Mill Valley, CA: Workers at In-N-Out location behind counter take orders. (Photo: David Tran Photo, Shutterstock)
Fast Food CEOs Warn Of Dire Consequences Coming over New $20 Fast Food Minimum Wage
‘$20 an hour sounds great until you learn that you’ve been replaced by a kiosk’
By Evan Symon, October 31, 2023 11:55 am
A new $20 an hour fast food minimum wage law currently set to begin in April 2024 was blasted by several fast food company leaders in the last few days, who warned of huge consequences ahead, ranging from higher prices to possible location closures.
Assembly Bill 1228, authored by Assemblyman Chris Holden (D-Pasadena), which aimed to drastically increase the minimum wage for fast food workers across the state, was one of the most contentious bills this year, with only a compromise between the Service Employees International Union (SEIU) and fast food companies managing to keep the bill alive last month.
Originally, the bill would have raised the minimum to $22 an hour and hold franchise corporations accountable for labor law violations at individual locations. In addition, thanks to a new Fast Food Council created from a new law signed last year (AB 257), benefits like paid leave and predictive scheduling would be introduced. Faced with drastically increased costs, fast food companies took action. The number of electronic kiosks instead of cashiers swiftly climbed across the state, with a ballot referendum to overturn AB 257, as well as put the law on hold until at least November 2024, getting enough signatures earlier this year.
With both sides ready to take even more drastic action, and the end of the legislative session looming, lawmakers brought together unions and fast food companies to work a compromise. Earlier this month, it was agreed that AB 1228 would be altered to minimum wage for fast food workers bumped only to $20 an hour rather than $22, with local governments prohibited from raising it even further. The raise would only apply to chains with 60 or more nationwide locations and would not apply to chains that also operate an on-site bakery, such as Panera Bread.
The Fast Food Council, meanwhile, would be able to raise the minimum wage each year through 2029, but would no longer have the power to set workplace standards, only recommendations. They would also be prohibited from implementing paid leave, vacation, predictive scheduling, and other standards sought by the SEIU and other unions. Also under the agreement, franchise corporations would no longer be held for labor law violations at individual locations.
With an agreement in place in early September, both the Senate and Assembly quickly passed the bill in divisive votes in time to send it to Governor Gavin Newsom by the end of the session. Newsom signed the bill only days after it reached him, setting it up to go into effect this coming April.
Despite compromising on the language of the bill, fast food companies have not stopped warning the public on how bad a law this was for California. Since the weekend, multiple companies have come forward warning of drastic changes coming to California next year. McDonalds, specifically, has warned of higher prices, short-term franchisee cash flow issues, and most worryingly, unknown consequences that will likely rear up at locations through the latter part of next year as locations adjust to AB 1228.
“The law is going to have a wage impact for our California franchisees,” said McDonalds CEO Chris Kempczinski during an earnings call on Monday. “I don’t think at this point, we can’t say exactly how much of that is going to work its way through pricing.
“Certainly, there’s going to be some element of that that does need to be worked through with higher pricing. There’s also going to be things that I know the franchisees and our teams there are going to be looking at around productivity. How all of that plays out, there will certainly be a hit in the short-term to franchisee cash flow in California, tough to know exactly what that hit will be because of some of the mitigation efforts.”
During an earnings call during the weekend, Chipotle CFO Jack Hartung said, “Prices will be raised in California by a mid-to-high single-digit percentage in the state. The National Owners Association, an advocacy group for thousands of franchises in California, estimated last month that AB 1228 will cost each restaurant in California around $250,000 because of the wage increase.”
Hard times ahead for fast food locations in California
However, fast food industry experts told the Globe on Tuesday that more companies would likely issue warnings in the coming months because of a number of major changes.
“As soon as quarterly meetings happen, we are going to hear a lot more on strategy,” explained fast food restaurant consultant Linda Medina to the Globe. “What we will likely hear is more of an emphasis on technology, and that means screens in stores. There will likely be one dedicated cashier for people who still pay in cash, maybe two based on the location, but otherwise ordering will likely be made through there. In the kitchen, we also may see some more automation happening to reduce staff, or employees having more duties.”
“A lot of locations have thin profits as it is, and a huge rise in wages means cost cutting like that. Restaurants themselves will probably be smaller, as not as many people dine inside as much anymore and play places for kids have been going away. That’s a lot less upkeep.”
“And not every company will have to do this either. In-N-Out, for example, has had a solid business plan for years emphasizing a limited menu. If you ever passed one at lunch or dinner time, and you know that the drive thru stretches out into the street and that finding a table inside can be impossible. They were part of the coalition trying to block the raise, but overall, they’ll continue on. McDonalds noted too that, long-term, they’ll grab more of a market share.”
