Prices at fast food restaurants in California are set to jump in April as huge minimum wage hikes kick in. Escalating restaurant prices won’t be limited to California.
Expect to Pay More
California already has some of the highest fast food prices in the nation. Expect to pay still more, and not just in California.
The Wall Street Journal notes Burritos and Big Macs to Cost More in California as Pay Rises
Minimum wage for California fast-food workers is set to rise to $20 an hour in April, a 25% increase from the state’s broader $16 minimum wage. Restaurants including McDonald’s, Chipotle, Jack in the Box and others say they will raise menu prices in California in response, with some McDonald’s franchisees estimating hundreds of thousands of dollars per restaurant in added labor costs.
“Everyone is going to have to pay more,” said Jack Hartung, chief financial officer of California-based Chipotle Mexican Grill. Chipotle has raised its menu prices four times in the past two years and expects to increase them a further 5% to 9% in its California restaurants to cover the higher pay required for workers.
The National Owners Association, a group of McDonald’s franchisees, estimated it will cost Golden Arches operators an additional $250,000 annually per restaurant, an amount that can’t readily be absorbed, according to an email from the group last September.
Burger King aims to install more digital-ordering kiosks in its U.S. restaurants, with California now a focus, said Josh Kobza, chief executive of parent company Restaurant Brands International, in an interview.
Aaron Noveshen, founder of San Francisco-based chicken chain Starbird, said he wants to recruit franchisees to open new locations outside of California, given escalating wage, building and other costs. “I do love it here, but there are a lot of forces that make it difficult to do business in California,” Noveshen said.
Impact on Joe’s Grill and Susie’s Diner
Don’t think for one second that these wage hike only hit wealthy franchise owners. For starters, many franchise owners are deep in debt to buy that franchise.
In addition, how are Joe and Susie going to get help at $16 when McDonalds is paying $20?
The answer is they won’t. Effectively, $20 is the new minimum wage in California, and not just restaurants.
The franchise owner will weigh the cost of a kiosk vs shelling out $250,000 in wages. Joe’s Grill and Susie’s Diner don’t have that option.
Where Workers will Get a Raise on January 1
I discussed wages and other factors yesterday in 2024 Inflation Outlook: How Much Inflation Is Baked in the Cake?
The post today show the actual impact to franchise owners in California but it’s not just California businesses that are impacted.
Is Inflation Down? That’s What President Biden Says
Let’s tune into a White House Statement on inflation to discuss what’s real and what is imaginary.
For discussion, please see Is Inflation Down? That’s What President Biden Says
Transitory Inflation?
Economists now widely believe in the softest of soft landings.
But here’s the key question: Is inflation transitory or is the recent decline of inflation transitory?
I suggest it’s the decline in inflation that is transitory until the Fed delivers a recession.
In the last 50 years, the federal minimum wage has usually paralleled inflation, except during periods of economic crisis, when the government halts its increase. The federal minimum wage has been frozen since the 2009 mortgage crisis. (Obama and his Democrat majority could have increased the minimum during his first term.)
California’s minimum wage diverged from the federal in 1998. In 12 years between 1998-2009 California’s minimum wage increased 39 percent. Then 9 years between 2009-2018 California’s minimum wage increased 37 percent. It only took 4 years between 2018-2022 to rise another 36 percent. Then only 2 years between 2022-2024 to gain 33 percent.
There are many online blogs about inflated prices at McDonalds and Taco Bell. Their costs have risen to match sit-down restaurant meals. It’s interesting the increase in minimum wage happens after their first financial quarter.
Avg CA McD franchise is $1.3M ranging as high as $2.2M, haven’t noticed any articles about their prices tanking. Here in NJ shore area I think only the mgr speaks clear English. The hispanic workers are OK, well mannered just hard to understand at times. Not sure how their citizen staus is verified but oh so tempting to hire undocumented help neven with $15+ pay scale. GOP conundrum, they want cheap labor but not if it’s black/brown with an accent. After ’24 election GOP squeals will shift to labor shortages and (if he regains power) trump’s massive deportations will go pfft like his much better medical plan. Like all bullies he’s all bluster.
I can only go by what I see locally as obviously it’s always different where you are.
The local McD here remained at drive through only for the longest time post C19 scare and only recently re-opened the ‘dining room’. Even then about half of it is closed off including the ‘play’ area. Kiosks rule and anything before and after 9(am/pm) is drive through only. Other franchise competitors are doing the same with only slight variations except CFA.
