Fast-food prices in California are expected to increase as businesses adjust to the state's new $20 per hour minimum wage for fast-food workers, effective April 1, 2024.
Signed by Governor Gavin Newsom, the California law will mandate a $20 per hour minimum wage at all restaurants, except those that produce and sell their bread. It reflects the state's Democratic leaders' recognition that these workers are the primary earners in their low-income households.
The state's $15.50 per hour minimum wage for workers is already among the highest in the United States. Starting April 1, California fast-food workers will enjoy the industry's highest guaranteed base salary.
Food Chains' Price Increase Due to High Labor Costs
Major fast-food chains like McDonald's and Chipotle have already signaled price increases due to higher labor costs. Jack Hartung, Chipotle's Chief Financial Officer, mentioned in the Wall Street Journal that "everyone will need to pay more," planning to increase prices by approximately 5% to 9% at Golden State restaurants to offset the additional costs.
In November, Hartung informed the Journal that he anticipates a 15% to 20% increase in Chipotle's labor costs, which he considers significant enough to impact their economics. He mentioned that while it may not immediately affect restaurant opening plans, customer reactions to price increases will influence those decisions. Chipotle earnings are scheduled to be announced after Tuesday's market close.
READ ALSO: Pizza Hut Eliminates 1,200 Delivery Drivers as Minimum Wage Bumps to $20 per Hour in April 2024
McDonald's Price Increase Uncertainty Due to Some Mitigation Efforts
During an earnings call in October, McDonald's CEO Chris Kempczinski stated that prices at the fast-food giant would need to increase. However, the extent of the increase had not yet been determined, saying, "tough to know exactly what that hit will be because of some of the mitigation efforts." McDonald's is scheduled to report earnings before Monday's market opening.
Jack in the Box's Plan Price Increase to Cover Higher Wage
During an earnings call in November, Jack in the Box mentioned plans to raise prices by 6% to 8% company-wide to cover higher wage expenses due to California law. The update is expected when the company releases earnings later this month.
Burger King's Plan to Go Digital to Lessen The Raised Wages Effects
Restaurants might use more automation to lessen the effects of a raised minimum wage in the industry.
Burger King's CEO, Josh Kobza, announced plans to quickly introduce digital ordering kiosks to allow restaurant staff to concentrate on food preparation, enhance order accuracy, and reduce stressful interactions with customers.
Josh Kobza expressed the viewpoint that the business should transition entirely to digital, suggesting that all order-taking should be conducted through digital ordering channels over time.
California's minimum wage increased to $16 per hour in January for all jobs statewide, surpassing its previous rate of $15.50 per hour, which was already the highest in the nation.
RELATED ARTICLE: Minimum Wage Update: Half of U.S. States Plan Adjustments by 2024
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