“But the reason why is that many under-performing locations of restaurants will likely have to close. The industry has seen a recent dip in customers making under $45,000 a year, and a rise in prices is only going to hurt that even more. Fewer customers and higher wages equals closures, at least until enough customers are pushed around to keep the rest afloat. Those 500,000 fast food employees that Newsom so proudly talked about last month, well, when 2025 comes, we will be seeing a lot less of them.
“This is why we rallied so hard against this. We knew this was coming. And now you are hearing this coming from CEOs. This is going to hurt everyone. Even the workers. $20 an hour sounds great until you learn that you’ve been replaced by a kiosk.”
More companies are expected to report on major changes, including price hikes, at restaurants in California in the coming months.
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Inner city (those democrats say they push for) will see most of the closures as people in those area’s won’t be able to continue to afford higher prices.
Those are the consequences those inner city people continue to vote for the democrat party that keep them in poverty
I have an idea. Have the Government operate all the Fast-Food restaurants. What could possibly go wrong with that? Use taxpayer money to pay for the Government workers, get government volume discounts from all the suppliers. Build overly expensive properties so big they cannot fail and put them smack dab in the center of town.
They can have all the fast-food choices in one building like a food court. everybody can take a number just like at the DMV. We can elect a food Zahr !
Most of the democrats in California government (including the legislature) have never worked a real job, let alone run a business. Most of them think that their BA in Political Science qualifies them as a real scientist. Unfortunately, their lack of math skills and preference for emotion-based laws sticks normal people with putrid laws like this one.
As the consultant in Evan Symon’s article rightly said, this will not help ANYONE, not even the workers, in spite of smug politicians such as Asm Chris Holden and his dishonest claims to the contrary. Because JOBS ARE LOST as a result of such a policy and these jobs will be lost and replaced with robots or kiosks —- or else the business will simply close, never to be seen again. When oh when are people going to get this through their heads? It is BASIC. Probably never, given the horribly bad education that is standard now, including at the college level.
Fast food joints were never intended to provide full-time employment or so called living wages or whatever the current term is. Those small businesses have often been staffed by part-timers usually young workers making their first steps in the work world. Everyone recognizes those simple facts except the politicians and their cult-like followers who are busy “helping”- helping with wages, the “housing crisis”, the climate on and on.
Help us: Please make it stop!! Just go away.
your argument fails considering most workers at fast food restaurants are adults. Everyone deserves a “livable” wage if you dont hold that view then you simply suck as a human being.
Adults from WHERE, Robby Battle???
Are those adults here LEGALLY???
Bring on the kiosks – it’ll eliminate the language and accent barrier that currently exists at most fast-food outlets..
So go ahead and name-call, I’m happy to “suck as a human being” as I’m an adult who believes in the rule of law, and obeying the laws that establish a society with economic checks and balances that protect both the employer and the employee…not “feel-good” virtue-signaling that ultimately results in those “adults” being unemployed and replaced by a kiosk….
Employers are not mandated to provide a “livable” wage, whatever THAT is. They are not mandated to provide ANY wage, hence the increased use of automation or the shutting of businesses whenever the minimum wage is raised.
There appear to be a majority of adults working in fast food. Often they work a 6 hour shift at one location, and then another at another location to make ends meet. Raising their pay a few bucks does not alter that equation, but it does cause an inflationary cycle an ultimately a decline in sales as a $20 fast food meal is not in most people’s budget.
Maybe that’s a good thing. Americans (especially young people) are too fat.
California… land of the unsustainable cost of living.. land of the unsustainable price of wages..
it’s like this feedback loop driving California lower and lower and lower into the dregs..
Those of us outside of California call this behavior ‘Californian Stupid’ .
The rest of the nation looks at California as a model we most certainly must not follow.
What’s funny is the vast majority of Californians don’t seem to even understand this.
Oh, we do, but our “betters” have implemented voting platforms and practices that have marginalized us and rendered our votes unimportant…we’re not part of the union army, and are behind enemy lines….
You said it PERFECTLY!!! THANK A DEMOCRAT…..EVERY…..SINGLE….TIME! THAT DEMONRAT PARTY IS WRECKING/DESTROYING OUR ONCE GREAT COUNTRY! THEY ARE TOO STOOPID TO REALIZE IT, OF COURSE! SHAME ON THEM! A FEW YEARS AGO, THIS COUNTRY STARTED ON THE SLIPPERY SLIDE TO CRAPPNESS, HMMMM, WHY WAS THAT? DUH! EVERYONE WITH A BRAIN KNOWS! THE PARTY OF ISH! HELP US GOD! DEMOCRAT=DEMONRAT! EXCHANGE THE “C” WITH THE “N” AND SEE THE TRUTH! “DEVIL” i.e. = “DEMON”, WHO IS GLEEFUL BTW! Those 2 letters, the N and the C, stand for ‘N’ever ‘C’hrist! Sneaky that Demonrat is, right?
