Fast-food prices in California are set to rise this spring with businesses responding to the state’s $20 per hour minimum wage law for fast-food workers that will take effect on April 1, 2024.
The law was signed by California Governor Gavin Newsom last fall and will require a $20 per hour minimum wage at all restaurants with at least 60 locations nationwide – though the law includes an exception for restaurants that make and sell their own bread.
Several major fast-food franchises, including McDonald’s and Chipotle, have already signaled that prices will have to rise in response to the increased labor costs.
"Everyone is going to have to pay more," Jack Hartung, chief financial officer of Chipotle, said in the Wall Street Journal. The California-based company expects to raise prices by about 5% to 9% more at its restaurants in the Golden State to cover the costs.
Hartung told the Journal in November that he expects Chipotle’s labor costs to rise in the 15% to 20% range, which he said is "significant enough that it puts a dent in our economics."
He added at the time that although he didn’t see it having an immediate impact on restaurant opening plans, customers’ response to price hikes will factor into those decisions. Chipotle is expected to report earnings after the bell on Tuesday.
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McDonald’s CEO Chris Kempczinski said on an earnings call in October that prices at the fast-food giant will have to rise even though the company hadn’t determined at the time how large the increases would be.
"Certainly, there’s going to be some element of that that does need to be worked through with higher pricing," Kempczinski said. "There’s also going to be things that I know the franchisees and our teams there are going to be looking at around productivity. How all of that plays out, there will certainly be a hit in the short term to franchisee cash flow in California; tough to know exactly what that hit will be because of some of the mitigation efforts."
McDonald's is scheduled to report earnings before the opening bell on Monday.
Jack in the Box said during an earnings call in November that it expects to raise prices by 6% to 8% across the company primarily to address increased wage expenses stemming from the California law. The company will likely provide an update when it releases earnings later this month.
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Some restaurants may turn to increased automation as a way of mitigating the impact of a higher minimum wage in the industry.
Josh Kobza, the CEO of Burger King's parent company Restaurant Brands International, told investors during an earnings call in November that the chain plans to speed up its rollout of digital ordering kiosks, which let restaurant workers focus more on preparing food and can improve order accuracy, reducing stressful interactions between employees and customers.
"My point of view is we need to get this business to 100% digital," Kobza said. "We should have all of the order-taking done through digital ordering channels over time."
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California’s minimum wage ticked up to $16 an hour in January for all jobs in the state – up from $15.50 an hour which was already the highest in the nation.
