Analysis: Expect to eat out less under new $20 minimum wage

 
 

File this one under “things we all should have seen coming”: Many of CA's beloved chain restaurants—including McDonald's, Chipotle, and Jack in the Box—are promising to raise consumers' prices in response to a statewide $4 min wage spike (from $16 to $20/hr). WSJ's Heather Haddon serves up the situation, otiously created by State overreach and proving most harmful to the everyday residents it's meant to help.

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 Chipotle, 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.

This article originally appeared in the Wall Street Journal. Read the whole thing here.

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