Rubio’s Coastal Grill, a popular restaurant chain known for its fish tacos, has decided to shut down 48 of its California locations by May 31. The decision stems from the challenges posed by the increasing cost of business operations.
Why Rubio’s Is Closing So Many Stores?
Rubio’s Coastal Grill has announced the closure of several stores due to the escalating costs of doing business in California. According to a statement from a Rubio’s spokesperson, although difficult, these closures are a strategic measure essential for the long-term viability and success of the chain.
The $20 Wage Wave Hits Rubio’s
A significant factor influencing this move is California’s new $20 per hour fast food minimum wage, which became effective on April 1.
The implementation of this wage rate is linked to the loss of approximately 9,500 jobs by the end of April—a 1.3% drop since September 2023. The chain, however, plans to keep 86 outlets open across California, Arizona, and Nevada.
Bankruptcy and Cost Struggles
The brand, which filed for bankruptcy in 2020, has been particularly vulnerable to financial pressures, making it more susceptible to the impacts of rising operational costs.
The company has yet to release details on the number of employees affected by the recent decision.
A Case of Costly Operations
UCLA economist Brian Wheaton points out that Rubio’s is representative of businesses operating close to the shutdown margin—those that are marginally profitable and at high risk of folding under additional financial burdens.
For some of these companies, passing increased costs onto consumers might precipitate a shutdown, as seems to be the case with Rubio’s.
Financial Fall During the Pandemic
Four years ago, Rubio’s Coastal Grill was managing a network of 167 restaurants spread across Arizona, Nevada, and California. However, the company faced significant financial strain when it defaulted on some of its debt in June of that year, as reported by Bloomberg.
This financial setback was largely due to the severe impact of pandemic-related shutdowns, which drastically reduced sales across the board.
Cutting Losses
In a bid to stabilize its operations, Rubio’s permanently closed 26 of its underperforming stores located in California, Arizona, Colorado, and Florida during the same year.
Despite these closures, the challenges for Rubio’s were far from over.
Expansion Struggles and Setbacks
The restaurant chain was already grappling with stiff competition and rising labor costs. Additionally, its attempts to expand into new markets did not yield the anticipated results, leading to further operational difficulties, as detailed in court documents.
Wage Hikes Push Fast Food to Innovate
The higher labor costs are not just affecting Rubio’s but are also prompting many fast food chains to adopt more automation and hike prices to manage expenses.
The increase in minimum wage has inadvertently set a competitive wage benchmark, compelling small businesses to increase their wages to attract and retain workers.
How Wage Laws Complicate Business Operations
John Kabateck, the California Director of the National Federation of Independent Business, highlights the complex set of minimum wage laws that complicate hiring and operational planning for businesses.
He also points out other growing challenges like the proposals for paid leave and rising unemployment insurance taxes, which are making it tougher for businesses to sustain operations.
The New Normal for Fast Food Workers
April 1 marked a significant shift for many fast food workers in California, as the state’s new minimum wage law came into effect.
Enacted under AB-1228, the legislation raised the minimum wage to $20 per hour for restaurant workers in specific fast food chains.
The Ripple Effect of Wage Changes on Chains
This change affects chain restaurants characterized by limited or no table service that operate more than 60 franchises nationwide.
These establishments typically include those where customers select and pay for food and drinks in advance, with the options to consume the products immediately either on-site or off-site. The law also covers other food service venues such as certain coffee shops and ice cream parlors.
Intense Bargains Behind Wage Hike
The implementation of this wage increase was the culmination of intense negotiations and standoffs between labor unions and the fast food industry. This began in 2022 after Democratic Governor Gavin Newsom signed legislation establishing a Fast Food Council.
The Council’s Wage Authority
This council, comprised of representatives from both the restaurant industry and labor unions, is empowered to potentially increase the minimum wage for fast food workers to as much as $22 per hour.
Moreover, it can adjust this wage annually by up to 3.5% or by the change in the U.S. consumer price index for urban wage earners and clerical workers, whichever is lower.
Industry Backlash Against Higher Wages
Despite the positive development for workers, the response from the industry has been mixed, with some backlash particularly evident among pizza chains. In anticipation of the financial strain imposed by the wage increase, several of these chains have started to reduce their workforce.
For instance, Michael Ojeda, a 29-year-old Pizza Hut driver in Ontario, California, reported receiving a termination notice in December, with his employment slated to end in February, as noted by The Wall Street Journal.
Fast Food Prices Climb as Wages Rise
The recent increase in minimum wage has not only affected employment within the fast food industry but also the prices customers pay. A notable example surfaced on social media, where a user shared a video from a McDonald’s drive-thru in Southern California.
The $27 McNugget Meal
The post discussed the cost of a 40-piece Chicken McNugget meal bundled with two large orders of fries, priced at $25.39.
After sales tax, the total approached roughly $27, and the meal did not include any beverages. The user expressed surprise and dissatisfaction, emphasizing the omission of a drink like a medium Sprite, given the price.
Economic Shifts Sparked by Wage Increase
This incident illustrates how significant price increases have become a more common occurrence across the fast-food landscape. Further emphasizing the trend, a recent study reported that McDonald’s prices have doubled since 2014.
For instance, a 10-piece McNugget meal that cost $5.99 a decade ago now sells for $10.99. This stark increase in prices reflects the broader economic adjustments within the industry, highlighting how wage policies can ripple through to consumer costs.
The Unexpected Fallout of Wage Hikes
The higher wage is designed to provide financial relief to employees struggling with the high cost of living. However, its implementation has led to significant adjustments across the fast food industry.
A Lose–lose Situation?
Businesses are reevaluating their operations, often resulting in layoffs or increased automation to offset higher labor costs. For consumers, the ripple effect is seen in the rising prices of menu items, as exemplified by the noticeable increase in costs at popular fast food chains.
Additionally, while some workers benefit from higher wages, others face job insecurity or reduced hours as employers adjust to the new financial pressures.
Early Lessons from the Wage Increase
While the intent behind California’s $20 minimum wage is to elevate the standard of living for fast food workers in an already expensive state, the early impact on businesses, consumers, and even the workers themselves suggests that this well-meaned legislation may have unintended consequences.
Top 3 U.S. States That Almost No One Leaves (And for Good Reason)
Top 3 U.S. States That Almost No One Leaves (And for Good Reason)
Related posts:
Kate Smith, a self-proclaimed word nerd who relishes the power of language to inform, entertain, and inspire. Kate's passion for sharing knowledge and sparking meaningful conversations fuels her every word.