Fast Food Chains in California Issue Warning Ahead of Massive State Imposed Wage Increase

As the clock ticks down to April 1st, fast-food restaurants across California are preparing for a significant shift in their industry.

Governor Gavin Newsom’s signing of a bill last September, which raises the minimum wage for fast food workers from $16 to $20 per hour, has left many business owners grappling with the impending financial impact.

Chipotle, one of the largest fast-food chains in the state, has already announced its plans to pass on the increased labor costs to customers.

Chief Financial Officer Jack Hartung stated during an earnings call that the company would implement a “mid-to-high single-digit” percentage price increase. “We are definitely going to pass this on,” Hartung emphasized.

Similarly, a Starbucks spokesman revealed that the coffee giant would offset the additional labor expenses through various means, including “near-term pricing” and “other efficiencies.”

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The looming wage hike has also prompted concerns about potential job cuts and the increased adoption of automation in the industry.

Georgetown University professor and former Labor Department chief economist Harry Holzer predicts that businesses will likely turn to automation wherever possible. “Maybe some franchises will move out of state,” Holzer added, highlighting the potential consequences of the new law.

Jamie Bynum, a franchisee of Dickey’s Barbecue Pit, expressed his concerns about the financial strain the wage increase will place on his southern California location.

Bynum estimates that his monthly expenses will rise by $3,000 to $4,000, a cost he plans to pass on to his customers. “People don’t understand that when wages rise, so do the prices,” Bynum told The New York Times, recounting past experiences where price hikes led to fewer customers and forced him to reduce his workforce.

The new law will elevate California’s minimum wage for fast-food workers to the second-highest in the country, surpassed only by a small city outside Seattle, where the minimum wage stands at $20.29 for some workers.

However, the bill signed by Governor Newsom last year included a controversial carveout for businesses that make and sell bread as a separate menu item.

This exception drew criticism from those who alleged it was a favor to one of Newsom’s financial backers, Greg Flynn, a billionaire whose business operates two dozen Panera locations in the state.

Newsom denied these accusations, insisting that Panera was not exempt from the new law. In response to the criticism, Flynn pledged to raise the hourly wage at his Panera locations to $20 per hour.

As California’s fast-food industry prepares for the imminent changes, business owners and workers alike are bracing for the impact on prices, employment, and the overall landscape of the sector.

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The coming months will reveal the true extent of the consequences brought about by this significant shift in minimum wage policy.