California’s $20 minimum wage led to fast food price hikes, lower foot traffic, study shows
California’s new $20-an-hour minimum wage law for fast food workers plunged visits to popular chains as restaurants like McDonald’s, Wendy’s and Burger King hiked prices to offset higher costs, according to a study.
California’s new $20-an-hour minimum wage law for fast food workers led to price hikes and decreased foot traffic at popular chains including McDonald’s, Wendy’s and Burger King, according to a study.
Since the new law went effect in April 1, foot traffic at Burger King fell 3.86%, while Wendy’s was down 3.24% and McDonald’s slipped 2.5%, according to a report by analytics firm Placer.ai.
In-N-Out Burger, the popular fast food chain which also recently raised its menu prices on key items to cope with the increased labor costs, saw 2.59% fewer customers, while Jack in the Box visits were down 0.8%.
“It’s early, but we’re starting to see the ripple effect of the minimum wage increase across the broader restaurant industry,” R.J. Hottovy, the head of analytical research at Placer.ai, wrote in the report.
The law – which raised the minimum wage for fast food workers from $16 an hour to $20 — was also blamed for forcing companies like Rubio’s Coastal Grill to shutter dozens of locations across the state.
Rubio’s, which last week filed for Chapter 11 bankruptcy protection, cited “significant increases to the minimum wage in California” as a reason for the closings.
Another fast food restaurant, Fosters Freeze, recently closed a location near Fresno, saying the franchise owner could no longer afford to pay workers the upgraded salaries.
In the six-month period leading up to the new law being enacted, fast food prices in California rose on average by 7% — forcing franchisees in the state to slash work hours, postpone capital improvements and expedite the deployment of automation features such as self-serve kiosks.
The Placer.ai report found that casual dining chains may be benefiting from the erosion of traffic at fast food restaurants.
Olive Garden and Chili’s locations in California have seen an uptick in visits that outperformed the national average since the minimum wage law went into effect, according to the report.
Between February and March of this year, Olive Garden saw a 1% increase in customer visits throughout California.
Since the increased minimum wage law went into effect, the figure jumped to 1.88%, according to Placer.ai.
Chili’s saw a 3.6% decrease in visits throughout California in February and March.
But in the eight weeks spanning April and May, it saw an increase of 0.19% in visits, the report found.
Casual chains such as Chili’s and Buffalo Wild Wings have sought to entice customers through value meals, such as the latter’s “all you can eat” wings promotion on Monday and Wednesday that has so far proven successful.
Fast food companies warned that the increased labor costs would be passed on to the consumer in the form of higher menu prices.
In Los Angeles County, a double-double burger combo at In-N-Out now goes for $11.44 — a $0.76 increase from last year, KTLA reported.
In San Francisco’s tourist-heavy Fisherman’s Wharf location, a double-double burger coupled with french fries and drink costs $13.63 after taxes.
Less hungry customers would still have to shell out $7.50 for the double patty without the sides or beverage, KRON4 reported.
A report published earlier this year by Kalinowski Equity Research found that fast food chains such as Wendy’s, Chipotle, Starbucks and Taco Bell raised their menu prices by as much as 8% in preparation for the new minimum wage law coming into effect.
Wendy’s raised its menu prices by around 8% while Chipotle Mexican Grill hiked its prices by approximately 7.5%, according to the report.
Starbucks, the Seattle-based coffee chain, raised the prices of its menu items at its California locations by around 7%, while Taco Bell hiked its prices 3%.
