a real-estate adviser from Tustin, Calif. He said he would likely eat out less often and hopes his health will improve as a result.
Besides raising prices, restaurants are striving to cut costs. Some chains, including Burger King and Denny’s, said they hope that automating certain restaurant tasks can help their franchise owners avoid raising prices at California locations.
Burger King aims to install more digital-ordering kiosks in its U.S. restaurants, with California now a focus, said Josh Kobza, chief executive of parent company Restaurant Brands International, in an interview.
Aaron Noveshen, founder of San Francisco-based chicken chain Starbird, said he wants to recruit franchisees to open new locations outside of California, given escalating wage, building and other costs.
“I do love it here, but there are a lot of forces that make it difficult to do business in California,” Noveshen said.
). we are seeing MORE new stand alone fast food and diner type places being built inside the walmart parking lots (i think the walmarts that are located in places that now have city wide bans on overnight parking have figured out that they can create new revenue streams from their previously designated rv overnight parking areas in their lots).
