- Fast food franchisees in California are worried that customers will flock to Chili's and Applebee's to avoid price hikes.
- Restaurants with limited service are raising prices to compensate for the state's $20 wage for fast food workers.
- As a result, the price gap between fast food restaurants and casual dining restaurants may narrow.
California recently raised its minimum wage for fast food workers to $20, but franchisees are concerned that it will send some customers under the umbrella of casual dining chains like Chili's and Applebee's. We raised prices to compensate.
These chain stores are not subject to the new minimum wage, so they are not expected to see significant price increases. This could narrow the price gap between fast food and casual dining restaurants.
The $20 wage applies to employees at the limited-service restaurant chain, which has at least 60 restaurants across the country (usually without table service and where you pay before you eat).
Fast food restaurants in California are raising prices to offset wages that are 25% above the state's general minimum wage.
The law was enacted on April 1, but some restaurants have increased their prices in stages to avoid sticker shock, where prices increase significantly each day.
Shane Paul, who owns seven Jack in the Box restaurants in San Diego, told BI that he has raised prices at his restaurants by about 10% or 11% over the past six to 12 months in anticipation of higher wages. Ta. In the past, he said, he typically raised prices by about 3.5 to 4 percent.
Business at his restaurants is “already on the decline,” he said.
Paul suspects some customers will instead go to casual dining restaurants like Chili's or Applebee's, where sit-down restaurants charge “a dollar or two more than we do.” He said he has a contract that allows him to eat.
Harsh Ghai, who said he owns about 180 Burger King, Taco Bell and Popeyes restaurants in California, expressed similar concerns.
He told BI that the price increases are already impacting restaurant sales, and he expects more customers to turn to grocery stores and Chili's and Applebee's instead.
“We're going to start competing with them,” Guy said of casual dining restaurants.
In a typical year, Guy's restaurants raise their prices by 2 to 3 percent. But in the past 12 months, he said, prices have increased from 8% to 10%, mainly to reflect food inflation. He said they can't raise prices any further to absorb the wage increase because customers aren't coming back.
Scott Rodrick, who owns 18 McDonald's restaurants in Northern California, told BI he was “deeply concerned” that the new minimum wage would “close the competitive gap” between different types of restaurants. Ta.
Roderick said he has increased restaurant prices by 5% to 7% over a three-month period in 2024.
Executives at Kura Sushi, a Japanese sit-down chain with about 60 locations in the United States, told analysts in early April that while other chains continued to raise prices, a $20 wage would make their company more profitable. He said he believes the value proposition will increase.
CEO Hajime Uba noted that Kura Sushi's prices are “getting closer and closer” to fast food prices.
Raymond James restaurant analyst Brian Vaccaro told BI that diners typically visit fast food and casual dining restaurants for a variety of occasions.
Sit-down restaurants typically attract diners looking to “relax and unwind” with family and friends. In contrast, people generally go to limited-service restaurants for speed and convenience, he said.
Wages in the restaurant industry as a whole may rise
Analysts say it's difficult to predict exactly how customer habits will change in response to fast-food chains' price hikes. People can buy more groceries, pick up fast food deals, or switch to another restaurant.
Still, some analysts believe that other employers in the state, such as full-service restaurants and retail stores, will begin to increase employee pay to stay competitive, and that eventually other restaurants will also have menu items. I expect that prices will increase.
Sal Vitali, owner of The Garden Club restaurant in South San Francisco, told BI that he “absolutely” has to raise wages to compete with local fast-food chains.
Still, in some cases, servers at mid-priced full-service restaurant chains are likely already making more than $30 an hour, including tips, and raises may be a long way off, Vaccaro said. points out.
“If casual dining is able to maintain its prices and we do not see an increase in labor pressures, the difference between casual dining and limited service prices will continue to decline,” Sharon Zakfir, a restaurant analyst at William Blair, told BI in an email. “There is a possibility that it will shrink and there will be some benefit.”
“However, the key principles that limited services remain cheap, fast and convenient will continue to be positive factors for demand for limited services for customers on the go,” she said. .
Are you a fast food restaurant employee and excited about the new minimum wage? Or are you a franchisee or restaurant manager worried about how it will affect your business? ? Email this reporter at gdean@insider.com.
