Fast-food restaurateurs in California are warning customers to expect price bumps ahead of a new minimum wage for the industry, which will go into effect on Monday.
California Democratic Governor Gavin Newsom signed a bill in September lifting the minimum wage for fast food workers from the state minimum of $16 an hour to an industry-specific rate of $20 an hour. The bill is set to go into effect on April 1.
With the new wage floor just days away, fast-food businesses are preparing to cut jobs and hike prices to offset the increase in costs.
“It’s going to be a pretty significant increase to our labor,” Chipotle chief financial officer Jack Hartung said during an earnings call last year, according to the Los Angeles Times. Hartung said that a significant amount of the cost would be passed on to customers in “a mid-to-high single-digit” percentage price increase.
“We are definitely going to pass this on,” Hartung said.
A Starbucks spokesman said the company would offset the added labor costs “through a variety of levers—including near-term pricing as well as other efficiencies.”
In addition to price increases, some employees will be cut to make way for cheaper automated options. Other business owners may quit California entirely.
“Where they can automate, they will automate more,” said Harry Holzer, Georgetown University professor and former Labor Department chief economist. “Maybe some franchises will move out of state.”
Jamie Bynum, a Dickey’s Barbecue Pit franchisee, said the new law would raise expenses at his southern California location by $3,000 to $4,000 monthly, additional costs he will pass on to customers.
“People don’t understand that when wages rise, so do the prices,” Bynum told The New York Times. He said that in the past, when he has been forced to raise prices, fewer customers have come to his business, eating away at his earnings and forcing him to make cuts to his workforce.
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The new law will make California’s minimum wage for fast-food workers the second-highest in the country for minimum wage workers. The only other place with a higher floor is a small city outside Seattle, where the minimum is set at $20.29 for some.
The bill signed by Newsom last year will force most fast food chains to raise pay, though the bill included a carveout for businesses that also make and sell bread as a separate menu item. The carveout was criticized as some alleged it was a favor to one of Newsom’s financial backers, Greg Flynn, a billionaire whose business runs two dozen Panera locations in the state. Newsom denied the accusation and insisted Panera was not exempt from the new law. Still, Flynn pledged to increase the hourly wage at his Panera locations to $20 an hour after criticism erupted over the exception in the law.
