Restaurant Group Chairman Criticizes CA Minimum Wage Hike To $20 An Hour Warning ‘Prices Are Going To Go Up’

One way to save money is to avoid eating out. Why? It’s expensive compared to simply cooking your own meal. However, going for a cheap meal at McDonald’s could be more financially scarce, according to experts. 

Recently, the government released data for California that indicates dining out will be more expensive. The report shows that the price of eating food away from home has a year-over-year increase of 5.1%. 

Eating Out Now  Is Expensive

The report shows a year-over-year increase in eating out. The cost of this simple activity had gone up by 5.1%, which naturally means things are now more expensive.

Andrew Wiederhorn, chairman and founder of FAT Brands, warns the public to prepare themselves. Eating out will be more expensive than before. But what’s the culprit?

Blame The Increased Minimum Wage 

California and many other states have seen people outraged at how fast-food workers are treated. It’s so bad that many of these people rely on tips or work multiple jobs in order to live comfortably.

The only course of action for California was to raise the minimum wage. This amount rose to $20, allowing fast food workers to earn better. The problem is that the increased pay comes out of the company’s account, and they don’t want that.

‘Someone’s Got To Pay For It’

The increased minimum wage means fast food businesses must now cough up more money for their workers. This extra cost will be too much for some of these brands, especially small businesses in California.

To offset these costs, fast food chains have increased the price of items on their menu. Wiederhorn summarizes the issues excellently. He points out that restaurants don’t have the margin to support the new change, so prices are going up.

A More Detailed Explanation

In an interview, Wiederhorn explains how the wage increase affects these restaurants. Essentially, these businesses make around 5 – 15% of their revenue at the end of the day. One reason for this low margin is labor costs.

However, the minimum wage went up from $16 to $20 hourly. This puts more pressure on the business, making it harder to stay in business and earn money. So, they have to employ some tactics.

Boosting Restaurant Earnings 

As an industry expert, Wiederhorn explored some strategies these restaurants use to maximize their revenue. Sometimes, they can offer an all-cheese pizza instead of the more expensive pepperoni option.

They may also reduce the size of the meal, letting them serve more people and earn more. Technology is another option to save money. But are these truly effective?  

‘It Just Costs Money’

While these strategies can boost their bottom line, it may not be enough. Wiederhorn explained that it’s quite expensive to give customers an excellent experience. This is most true in the food and hospitality industry.

Therefore, they struggle between two options: lower customer experience or increase food prices. Both options will save them money, but the first may cost them customers over time. So, higher prices it is!

What About Big Restaurant Chains?

Many point out that it makes sense for small California restaurants to complain about money. But what about these big food chains that take in billions yearly off the “sweat” of these workers?

Surprisingly, they can’t handle the wage hike, too. McDonald’s was vocal about its concern for the restaurant sector, claiming that the damage was critical.

McDonald’s CEO Comments

McDonald’s Chris Kempczinski commented on the development. He said that as the new year progresses. The bigger challenge will be affordability. Restaurants will raise their prices, and customers will suffer.

This trend will get worse once the law gets implemented in April. It’ll force the new wage pay, which will definitely destabilize the market.

McDonalds Promises ‘Customer Led’ Pricing

Customers in California are scared. Restaurants play a massive role in people’s lives. Half of the country visits them daily. If prices go up exponentially, people may have to forego their favorite meals.

But this isn’t the case with McDonald’s. The company’s CFO assured their customers that the prices won’t be outrageous. He calls them “customer-led,” meaning that they will consider people’s pockets when making the changes.

McDonald’s Doesn’t Need A Price Change

McDonald’s said that the restaurant sector is facing a critical challenge. However, some people argue that they should be the least to complain. The company makes several billions yearly, so they can afford the pay.

Besides, McDonalds did record business growth in 2023. The company saw global sales rise by 9%. At the same time, patronage in the US also went up by 8.6%. Therefore, their attempt to raise prices only highlights their goal to make a profit, no matter the cost.

The Repression Of The Wage Spike

The California government aims to make life better for fast-food workers. Therefore, it raised the minimum wage from $16 to $20. Sadly, the repercussions are severe. The main victims are the employees themselves.

The extra cost may be too much, especially for small businesses. Therefore, they may end up laying off some employees to save money. At the same time, the remaining staff will have to work double time.

Less Patronage

The increased wage will result in higher food prices. The extra cost will cause customers to think harder before spending their hard-earned money. In this case, they may go to restaurants that can provide excellent customer experience.

Therefore, smaller businesses that fail to adapt will receive fewer customers. Less customers equals less patronage, resulting in little to no revenue. Eventually, they will close up shops.

The Law Will Take Effect In April

So far, industry experts are warning the public to prepare for a significant price increase. It will happen once the law is passed in April 2024. Then, businesses will look for ways to offset costs, and That’s when the chaos will begin.

There’s still some time left for the California government to make some changes before the date. However, there’s no news indicating a change or modification to the new law. Time will tell whether it’s effective or needs revision.