Megachains McDonald’s and Chipotle have announced they will raise menu prices in California to pay for the minimum wage increases recently signed into law by Governor Gavin Newsom.
Certain fast-food workers in the Golden State will be paid at least $20 an hour next year under new regulations that took effect in September.
McDonald’s CEO Chris Kempczinski said on an earnings call that the law “will have a wage impact for our California franchisees” — and suggested price increases would follow.
“Certainly there will be an element that needs to be resolved with higher prices,” he said.
Jack Hartung, Chipotle’s chief financial officer, told analysts during an earnings call last week that the chain will likely increase prices by a “mid-to-high single digit” percentage as a result of the law change.
Fast food workers in California will be paid at least $20 an hour next year under a new law passed by Democratic Governor Gavin Newsom
Kempczinski did not specify how much McDonald’s prices might increase as a result of the new state law.
“There will also be things that I know the franchisees and our teams will be looking at in terms of productivity,” he said on the company’s latest earnings call on Monday.
“How that all plays out, there will certainly be a short-term hit to the cash flow of California franchisees. It’s hard to know exactly what that hit will be because of some of the mitigation efforts.”
McDonald’s has already raised prices across the country even as inflation has fallen.
Megachains McDonald’s and Chipotle said they will raise menu prices in California to pay for minimum wage increases
McDonald’s reported revenue of $6.69 billion in the third quarter – “driven by strategic menu price increases.”
That turnover translated into higher profits. The fast-food chain reported a profit of $2.32 billion, up almost 17 percent from $1.98 billion last year.
Its revenue of $6.69 billion exceeded Wall Street expectations and was also 14 percent higher than the $5.87 billion it earned in the same quarter of 2022.
The cost of a Big Mac has increased 125% since 1996 and is currently $3.91, according to CashNetUSA.
Fewer Americans making $45,000 or less visited locations last quarter, according to the company.
McDonald’s CEO Chris Kempczinski said during an earnings call that the law “will have a wage impact for our California franchisees” — and suggested price increases would follow
The minimum wage increase for fast food workers in California will go into effect on April 1, 2024.
It applies to employees of restaurants that have at least 60 locations nationwide – with the exception of restaurants that make and sell their own bread, such as Panera Bread.
The new minimum wage of $20 per hour has increased from an average of $16.60 per hour, or just over $34,000 per year, according to the U.S. Bureau of Labor Statistics.
According to the University of California-Berkeley Center for Labor Research and Education, this means workers will have among the highest minimum wages in the country.
The state’s minimum wage for all other workers — $15.50 an hour — is already among the highest in the US.
Labor leaders cheered fast-food workers and rallied around Governor Newsom as he signed the bill at the Service Employees International Union in Los Angeles on September 28.
“This is a big problem,” Governor Newsom said at the time.
Newsom’s signature reflects the power and influence of unions in the nation’s most populous state, which have worked to organize fast-food workers in an effort to improve their wages and working conditions.
In exchange for higher wages, unions abandoned their efforts to hold fast-food companies accountable for the misdeeds of their independent franchisees in California, a move that could have upended the business model on which the industry is based.