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Restaurant industry headwinds

Rubio’s is not the only restaurant that’s facing significant challenges. Red Lobster, the popular seafood restaurant chain that has been around since 1968, also announced it had filed for bankruptcy on May 19.

Red Lobster’s management highlighted several factors that have contributed to the company's financial difficulties, including inflationary pressures, unfavorable leases, underperforming locations and marketing and operational missteps.

In a social media post, Rubio’s assured its customers that it’s still in business and will be “for a long time.” The company explained that the bankruptcy filing was intended to “right-size the company to better thrive in today’s retail environment.”

The post also elaborated on the broader challenges facing the restaurant industry.

“Like the restaurant industry overall, Rubio’s has been negatively affected over the past few years by diminishing in-store traffic attributable to work-from-home practices remaining in place, and by rising food and utility costs that, combined with significant increases to the minimum wage in California, put pressure on a number of its locations,” the company stated.

At its peak, Rubio’s boasted about 200 restaurants with locations in Colorado and Florida, according to the Los Angeles Times. But the chain suffered during the pandemic, and rising costs led it to slim down to 134 locations, prior to this latest news.

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West Coast woes

California has seen a consistent and significant increase in its minimum wage over the past decade. A decade ago, the state’s minimum wage was $9 an hour. Today, it’s set at $16 an hour, rising to $20 an hour for fast food workers.

These wage increases are aimed toward improving the quality of life for workers in a state that’s notoriously expensive to live in. But it can have an effect on business operations.

For example, Rubio’s is not the only restaurant to cite the minimum wage as a reason for its closure. A Fosters Freeze in Lemoore shut down on April 1 — the same day the new minimum wage for fast food workers went into effect — leaving its workers without jobs.

“Small businesses can't survive a 120% plus min wage increase over the last 10 years,” Loren Wright, owner of the Fosters Freeze location, told Fox 26 News.

Those that remain open are facing substantially higher financial pressures.

Alex Johnson, who owns five Auntie Anne’s and five Cinnabon locations in San Francisco, estimated in an interview with Fox Business that the recent minimum wage increase would cost him $470,000 across his locations.

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Jing Pan Investment Reporter

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.

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