California officials are reportedly considering another increase to the recently implemented $20 minimum wage for fast-food workers. The California Food Council, established by Governor Gavin Newsom, plans to propose an additional 3.5% raise for 2025 at their meeting in late July, according to Restaurant Business.
California's minimum wage law, effective April 2024, mandates that fast-food restaurants with 60 or more locations nationwide pay their workers $20 an hour, which is $4 higher than the state's minimum wage. The Council, composed of industry representatives and restaurant workers, is authorized to annually increase this wage by up to 3.5% based on inflation. The Council also advises on health and safety standards for fast-food workers and addresses issues like wage theft.
The wage increase aims to improve the standard of living for more than half a million fast-food workers, but unintended consequences may include restaurant closures, job cuts, reduced hours, and increased automation to reduce expenses.
Technologies To Replace Human Workers
There has been an increase in automation and self-service technology. Restaurants are deploying self-order kiosks, kitchen automation software, and other labor-saving technologies to minimize reliance on human workers. A major Burger King franchisee in California revealed plans to install kiosks at all locations in response to the $20 wage, as reported by Business Insider. Harsh Ghai, owner of 180 fast-food restaurants in California, including about 140 Burger King locations, confirmed the installation of kiosks in an interview in early April.
Fast-food chains are adopting AI, robotics, and automation technologies across their operations to reduce labor costs and address staffing shortages. Restaurants like McDonald's, Shake Shack, and Panera Bread are deploying self-service kiosks, allowing customers to place orders themselves and reducing the need for human cashiers. Yum Brands CEO David Gibbs noted that average kiosk sales see 10% higher checks than front counter sales, contributing to improved profit flow-through. The increased use of mobile apps for ordering and paying also streamlines transactions and reduces staffing needs. AI and automation are applied to back-office processes like inventory management and scheduling to increase efficiency.
Making Cuts And Reconsidering Plans
Some restaurants are reducing employee hours and keeping fewer workers per shift to manage labor costs, while others are letting go of staff. Michaela Mendelsohn, CEO of Pollo West Corporation and a member of Newsom's Fast Food Council, confirmed to Good Morning America that El Pollo Loco had reduced employee hours by 10% to lower costs. Pizza Hut announced the layoffs of over 1,200 delivery drivers in California due to the wage hike.
Chains like Vitality Bowls have streamlined menus by adding more pre-made items and eliminating labor-intensive offerings to reduce ingredient costs and prep work. Some franchisees are reconsidering plans to open new locations in California due to the wage hike. Existing restaurants may close or pause hiring if they can't maintain profitability with the increased labor costs. Rubio's Coastal Grill has shut down 48 of its California locations due to high operational costs. The company stated that the closings were due to the rising cost of doing business in California.
Higher Food Prices For Consumers
To offset higher labor expenses, fast-food restaurants are raising menu prices. Ghai mentioned that his restaurants usually implement annual price increases of 2% to 3%, but in the past year, they've had to raise prices between 8% to 10% due to inflation and the new wage legislation. Chipotle also implemented a 6% to 7% price increase at its approximately 500 California locations to offset reduced profit margins.
What Now?
Finding a balance between raising wages to improve workers' quality of life and ensuring business profitability is a key challenge. The law's focus on large chains did not consider the impact on smaller, independent fast-food restaurants that might struggle with high labor costs. These are early observations, and a clearer picture of the law's full impact on workers, businesses, and consumers will emerge over time.