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The impact of AB 1228

Chipotle currently has around 3,400 restaurants, with 475 located in California. That places the Mexican grill chain well within the remit of AB 1228, which applies to fast-food chains with at least 60 locations nationwide, except for those that make and sell their own bread.

The law’s new fast-food minimum wage of $20 an hour is $3 higher than what Chipotle previously paid workers at its 475 California locations and $4 higher than the Golden State’s current minimum wage of $16.

To cover that wage hike, Chipotle may have to raise its menu prices across all of its 3,400 restaurants by 80 to 100-plus basis points, Hartung told investors.

And this likely won’t just be a one-time wage and menu price hike. AB 1228 has created a new, nine-member Fast Food Council — made up of labor, employer and government representatives — that will will help to set guidelines for fast-food wages and working conditions.

The council will have the power to increase the fast-food workers’ minimum wage annually from 2025 through 2029 — with pay hikes capped to whichever is lower: 3.5% or the annual change in the consumer price index.

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Fast-food chains are not happy

Labor was already Chipotle’s second largest operating expense in 2023. In its full-year 2023 results, the chain reported spending $2.44 billion in labor costs, up 11% from $2.2 billion in 2022. That was second to food, beverage and packaging costs, which came in at $2.9 billion in 2023, up 11.95% from $2.6 billion in 2022.

Looking ahead to 2024, the company warned that “increasing wage inflation and the competitive labor market, including as a result of regulations such as California AB 1228” could impact its ability to “attract and retain qualified employees” — a problem that has already caused the company “occasional staffing shortages.”

Chipotle is not the only fast-food chain concerned by the impact of AB 1228. McDonald’s U.S. President Joe Erlinger publicly criticized the legislation on the company’s website, deeming it “lopsided.” Meanwhile, the National Owners Association (NOA), a group that represents more than 1,000 McDonald’s franchise owners, slammed the bill as “draconian” and said it could result in a “devastating financial blow” of around $250,000 per McDonald’s franchise owner.

When signing AB 1228 into law, Newsom said he was giving California’s 500,000-plus “hard working fast-food workers a stronger voice and seat at the table,” so they can get closer to “fairer wages, safer and healthier working conditions and better training.”

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Bethan Moorcraft is a reporter for Moneywise with experience in news editing and business reporting across international markets.


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