With California’s recent minimum wage hike, some fast-food franchises are desperate for new strategies to stay afloat.
California Minimum Wage
In the weeks following California’s new minimum wage laws, which saw the fast food wage rate raised to $20 per hour, fast-food franchise owners have found themselves struggling to turn a profit due to labor costs.
McDonald’s Franchise Owner Speaks
Scott Rodrick, the owner of 18 McDonald’s franchises across the state, has made no qualms about the struggles that franchise restaurant owners now face.
A “Literal Whirlwind”
“The last 12 days since this unprecedented law impacted franchisees in California has literally been a whirlwind, frankly it feels like an eternity,” Rodrick told Fox Business.
Large Franchises Affected
The new minimum wage law applies to restaurant chains that have at least 60 locations across the country.
Looking for New Profit Strategies
While the minimum wage increases were made to provide extra support to millions of struggling minimum wage restaurant workers, it has left restaurant owners floundering to find new ways to alleviate the burden of labor costs.
Raising Menu Prices
Most notably, many affected chain restaurants have begun raising their menu prices, supported by a new analysis from Kalinowski Equity Research.
Notable Increases Across the Industry
According to their research, Wendy’s franchises in California have increased menu prices by 8%, Chipotle Mexican Grill has raised its prices by 7.5%, and Starbucks by 7%.
Customers Aren’t Impressed
While price hikes would seem like the most logical move to generate more revenue without serious cost-cutting, it has also caused outrage among customers who feel that franchises are passing the burden of state laws down to them.
Viral Outrage
This week, McDonald’s restaurants in California went viral on social media due to rising menu prices. The online outrage was sparked by a new meal bundle, which included 40 Chicken McNuggets and two large fries for $25.39.
Way Too Much for McDonald’s?
“Who’s ever heard of paying that much at McDonald’s?” said the poster, who shared a clip of the menu item on Tiktok.
“The New Normal”
“That’s California, man,” one commenter responded. “A 40-piece at my McDonald’s is only $13.” Another pointed out “Well, they just raised minimum wage, so I guess this is the new normal.”
“The Focus is Survival”
But Rodrick has defended the fast food price changes throughout the state, calling the new minimum wage law “unprecedented” and insisting that “the focus is survival” for affected franchises.
Further Menu Increases
Rodrick himself has raised his franchise prices by 5 to 7% from January to March and has admitted that he will likely raise them further in line with increasing labor costs.
Fighting and Surviving
“This is my family’s 50th year in the McDonald’s business, and I plan on fighting and surviving for another 50 years,” he said.
A Delicate Balance
But he also admitted that regardless of mounting costs, raising prices required a delicate balance that would allow owners to turn a profit while still being profitable to customers. After all, the higher prices climb, the higher the risk of turning diners away.
“It Has to Be Done Thoughtfully”
“I realized that my customers’ appetite for higher prices is not unlimited,” Rodrick elaborated. “So when I take price to relieve margin pressure, it has to be done thoughtfully with a plan. Charging $10 for an Egg McMuffin or $20 for a Big Mac, for me, is a nonstarter.”
Not the First Time
This is far from the first time that McDonald’s franchises have seen their bottom line affected by minimum wage increases in California. State minimum wage nearly doubled between 2013 and 2022.
McDonald’s Prices Increase by 100%
Menu prices certainly seem to have risen along with the wage increase, as average McDonald’s prices have increased by 100% since 2014, according to a study by FinanceBuzz.
Unsustainable for Business?
Some restaurant owners have argued that ongoing wage increases are unsustainable for business, and could drive more restaurants to shut down, which would then leave fast-food employees out of work. These claims have been denied by economic data from US Berkeley and the University of Victoria.
“Time and Time Again”
“Time and time again, research – and reality – show that raising fast-food workers’ pay in California will only lead to higher living standards for workers and a more equitable economy,” economics professors Michael Reich and Justin Wiltshire have claimed.
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The post – McDonald’s Owner Battles Harsh Realities of California’s $20 Minimum Wage Surge – first appeared on From Frugal to Free.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
