Cost Of Running A McDonalds Jumps $250,000 In CA Due To Minimum Wage Hikes

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by Tyler Durden
Monday, Feb 05, 2024 - 07:25 PM

By Mish Shedlock of MishTalk

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.