California fast-food franchisees worry they’ll lose diners to Chili’s and Applebee’s as wage hike drives up prices


California fast food franchisees worry theyll lose diners to Chilis and Applebees as wage hike drives up prices

In the heart of California, a new economic battle brews as fast-food franchisees face a seismic shift following the state’s hike in minimum wages to $20 per hour.

Shane Paul, owner of seven Jack in the Box outlets in San Diego, and his contemporaries are at the forefront, grappling with a reality where they may lose customers to more upscale options like Chili’s and Applebee’s.

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These fast-casual chains are unaffected by the new wage mandates that came into effect this April, leaving them free from the pressure of raising their prices as dramatically.

With only a dollar or two difference in pricing, diners are increasingly choosing the added comfort and service of these restaurants over the traditional quick-service stops.

For a bit of perspective, California’s limited-service eateries—defined by having at least 60 national locations and minimal table service—must now ensure a $20 hourly rate, a 25% increase over the general state minimum wage.

This policy has forced many such restaurants to hike their menu prices to offset labor costs, contrasting sharply with their fast-casual counterparts who aren’t subject to these new wage requirements.

Econometer: Should the minimum wage for fast food workers be raised? - The  San Diego Union-Tribune

Take Harsh Ghai, who oversees a robust portfolio of about 180 Burger King, Taco Bell, and Popeyes locations. Over the past year, Ghai has raised his prices by 8% to 10% just to manage food inflation. Now, adding another layer to cover higher wages might just push customers away—a concern echoed across the board.

Imagine walking into your favorite McDonald’s and finding that your regular Big Mac meal now punches a bigger hole in your wallet. This is not mere speculation; it’s happening in wealthy areas like Fairfield County, Connecticut, where a Big Mac meal has hit the $18 mark.

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Back in California, Scott Rodrick, who owns 18 McDonald’s outlets, mentions rethinking operational strategies, like delaying renovations and tweaking operating hours to navigate through these financially tightening times.

Interestingly, while traditional fast-food joints feel the squeeze, others like Kura Sushi see a silver lining. The chain’s CEO, Hajime Uba, believes that the narrowing price gap could actually enhance their value proposition, as their pricing inches closer to fast-food levels.

However, this isn’t just about economics; it’s about dining psychology.

Brian Vaccaro, a restaurant analyst at Raymond James, points out that the choice between fast-food and casual dining often boils down to the dining experience.

Fast-food thrives on speed and convenience, perfect for a quick bite or a rushed meal. On the other hand, casual dining places like Chili’s serve those looking to unwind in a more relaxed setting.

What does this mean for the industry? According to Sharon Zackfia, a William Blair analyst, we might not see an immediate drastic shift. While casual dining might benefit from holding prices steady and potentially attracting more customers, the inherent qualities of fast-food—quick and convenient—will continue to hold appeal.

As this wage adjustment shakes the foundations of food service economics in California, it also stirs a broader discussion about wage policies across sectors.

Could this lead to increased wages in other states or industries as businesses strive to remain competitive?

Only time will tell, but one thing is clear: the landscape of dining out in California is changing, and both businesses and consumers will need to adjust their strategies and expectations respectively.

As we watch this unfold, let’s chew on this—next time you debate between a burger on the go and a sit-down meal, the choice might not just be about taste or mood, but also about supporting workers and businesses navigating these turbulent economic waters.

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