Chipotle To Make ‘Significant’ Price Increases In California In Response To Minimum Wage Hike

A Chipotle executive warned shareholders this week to expect “significant” price increases to their menu options. The change is in response to the new minimum wage laws in California that will go into effect in April.

Price Hikes Needed To Align with Increasing Labor Expenses

Jack Hartung, the chief financial and administrative officer of Chipotle, informed investors that the price increases are required in order to match increasing labor expenses.

The investors were notified of this change during an earnings call held on Tuesday. Hartung mentioned that the “significant increase” that is “going to be in the ballpark of a 20% increase” is necessary due to the increasing minimum wage for fast food workers.

California’s New Minimum Wage Starts In April

The new minimum wage law for California, which will pay fast food employees $20 an hour, is currently scheduled to become effective in April.

In previous reports, Hartung indicated that Chipotle employees received an average wage of $17 per hour at the company’s 475 locations throughout California. A first set of price hikes occurred in October. Reports confirm that price hike was 3% and occurred after Chipotle chose to have a one-year hiatus of price increases.

Prices Could Increase By 3%, Hartung Says Company Will ‘Wait And See‘

Chipotle is currently considering an increase of 2.5%-3% when it comes to menu prices needed to make up for the labor costs. However, the company is still trying to determine whether to increase prices with the goal of breaking even or generating more profits.

Hartung explained in an interview that they “haven’t decided within that range.” On the contrary, the company has decided to “wait and see just what the landscape looks like” in addition to consumer sentiment and how other companies will respond to the new law.

Details Of The Lasting Impact Of AB 1228

Governor Newsom made headlines when he signed AB 1228 into law in late September of 2023. This effectively repealed the Fast Food Accountability and Standards (FAST) Recovery Act signed the previous year.

In addition to making the minimum wage $20 per hour effective on April 1, 2024, AB 1228 also allows the fast food council to increase the wage by the lesser of the average change in the US Consumer Price Index or 3.5%.

McDonald’s Franchise Group Argued Bill Would Cause ‘Devastating Financial Blow‘

The National Owners Association, an independent advocacy group that includes over 1,000 McDonald’s franchise owners, projected that this bill would cost each restaurant throughout California an average of $250,000 each year. The group indicated that the high costs “cannot be absorbed by the business model.”

McDonald’s reportedly sent its own letters back in September in response to the bill as well. The company noted that it and other franchisee groups spent the previous year working “tirelessly… to fight these policies and protect Owner/Operators’ ability to make decisions for their businesses locally and protect their restaurants and their crew.”

Over 1,200 Pizza Hut Drivers In California Laid Off In Response to AB 1228

Multiple news outlets confirmed that over 1,200 Pizza Hut delivery drivers working in California were laid off in response to AB 1228. Two major franchisees reportedly filed notices of layoffs in advance of the April 1, 2024 effective date.

The fast food industry represents a large segment of the economic structure throughout the state of California. One report shows that Pizza Hut led the U.S. in total fast-food eateries with an approximate total of 30,000 locations.

Chipotle CFO Credits ‘Standards’ Of ‘Great Restaurants’ for Boost In Foot Traffic

Chipotle executives recently reported a total revenue of $2.5 billion for the fourth quarter of 2023. This was a 15.4% increase over the fourth quarter of 2022. A major boost in foot traffic played a key role in these gains – especially since comparable restaurant sales only increased 8.4% within the same period.

Hartung claimed that Chipotle “had to basically get back to our standards of running great restaurants” to boost the foot traffic.

How Chipotle Transitioned Away From Pandemic-Related Difficulties

Hartung confirmed that having a sufficient number of crew members in-person was difficult during the height of the pandemic. Most of the business generated for the restaurant was digital as it was for many other popular restaurants and fast food chains.

The CFO reported that the team focused on returning Chipotle restaurants to best practices within the last 18 months. According to Hartung, that consisted of having a fully-staffed team with a sufficient number of front-line crew members ready throughout the day.

Chipotle Makes Plans To Staff Up For ‘Burrito Season‘

The company recently announced that it will increase its staff to provide proper coverage for “burrito season.” The plan is to add up to 19,000 employees – which is an average of up to 6 new employees per restaurant.

Hartung explained that “burrito season” is the period when the weather improves around mid-March “especially in more of the northern climates.” Even though Chipotle sells burritos all year, Hartung indicated that “burrito season” is when their “sales really start to pick up.”

What Is The Purpose Of The Fast Food Council?

The Fast Food Council was established within the Department of Industrial Relations. By design, it consists of a variety of representatives – including advocates, employees, and employers. The council has 9 voting members, but the Governor still retains the power to appoint 7 of the 9 positions within the council.

In addition to adjusting the hourly minimum wage annually from 2025 to 2029, the council also has the power to recommend workplace standards for state agencies to consider. The California Administrative Procedure Act is then to review those recommendations to determine if and when they would be implemented.