Earlier this year, California raised its minimum wage for fast-food workers from $16 to $20, per CBS News.
“This is about raising the floor and making sure that $20 being the new minimum wage puts workers on a better economic footing to cover their household needs,” said Alí Bustamente, a labor researcher at the Roosevelt Institute.
Many fast-food workers in California, which is already one of the most expensive states in the country, will enjoy the wage hike, according to NPR.
“The workers are often women, immigrants and people of color; many live below the poverty line,” per NPR.
While the new minimum wage is advantageous for workers, the months since have seen restaurant owners and consumers struggle to find ways to offset rising costs.
Fewer hours, higher prices
California restaurants, especially locals and small franchises, are severely impacted by the minimum wage increase.
“We aren’t these big corporations with deep pockets — we’re not Wall Street, we are Main Street,” Alex Johnson, owner of 10 franchised restaurants around San Francisco, including Auntie Anne’s and Cinnabons, told CBS News.
Lawrence Cheng, whose family owns multiple Wendy’s restaurants near Los Angeles, has bumped up his own work time in order to replace the employees he now can no longer pay, per The Associated Press. He used to schedule 10-plus employees for evening shifts in the Fountain Valley Wendy’s. Now, there are just seven.
“We kind of just cut where we can,” he said. “I schedule one less person, and then I come in for that time that I didn’t schedule and I work that hour.”
Higher wages did not just affect front-line workers at fast food restaurants. Supervisors and management also received corresponding wage bumps, according to The Associated Press.
Enif Somilleda, a general manager at a Del Taco in Orange County, has benefitted from her own pay raise while also having to cut down the number of employees who work with her — from four employees each shift down to two.
“Financially (the wage hike) has helped me,” she said. “But I have less people so I have to do a lot more work.”
Other businesses are resorting to increasing their menu prices, per Salon. Research organization Kalinowski Equity Research ran a survey of 25 individual restaurants at several fast-food chains in California.
They learned that Wendy’s bumped its prices about 8%, Chipotle about 7.5%, Starbucks 7%, Taco Bell 3% and Burger King 2%. Many businesses raised the prices for their most popular meals.
“When labor costs jump more than 25% overnight, any restaurant business with already-thin margins will be forced to reduce expenses elsewhere,” said Jot Condie, president and CEO of the California Restaurant Association, according to The Associated Press.
The California Restaurant Association had argued against the wage hike. Condie said, “They don’t have a lot of options beyond increasing prices, reducing hours of operation, or scaling back the size of their workforce.”
How customers respond to inflated menu prices
Higher prices aren’t necessarily driving diners away, according to CNBC. A research organization called Lightspeed found in a recent survey that, while 69% of customers have noticed higher prices and 39% have noticed smaller dish sizes, about 50% still want to eat out at the same rate — or even more than usual.
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This phenomenon is not unique to California. Prices are rising across America, causing the mentality of consumers to shift.
“It started with revenge travel, and then it was followed by revenge shopping. And now I think it’s just a way that people are living their life with this mentality of ‘I’m going to just enjoy my life today, because I don’t know what tomorrow is going to bring me,’” Ted Jenkin, a financial planner and member of the CNBC Advisor Council, told CNBC. “And I think there’s been some permanency to that.”
Even so, customers are getting creative in response to rising menu costs. The Lightspeed survey found that 45% of customers are asking for to-go boxes so they can split their meals and eat the leftovers later. Forty-three percent have started couponing and 39% prefer value menu options.
Related
Sonic brings in a permanent $1.99 menu to compete in the fast-food war
In a bid to attract and retain cost-conscious customers, big fast-food chains like McDonald’s, Taco Bell and Wendy’s have entered a fast-food “value war” of creative deals and discounts, as the Deseret News previously reported. Taco Bell is offering a giant Luxe Cravings box at $7, Burger King has a $5 “Your Way” value meal and Sonic has a whole menu where everything is priced $1.99 or less.