Local joints have cut back on days open due to a lack of workers so I was told by an owner. Minimum here isn’t CA level and the gov handouts are carrying them along with selling drugs I guess.
Some are closed Mon/Tue or Sun/Mon. Our little pizza joint down the road is closed Sat/Sun (prime pizza days!) because no one wants to work weekends and the owners are burned out trying to do it all themselves.
Other places open for lunch, close for 3-4 hours, then run a few hours for the supper crowd. If it’s a decent place, you’d better have a reservation.
This area is still booming and overrun with CA/NY/NJ/IL refugees as well as border jumpers.
It’s a strange time only getting stranger as it goes. You know it’s going to end, you just don’t know how/when/where.
know what doesn’t make sense, so we see how they’ve been running these places with bare bones, yet, it’s supposed to cost each restaurant 250,000 dollars a year!? Come on! Where do they even get that number!?
Correct! Get back to us when the cost of buying a franchise starts going down, then we’ll actually have a problem!
Anyone who thinks the whole world is on a sustainable path must surely be jesting.
In the tourist paradise where I live we’ve seen a rash of restaurant closures in the last year. I think the real estate is wildly overpriced and won’t support a service business. Unfortunately all the property is owned by people with more FU money than they know what to do with so they could care less if it’s rented. There are two $M houses near me that have been vacant since they were built in 2015. They’re owned by a lawyer in Newport Beach, CA. There are a bunch of retail buildings in a prime location also that have been vacant just as long, owned by a Korean dude. Too many A-holes with too much FU money……
There is a video explaining that McDonald’s doesn’t make that much off the actual food. They make it off selling franchises and then tighten the screws on owners demanding they pay for refreshes every decade or so…new chairs, tables, flooring, exterior upgrades. Owners don’t make that much once the upgrades are factored in.
This actually worked out great for Russia. They still have access to the food but no longer have to pay the franchise fees or do the upgrades. The ones that “closes” didn’t actually close. Still open but called something else. The food is the same.
According to this website link to eatthis.com
Here is what the big mac cost each decade since 1970.
1970 – $0.65
1980 – $1.60
1990 – $2.45
2000 – $2.39
2010 – $4.19
2020 – $4.95
So why are so many people here feigning shock? Are people here really that stupid that they don’t know how inflation works? It won’t matter who is president or who controls congress. Using these numbers you can project that a big mac will cost around $8 by 2030 just in case you don’t know how to do math and are “shocked” that it went up so much. I expect a “combo” to cost about $20 which means a standard dinner at a regular restaurant will probably $60 per person and $120/person at a fancy restaurant. Better check your SS COLA guys cuz it’s about to get pricey.
Yup but many people are now making $100k+. Saw a story a few days back that here in San Mateo county, CA, the median wage is $169k annually and the median house price is $1.4 million. Making less than ~$120k for a family of 4 here is considered poor and qualifies them for government handouts. If you are undocumented (AKA illegal) or homeless almost everything is free.
Meanwhile, our road maintenance sucks, infrastructure needs major repairs, police don’t enforce traffic laws (afraid of George Floyd moments), city managers in this area make $300k-$500k, etc, etc. They don’t have money for these things because they waste it on coddling poor people.
I would look forward to a $32 Big Mac in 2050 but I think it just might be a lot more than that.
Does anyone eat at McDonald’s? The effects o prices at In-N-Out Buger is another story!
This wont affect In-N-Out much at all. They were already advertising starting pay of $19.50/hr in CA last year.
Except that 19.50 was likely a premium wage relative to competitors right? That means they wanted to pay higher wages to attract and hire the better workers. They will still have to pay more than everyone else to get those better workers.
Around a $40K a year wage won’t cut it in CA. Heck, after taxes you’re under a freeway. I live in one of the lowest cost states, and they are paying that, and having a hard time finding help. Just a decent new car is $30K after everything is said and done. Gas to drive it that first year, and there’s your $40K.
Think back to when you were in college or at your first job. You likely made close to what min wage was then and somehow we all made it work.
I know people here in Florida living on what’s surely less than 40K. They all have roommates, drive 10+ year old cars (would not dream of buying new) or bum rides/uber, share Netflix passwords / illegally stream etc.
You’d be surprised what you can live on when you have to do it (ask Seniors on fixed income) and what kind of tax breaks are available if you know what to claim.
Back in those days, we made it work because it was indeed workable. I know this because I lived and worked through it.
You cannot possibly compare then to now, as it is not even recognizable in comparison.
