It’s been a few weeks since California established a $20 per hour minimum wage for fast-food workers. This change affects restaurant chains that have at least 60 locations nationwide and aims to ease the financial strain on nearly half a million workers in this costly state. However, it now poses a threat to the existence of McDonald’s franchises, which are forced to adjust prices, rethink capital spending, and enhance labor efficiency to survive.
Franchise Owner’s Struggle with Wage Hike
For Scott Rodrick, who owns 18 McDonald’s franchises in California, adapting to this change has been challenging. In a recent conversation with Fox Business, Rodrick expressed his struggles, describing the past 12 days as a whirlwind and seemingly endless due to the dramatic impact of this new law on franchisees.
Menu Prices Rising Amid Wage Increases
As a reaction to the increased wage costs, some restaurant owners and chains have allegedly raised their menu prices. Nonetheless, Rodrick warns that there’s a ceiling to how much consumers are willing to spend on meals outside the home, indicating potential limits to this approach.
The Pricing Dilemma
Rodrick discussed the challenges of adjusting prices in light of California’s increased minimum wage. He emphasized the necessity of a thoughtful approach to pricing strategies, pointing out that drastic increases are not viable options due to customer price sensitivity.
Price Trends in U.S. Fast Food
Despite Rodrick’s cautious stance on menu pricing, the trend of rising fast food prices in the U.S. predates the new wage laws. For example, last summer at a Connecticut rest stop, a Big Mac meal was priced at $17.59, sparking online discussions about the high costs at McDonald’s.
McDonald’s Shift Toward More Affordable Menus
Fast food chains, once affordable, are now grappling with how to remain economical for consumers. During a recent earnings call, McDonald’s CEO Chris Kempczinski expressed a shift towards heightened focus on affordability in 2024, while CFO Ian Borden noted that pricing decisions will follow consumer demand, emphasizing that franchise owners are the ones who ultimately set local prices.
Strategies to Manage New Wage Laws
Scott Rodrick mentioned that to manage the significant impact of California’s new business regulations, he may need to employ a variety of strategies.
These could include adjusting prices, revising capital spending, improving labor efficiency, and aiming to increase his market share, all to ensure his business can either survive or thrive under the new conditions.
Research Suggests a Different Story
While some business owners predict detrimental effects from the new minimum wage law—such as a Fosters Freeze outlet in Lemoore that closed, rendering its workers unemployed—academic research presents a counter-narrative.
No Significant Job Loss From Wage Hikes:
Economists from UC Berkeley and the University of Victoria found no significant drop in fast food employment in California and New York despite substantial minimum wage increases from 2013 to 2022, suggesting that higher wages could actually improve living standards and contribute to a more equitable economy.
Last Resort
In response to queries about potential layoffs, Rodrick emphasized that laying off employees would be a measure of last resort. He highlighted the importance of the 800 individuals who operate his restaurants.
He’s committed to their livelihoods rather than hastily reducing his workforce.
Facing New Economic Realities
Despite considering the idea of relocating due to the minimum wage increase, Rodrick’s current priority remains on dealing these challenging times without moving his business operations out of state.
The Economic Reality for Fast-Food Employees
Fast-food employment, characterized by some of the lowest wages in the U.S. economy, involves a workforce that often includes women, immigrants, and people of color, many of whom live below the poverty line. Despite wage increases in recent years, these jobs have long suffered from stagnant pay.
Living on Minimum Wage in Los Angeles
Jaylene Loubett, a McDonald’s employee in Los Angeles, illustrates the struggle of living in one of the most expensive states—and cities—in the U.S.
Even with the recent increase to a $20 minimum wage, Loubett finds it inadequate compared to the soaring cost of living, exacerbated by rising food prices and other inflationary pressures. After six years at McDonald’s, she still shares a modest one-bedroom apartment with her parents.
Financial Relief Through Wage Hikes
Despite the challenges, Loubett sees her recent wage increase as a crucial buffer, providing her a bit more financial leeway. She hopes to eventually save enough for a larger home or at least alleviate the constant worry over everyday expenses.
This small financial uplift represents a significant improvement in her quality of life.
Shift Towards Automation
Restaurant owners across the state are considering various adjustments in response to increased labor costs, such as raising prices, introducing more automation, reducing worker hours, or potentially closing down.
The Ripple Effects of Rising Costs
Amid these economic adjustments, notable chains like Pizza Hut have preemptively laid off delivery drivers and shifted to third-party delivery apps, which transfer more costs to customers. Other major brands like Jack in the Box, Starbucks, McDonald’s, and Chipotle plan further price increases.
The article has been updated to reflect accurate information.
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