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Fast food workers in California are getting paid more.
Starting April 1, limited-service restaurant workers in the Golden State with more than 60 locations nationwide will receive a minimum wage of $20 an hour under AB1228, which Gov. Gavin Newsom signed in September. Become.
This is not just a one-time pay increase. The Fast Food Council can increase the minimum wage by up to 3.5% per year in line with inflation.
The change is significant and could have ripple effects not just in California but across the U.S. fast food industry. Here’s what happens:
Burgers, tacos, and pizza will be more expensive
Diners should expect to pay more as fast food restaurants raise menu prices to offset rising wages. Chains like McDonald’s, Chipotle and Jack in the Box have all announced price increases.
“We expect the vast majority of limited-service restaurants in California to increase prices,” William Blair analyst Sharon Zakfir told Business Insider.
Restaurant analysts told BI they expect prices could rise between mid-single digits and low double digits.
“Unfortunately, consumers are going to have to live with that,” Jefferies analyst Andy Barish said.
Diners have already faced dramatic price increases during the pandemic. Restaurants typically raise prices by about 2% a year, but are on track to raise prices by more than 10% in 2022 due to high labor and commodity inflation, Bank of America analyst Sara Senatore said. It is said that there are also.
Impact varies by restaurant
Price increases vary by chain, location, and franchisee. Smaller chains, or those that operate primarily in California, may see higher price increases because they don’t have as many restaurants outside the state to absorb the impact.
McDonald’s CEO Chris Kempczinski told investors in October: “This is an opportunity for us to gain share because this is an impact that affects all of our competitors.” “We believe we are in a better position than our competitors to weather this situation.”
For fast food chains that pay workers the state’s current minimum wage, which was $16 as of January, the new $20 wage would represent a significant 25% increase in labor costs. But restaurants that already pay their employees higher wages will likely feel less of an impact from the new law.
Fast food chains in bustling urban areas may already have to pay significantly more than California’s $16 an hour minimum wage to stay competitive, and restaurants in suburban areas may feel the law’s impact more acutely. There is.Some cities and counties in California have minimum wage $18+ per houranyway.
Workers who currently earn less than $20 an hour are not the only ones eligible for raises. Some supervisory workers will also be given raises to ensure they earn higher wages than minimum-wage restaurant workers.
People may eat less fast food
As fast food prices rise, people may eat out less or order less.
Citi analyst John Tower said the higher prices may be difficult for some customers to accept. “It’s very likely that this will simply lead to less foot traffic,” he said, noting that more people are choosing to cook at home instead.
“It’s very difficult to determine where consumers will transact,” Barish said.
Zackfir noted that the price difference between limited-service and full-service restaurants will be smaller.
Low-wage retail workers can expect a raise
The $20 minimum wage applies only to limited-service restaurant workers at chains with at least 60 locations.
But if wages at McDonald’s, Subway, and Burger King rise, other employers will likely offer higher wages to compete for workers.
Bernstein analyst Danilo Gargiulo said if limited-service restaurants raised wages, “everyone would be forced to respond because it’s a free market.” “So at the end of the day, we all have to do that.”
This could include employees at independent restaurants, full-service restaurants, and grocery stores.
If other restaurants raise wages, they may have to adjust their menu prices as well.
The Cheesecake Factory, for example, told investors in November that the bill could have a “knock-on effect” on wages. The Cheesecake Factory may have to raise prices in response, Chief Financial Officer Matt Clark said.
people will have more money to eat out
Higher wages for fast food workers actually mean more disposable income to spend on eating out.
“Given how large the industry is in terms of employment in California, a significant portion of the consumer base will actually receive a raise,” Tower said. Fast food restaurants “may end up seeing a little bit more demand,” he said.
According to data, as of May 2022, approximately 550,000 people worked as cooks and counter workers in California’s fast food industry. Bureau of Labor Statistics. It’s unclear how many of those will work for companies covered by AB 1228.
You can expect even better sales and kiosk orders.
Tower said he expects fast-food chains in California to focus on value deals to attract customers as menu prices soar.
Zachfir said he thinks digital ordering kiosks, which restaurants are deploying to save on labor costs and improve order accuracy, will become popular in California “even faster.”
Are you a fast food employee and excited about the new minimum wage? Or are you a franchisee wondering how it will affect your business? gdean@insider. Email this reporter at com.