You could make 30k a year (I did), buy a condo for under 50K (I did) and a good car for well under 10K (I paid $400 and spent 1 month and around $500 to get it running), and ran that 72 ford 351W engine for 3-4 years! Wife stayed home to raise our two children, and we sold that and bought a duplex (I did work 2 jobs for a bit, and we rented half out) for 90K, rented my condo out for a few more years and then sold it for 80K. You couldn’t possibly do that today, and not even close.
As you say, people can do it. Yes, but at what cost to their sanity, relationships, diet, medical issues etc. You can only live stressed out like that for so long, before it takes you down. Look at all of the issues with people trying to live with that sort of anxiety. They can’t hold down a job, depressed all the time, you lose hope and your effort goes south. You don’t feel like your living, because your not, in a sane fashion…
Don’t get me started on seniors, as I have cared for them as a give back job. Many are poor, stuck, no support, scraping by if that, and need help from their families, if they have it to give. This is not better or even doable for any length of time without ramifications, and I think this country is seeing it now albeit in slow motion…
Inflation has nonlinear effects even if the mean keeps up with the price level because you are laying a bell curve on a linear increase. There will be more rich and more poor and the middle will disappear. Inflation is pernicous in the long run even when it is not in the short run. It is the largest fraud.
Working at a fast food joint is not supposed to be a career. It’s for kids entering the work force.
Back in the 80’s that would be a very true statement. This is 2023 however, and these are career jobs now. Managers make around 100K at these jobs in the right store and location. They have to or they can’t find anyone to do the jobs.
There were a lot of jobs that were meant to be for kids joining into the work force, but those days are long gone. Servers make 40K-60K now with tips, and managers make around 100K, and I know because I have several relatives whose adult children work and manage at these places.
If you have a disability that job just may be your career.
This was spoken about in length, back when “Fight for 15” was going on. In fact, search it and McDonalds comes up. You just can’t make this stuff up.
If I recall correctly, it was said plenty, that it would hasten robotics in the low skilled job hemisphere. As a result, it would cause major job losses in that sphere. It was also said, that those workers who stayed, would make less due to fewer hours worked. Some would earn a bit more but required to do a lot more for that extra money. Those are just a few that quickly came to mind.
All of this would naturally have taken place no doubt, but the devil always lays within the details. In this case no plan, but profits, was the desired goal. For awhile that worked, but no longer. Inflation wiped out all chance of that occurring. Now they have less workers, at more cost, and doing less, because they have the leverage.
All this will end soon, as it has already started. More closures, layoffs, unemployment, unreported earnings, etc. In other words havoc!
With these owners not having to pay minimum wage to new Kiosks … jobs will disappear in a big way. The break even point is for more technology just moved down. The social justice messagers who voted for this knew this … but they also knew that they’d be seen as the good guys regardless of the horrible outcome.
I’m just astonished how often the names McDonalds and Walmart show up in these articles and comments. I wouldn’t be caught dead at either.
Why not?
Agreed. Especially regarding Walmart for hard goods. Buy at the store that has the least expensive price. It’s the same merchandise being marketed by different stores.
Not to mention if you don’t want to set foot in the store (and in truth most Walmart customers aren’t the greatest), you can order online and have it delivered right to your door for free.
Their prices are hard to beat unless you are a Sams Club or Costco member and buying in real bulk.
As for Walmart, the choices are Walmart, Safeway, the Ace hardware store, and Hales Feed store, and Autozone.
If none of those have what you need it’s either an hour drive or Amazon.
As for McDucks, I haven’t been there in decades.
It’s not a problem.
Just have your cook and butler do your shopping.
“estimated it will cost Golden Arches operators an additional $250,000 annually per restaurant”
Anyone call this out? How does $4/hr over 2,080 hrs per year for an FTE amount to $250,000? they have 120 employees at each store?
A reasonable question:
McD’s is operation (incl prep/clean) 18 hours per day (5a-11p); 7 days/week is 6552 hour/year operation.
A largish Mc’D will staff at 10 heads per location across 6552 hours at extra $4/hr is $262K.
10 heads is 4 order takers (incl drive thru), 4 “cooks”, 2 utility players, cleaners, managers.
A nice breakdown. But only the largest ones have 10 people constantly there. Most are probably in the neighborhood 6 or 7 especially in the off hours (mid afternoon and late evening) especially with online app ordering and kiosks becoming more prevalent.
I suspect some of that money is what Sam below mentions, the added hidden cost on UI benefits, workers comp etc that business pay. That’s probably a third of the 250K which would be in line with 6-7 workers on average.
