Beginning in April, California fast-food workers earned $20 per hour. This month, California franchise restaurants with at least 60 locations nationally must pay their employees more under a new law. Smaller establishments still pay $16 an hour, the statewide minimum.
The largest publicly traded fast-food companies are McDonald's Corp (NYSE:MCD), Starbucks Corp (NASDAQ:SBUX), Yum! Brands, Inc. (NYSE:YUM), which owns Taco Bell, Pizza Hut, and KFC; Wendys Co (NASDAQ:WEN); Restaurant Brands International Inc (NYSE:QSR), which owns Burger King; Chipotle Mexican Grill, Inc. (NYSE:CMG); Papa John's International Inc.
Since the law took effect on April 1, many of these stocks have fallen. In California, pay increases were needed. California's cost of living is 38% higher than the national average. Fast food chains are exploring labor cuts and menu pricing increases.
Today quoted In-N-Out Burger President Lynsi Snyder as claiming she "was sitting in VP meetings going toe-to-toe saying, ‘We can't raise the prices that much, we can't.’" Over 400 California-based eateries are owned by her own corporation. Snyder denied plans to go public or franchise.
However, In-N-Out has boosted burger pricing by 25 cents in Los Angeles. That's less than other eateries' price hikes. The New York Post reported that a Los Angeles Burger King hiked its Double Texas Whopper by 12% to $16.89.
Before the bill passed last September, many restaurants prepared for salary hikes. Companies are considering automation, a trend that began with self-service ordering kiosks in 2017. A big Burger King chain is ordering computerized order kiosks to replace staff, according to Insider.
Burger King managers recently noted that digital self-service screens make customers request larger meals. McDonald's CEO Chris Kempczinski remarked on the company's third-quarter earnings call in October that the rule would "certainly be a hit in the short term to franchisee cashflow."
However, the new regulation may worsen California's fast food industry. In an interview with Business Insider on Sunday, a Jack in the Box franchise owner suggested that rising fast food prices could hurt casual diners like Chili's, owned by Brinker International, Inc. (NYSE:EAT), or Applebee's, owned by Dine Brands Global Inc. Casual dining establishments may benefit if they can stay open without raising rates.
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