Apr 17, 2024
It's now been a few weeks since California increased the minimum wage for fast-food workers to $20 an hour. The new law, which applies to restaurants part of a chain of at least 60 establishments nationwide, is meant to make life in the famously expensive state more affordable for roughly half a million workers.
For McDonald’s franchise owner Scott Rodrick, however, this adjustment has proven difficult.
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Rodrick, who owns 18 McDonald's locations in California, shared his complaints about the new minimum wage during a recent interview with Fox Business.
“The last 12 days since this unprecedented law impacted franchisees in California has literally been a whirlwind, frankly it feels like an eternity,” he said.
In response to the higher minimum wage, some restaurant owners and companies have reportedly raised their menu prices. However, Rodrick cautions that there is a limit to how much customers are willing to pay when dining out.
“I realized that my customers’ appetite for higher prices is not unlimited. So when I take price to relieve margin pressure, it has to be done thoughtfully with a plan. Charging $10 for an Egg McMuffin or $20 for a Big Mac, for me, is a nonstarter,” he explained.
Fast food affordability
While Rodrick is cautious about raising menu prices at his restaurants, many have already observed surging fast food prices across America, even before the minimum wage increase took effect.
Last summer, an X user shared a photo of a McDonald’s menu at a Connecticut rest stop, where a Big Mac meal was listed at $17.59. The user asked, “These McDonald's prices are nuts right?”
More recently, a TikToker complained about a 40-piece chicken McNuggets and two large fries bundle costing $25.39 plus a sales tax in California.
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Fast food chains, traditionally known for being affordable, now face challenges in staying accessible to consumers.
During McDonald’s last earnings conference call, CEO Chris Kempczinski said: “I think what you're going to see as you head into 2024 is probably more attention to what I would describe as affordability.”
The company’s CFO Ian Borden further stated that pricing decisions will be “consumer led,” adding that it’s the franchisees who set prices in their respective restaurants.
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Survive or thrive?
Rodrick stated that in order to "relieve this extraordinary, unprecedented impact on the franchise business model in California," he will likely need to consider a combination of strategies, including adjusting prices, evaluating capital expenditures, optimizing labor efficiencies, and seeking to expand his market share.
Business owners are figuring out next steps and many have warned about negative effects the new law will have on workers. For example, a Fosters Freeze outlet in Lemoore shut down on April 1, leaving its workers jobless. The owner said that small businesses "can't survive" under these conditions.
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However, economic professors at UC Berkeley and the University of Victoria say the data shows that fast food employment in California and New York did not fall in response to the minimum wage nearly doubling to $15 from the end of 2013 to the beginning of 2022.
"Time and time again, research – and reality – show that raising fast-food workers’ pay in California will only lead to higher living standards for workers and a more equitable economy," they wrote.
When asked if layoffs are necessary at his McDonald's locations, Rodrick said that it would be a last resort.
“There's a lot of discussion on that subject on restaurants closing, restaurants laying people off. Frankly, in my organization, that's the very last thing I'm looking at,” he said. “I have 800 people — 800 human beings that run my restaurants, so that's the last lever that I'm looking at.”
Due to the minimum wage hike in California, some restaurant owners have decided to invest in other states. Rodrick, however, isn’t moving — yet.
“The thought [of leaving] has crossed my mind a few times,” he said. “But right now the focus is survival.”
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
