Apr 25, 2024
California's new minimum wage legislation is now in force. As of April 1, the Golden State has raised the minimum wage for employees at fast food restaurants to $20 an hour, aiming to improve the living standards of this specific workforce segment.
For restaurant owners, though, this change can be costly.
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Alex Johnson is the owner of five Auntie Anne’s and five Cinnabon locations in San Francisco. In an interview with Fox Business, he revealed how much this new legislation will cost him.
“Across my 10 locations, the increase in the wage rate is going to cost me $470,000. So, just about $50,000 per location,” he claimed.
Asked if he will cut staff due to this sudden rise in labor costs, Johnson said “everything's on the table,” but warned increased menu prices are imminent.
“I think immediately what we're doing though, is raising prices, something that I really don't want to do, you know, we've had to raise prices several times over the past couple of years because of the COVID-induced inflation,” Johnson explained, noting that he’s seeing a decline in both sales and customer traffic.
Are consumers getting used to high restaurant prices?
Many industry experts have cautioned about higher menu prices in California as a result of the new minimum wage for fast-food workers.
For instance, Andrew Wiederhorn, chairman and founder of restaurant operator FAT Brands, recently warned on Fox Business that dining out costs would rise in response to minimum wage increases.
“Someone's got to pay for it and the restaurant operators don't have the margin for that,” Wiederhorn cautioned. “So, prices are going to go up.”
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Jon Taffer, executive producer and host of “Bar Rescue,” also raised concerns about the likelihood of increased menu prices in California.
During a discussion on Fox Business about California’s new state law banning unadvertised service fees being added to meals and delivery services — so-called “junk fees” — Taffer stated, “The consumer is starting, dare I say, to get used to the $30 hamburger.”
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A 'finite set of economic conditions'
A decline in sales along with changes in legislation has Johnson looking elsewhere to grow his business portfolio.
“I'm not growing anymore in this state. I'm not expanding any new locations. I’m doing a different franchise in Nevada and that's where I'm taking those new jobs versus California.”
Ultimately, the issue centers on finances. Johnson emphasized the existence of a "very finite set of economic conditions" necessary for a restaurant to make money. He expressed that this new minimum wage bill "cast doubt" on his ability to continue operating in California.
Regarding his decision to invest in the neighboring state of Nevada, Johnson explained: “There just isn't so much regulation, there isn't so many different types of people telling you how to run your business.”
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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.
