Data indicates that since it went into effect on April 1, California’s new $20 minimum wage for fast-food workers has already led to an increase in restaurant costs and a decrease in foot traffic.
Based on a recent Placer.ai study, most quick-service chains in the state have increased menu prices by mid-single digits to mid-teens, percentage-wise, due to the new law that affects restaurants with 60 or more locations. The study also found that the price hikes are negatively affecting business.
The research revealed that foot traffic at large chain restaurants in California increased in February and March of this year compared to the previous year and exceeded the national average; however, this quickly changed once the pay increase took effect.
In seven of the eight weeks from April to May, California’s foot traffic to fast-food establishments was lower than the state average, according to Placer.ai. Quick-service burger chains were the most severely impacted, according to the analytics company.
For example, in February and March of this year, McDonald’s recorded about the same foot traffic year over year at its California locations as it did at the other McDonald’s shops countrywide. But with the implementation of the minimum wage law, McDonald’s California locations, which make up around 9% of the chain’s U.S. restaurants, started to perform worse than average by over 250 basis points.
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Visits to Burger King, Wendy’s, Jack in the Box, In-N-Out Burger, and Chipotle—which had increased its pricing in the state by 6% to 7% in order to offset the wage increases—underperformed the national average during the months of April and May, according to the report.
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- Additional implications of the minimum wage rises for the state’s restaurant business were also indicated by the Placer.ai investigation.
According to Placer.ai’s head of analytical research R.J. Hottovy, “it’s early, but we’re starting to see the ripple effect of the minimum wage increase across the broader restaurant industry.” “First, we’ve started to see some operators close locations in the state, especially chains that were already facing financial difficulties.”
Rubio’s Coastal Grill filed for bankruptcy last week, citing the minimum wage hikes as one of the causes. The report also found that several restaurant companies had closed sites in California as a result of the new law.
The study also found that casual dining chains seem to be profiting from fast-food restaurant menu pricing increases, even though these chains usually paid their employees more than the $20 minimum.
Based on the statistics, it was observed that in April, foot traffic at Olive Garden and Chili’s restaurants in California exceeded their respective national averages.