UI would only go up for some part time workers since “The taxable wage limit is $7,000 per employee per calendar year.”
link to edd.ca.gov
Many thanks, notaname, and T-Tim
It will cost more in employer paid taxes and workman compensation insurance premiums that are based on wages. You know little about running a business
Ever owned a business? Because if you did you would know it not just $4 per hour. A $20/hr employee after taxes, overhead and even minimal benefits can easily exceed $30 per hour when calculating the true cost. This is what happens when you have politicians who have never signed the front of a payroll check make the laws.
So at 50% for overhead and benefits the $4 increase is actually $6.
I read Biden’s rant on prices vs inflation. The man does not know the difference between inflation rate of change and CPI.
No problemo Joe and Sallie can just hire illegals for $4/hour.
In CA, you will have to pay minimum wage regardless of legal status, the labor commission will penalize you and force you to pay minimum wages.
I’ve been to a few independent single-location restaurants that have kiosks. And chains where you just use your phone to order and pay. No on-site hardware required for most transactions.
There must be companies that offer these services to small businesses. Figure out how to invest in them, if you think low skill job wage growth is likely to be a big trend.
Maybe in a few years, the kiosk/app will be the main option. Anyone ordering through a person will have to pay a service fee.
Long story short, businesses are good at dealing with these kinds of changes. It’s likely important to a small group of people and a footnote for everyone else.
This is already here now at least in Florida. You get a nice discount at McDonalds and other fast food places if you order online via the app.
I’ve seen more and more of the actual restaurants only have 1 cashier now and you have to order via the kiosk and not from the cashier directly (they just handle cash customers at the kiosk and handing out the order).
The app and the kiosk are absolutely the future for all the fast food chains. There will just need to be 1 person at the drive through, 1 cashier and then a couple of cooks making and packaging the order (esp once more places automate the cooking process).
Wawa min-market gas stations have really blossomed in the past couple of years in Florida. Very nice facilities. I was confused the first time I entered the store to order a sandwich. I needed to order from a computer screen off to the side of the sandwich counter. Not a big deal. They make a pretty good sandwich.
Indeed they do make good food. The Hoagies are excellent and the misses likes the salads.
It’s also one of the few places open late where I can grab food when I am on my way home at midnight after beer league hockey.
I was reading a local story about these increases and noted that some fast food owners are talking about shutting down the counter service and only operating a drive through or two, which requires less staff.
So ultimately, the FF workers may make more money but there will be less FF jobs. Politicians solve another problem and create a different one.
“Don’t think for one second that these wage hike only hit wealthy franchise owners. For starters, many franchise owners are deep in debt to buy that franchise.”
The ideal outcome would be mass defaults on all that debt. Ideally to the point where every bank and other “financial” institution went under and were replaced by at most 2% of what that entire sector of nothing-but-the-most-useless-of-all-totalitarian-government-depedent-useless-leeches currently consists of. Only then would there be any possibility of any form of realistic price discovery in the fast food, as well as any other, sector(s).
I’m not intimately familiar with fast food franchise cost breakdowns. I would expect labor to account for a large share.
But: Based on experience from other sectors over some years, and due to America being nothing more than a fully financialized dystopia by now: It would not surprise me the slightest to learn that pretty much pure transfers to the leeching classes; in the form of rent, franchise and/or debt payments,permits etc., would add up to even more.
Then: What else would those locations be used for? Any internationally competitive industry is a complete no-go. And fat chance the leeching class negative-value-adders would let their favorite politicians allow anyone to build housing there. After all, the far-and-away main mechanism negative-value-adders have to obtain wealth other people create by way of government wealth transfers, is to ban more competent people from simply building themselves, decent-value places to live. All in order to make the competents desperately dependent on the useless leeching classes for something as trivial; and long-since-solved in competentiverse; as a roof over their heads.
Not saying government-; of all useless institutions; -mandated minimum wages aren’t silly. Just that the selling price for the product the fast food places are selling, has already been jacked up to far above what would make even $40/hr labor sustainable, were it not for other arbitrarily jacked up costs involved in something as simple as making and serving a hamburger.
Hence, just as is the case with housing: The current cost is all that can possibly ever be charged. Hence it no longer has much effect on final prices whether building standards are revised to demand gold plated walls, or if serving burgers requires paying NBA salaries: The only place left those additional costs could be taken from, is the only place that literally ALL the wealth is currently being transferred to: The Fed and Junta dependent leeching classes. Whom noone even half competent would miss at all; even if they should, literally, starve to death. Since they contribute, again literally, absolutely nothing of value. Nor serve any other purpose than being theft recipients and useless idiots for a run amuck Fed.