Be that as it may, businesses can only afford what they can afford. Businesses have to pay, on average, an additional 40% in taxes, compensation insurance and employee benefits, for every dollar paid to an employee. So $20 an hour actually costs the employer $28 an hour. For example, every penny an employee pays in social security taxes has to be matched by the employer. The $15.50 an hour employee currently costs their employer about $21 an hour. Can you imagine paying a pimply faced high school kid $28 an hour to flip hamburgers? These were never meant to be full-time, high wage jobs, but the Democrats don’t understand business and have their way all the time, so the rest of us pay the price.
I’m a small business owner and I’m here to tell you that California has absolutely creamed the businesses. That is why they are fleeing the state and that is why California has to continually gouge the holy crud out of the businesses left here. Consequences cannot be separated from the decisions we make in life. You can do anything you want – absolutely anything – as long as you’re willing to pay the price. How far down do you want to see California driven? There is no magic money tree where we get money.
People like myself and my husband – both of us elderly – can’t sell our business or our building because the state has gone mad and ruined the business environment so badly. I fear my husband will die on his feet working until the day he dies because we can’t get out of here. But hey – let’s worry more about the able bodied young person! When we were young we had nothing. Our fathers had died, the economy was difficult, and we each worked for dirt pay, because that is how things were always done. Through hard work and sacrifice we made it. Now you want us to give up what we worked for in order to make sure some kid in high school can afford an iPhone! Just the fact that you don’t get this is extraordinary.
Go and read the OTHER article on CaliforniaGlobe.com about the 500,000 square feet of commercial real estate space EMPTY in San Francisco. Who is going to pay the taxes, that the Dems slurp up like there is no tomorrow, when the owners of those pieces of commercial property can’t pay? Who is going to buy those properties when there is no business coming in to SF?
So who sucks as a human being? Businesses wish they could make enough money to pay their employees a king’s wage, except that it is not doable. And every employee believes they are the be-all and end-all of wonderful employees. You’re lucky if you’re not being stolen blind from your employees, who are the highest means of theft in the country. But hey, we need to pay these stellar people as though there were no tomorrow? Crazy.
Sherry Gillis, thank you a million times for your story.
Oh, they GET it, all right, but they don’t care. Which makes them the winner of the who-sucks-as-a-human-being sweepstakes. All these union-affiliated sob-story poor-worker living-wage phonies really want to do is get their hands on the ever-increasing-minimum-wage-workers union dues. So guess who wins? Not the worker, that’s for sure. More slaves for the union cash collectors and more bodies to do their political bidding, fill in mail-in ballots; you know, whatever is needed! A-holes pretending to be nice guys. Disgusting
I agree 10000000%!!! SHAMEFUL DEMOCRAT PARTY! ONLY A CERTAIN TYPE OF HUMAN AGREES THIS IS ACCEPTABLE! I’M SORRY THIS IS HAPPENING TO THE GOOD HARDWORKING CITIZENS! TO THOSE BUSINESS WRECKING SLUGS, WHO PASSED THESE LAWS, SHAME ON YOU!
There are ramifications for businesses (and customers) that go beyond the fast food outlets proper. When McDonald’s is forced to pay $20 min wage then mom and pop restaurants and other types of businesses have to make a hard decision to either lose employees to McDonald’s or match what McDonald’s (for example) is being forced to pay. So costs go up for ALL rather quickly. And there are so many more problems that result —- none of which are unexpected; we’ve been learning these hard lessons FOREVER. But the bad guys know that to offer a higher minimum wage will always work when people are not educated about it.
All minimum wage is a way to get votes. Raising it to $20 for fast food workers will only cause the businesses to raise prices. It will also have an effect on other businesses because in order to get workers they will have to compete with that $20. This will then cause those businesses to raise their prices. And when all is said and done the cost of living will rise to the same level it was before these workers got their raise. They will be right back to where they started but with more debt because at the beginning with their new found wealth they went out and purchased a big ticket item.
This does not only affect Fast Food, as a small business in a non fast food industry, my employees that make less than $20.00 per hour are now demanding it because they can make that flipping burgers. Newsom and the Democrats obviously did not do any type of an economic impact study. This was just a political stunt that will cause damage to all businesses trying to make it in an unfriendly California business environment.
$20 per hour? That’s chicken feed. Why not raise it to $50 or $75? The nation should really secede from California before Democrats in D.C. start shuffling our tax money to the left coast to keep it afloat. Then California can be annexed by Mexico or China and really become all it can be. The citizens of California deserve it.
stop voting for the people that are in office . vote republican and get them all out of office . only way to see different results is to do somthing differnt, gov. belend has turned Cali. into the homeless capital of the US.