Thanks Stuki
A very fine rant!
Redacted.
The original federal minimum wage was an attempt to stop businesses from hiring blacks at a lower wage than white people would work for. If you have to pay $20/hour instead of $16 I wonder how that will play out demographically.
Will a wage increase allow them to live somewhere other than their cars or tents?
Yes they can move to Alabama, Mississippi, Montana, Wyoming, Indiana or dozen other states where they can afford to live
If they can’t handle California they should move to New York/New Jersey or Illinois and keep the disease constrained.
The wage-price spiral is beginning in CA. If fast workers make $20 with indexed wages to inflation, how much will the nurse, electrician, and others now make? With restaurants increasing prices 4 times in 2 years (and soon a fifth time), look for demand to soften. Restaurants are discretionary spending. Restaurants can only compete with more automation (less labor).
Healthcare workers in CA are promised a $25/hr minimum (July 1?) although Gov. Newsom is making noises about postponing this because of the current CA budget deficit. Healthcare workers means EVRYONE that works in healthcare, even janitors.
Speaking of janitors, one of the local school districts is looking for one. Hourly rate ranges from $25 – $31! For a janitor or as they are sometimes known hereabouts, a sanitation engineer.
It’s deja vu all over again. the link and (chart in it) below tells you exactly where inflation is going. An ancient proverb…“Everything that happens once can never happen twice. But everything that happens twice will surely happen a third time.”
link to apolloacademy.com
The Federal min wage is $7,25 since 2009. Twenty states have $7.25 min wage, but the competition for workers forced employers to pay more. Efforts to raise the min wage failed. Most southern states have a $7.25 min wage. In CA MickeyD will retain older employees that currently earn close to or above $20. High school kids, college students and older Gen Z have no chance. Ten million illegal immigrants will flood CA to compete with the min wage. CA population might rise. The spread between the poor and the rich will grow. The black market will thrive. CA will support more people in the black market. General Santa Anna won.
Do you mean the Black black market?
For the moment I am not seeing a landing, soft or hard. I must admit I am surprised. With interest rates high and probably staying high I would have expected a much bigger slowdown. We are in an environment where labor, both skilled and unskilled, is rarer than when we are used too. The Amazon River flow of immigrants from the border, at least in the short term, will not remedy this lack or workers so paying up for eating out is here to stay so we better get used it. As a Boomer (and proud of being one) I grew up in a world where eating out was cheap because waiting and cooking jobs were done by young people as a temporary job until they found something better. Now young people can find something better right away so that pool of enthusiastic, fantastically competent future Boomers is no longer there.
I am not going to speculate as to the future of the restaurant but to say there is no reason for food to be cooked by a human nor served by a human but there is a reason for the person to greets you at the door and directs you to your seat to be human. One other thing. I certainly hope that food service robots do not ask for a tip for I will refuse to give them one.
Soylent Green is in our future
One can only hope.
Want to eat out?
The future is the French Laundry and it’s ilk.
These damn workers who are trying to make a livable wage …
And those as you call damn workers will not be able to afford to eat at the restaurants they work at. Working at a fast food joint should not be a lifetime career goal only a stepping stone to something better.
Utter nonsense. In Denmark, workers have been making $20+/hr for decades and food costs the same as it does here. The US has some of the best tax breaks for companies like McDonalds and they still whine that they can’t pay workers decent wages.
link to snopes.com
Then why don’t you buy a mcdonalds if they are so profitable? Then you can pay your employees $50 hr and still be rich because of tax breaks
I welcome the robots, they will be more intelligent than 30% of the current employees
They can get an education or a useful skill. French fry cook is not a valuable skill and deserves less than minimal wage
Fry cook is certainly a more valuable skill than say banker, insurance agent. financial planner, real estate investor, and other parasites sucking the blood of the working class.
20+ an hour wages are going to kill fast food and mom and pop restaurants, only the well to do will be able to afford it.
Ma/Pa restaurants get killed; big food will adopt big tech, automate and survive.
Gotta drive out the little guy to consolidate power.
Crony Capitalism it is! (maybe socialism is better …no one is rich then)
Mom and pops typically hire / use a lot of family members to keep costs down.
Also you don’t have to pay wait staff 16 or 20 an hour. They get paid far less because they make tip money.
These days I can find plenty of mom and pop places here in Florida where I can get a burger and fries with wait staff service for the same price as drive thru McDonalds.
Hint. Eat at home. Be a cheapskate like me. You will be doing your body and wallet a lot of good.