California fast food restaurants have been performing below average since the state began mandating $20/hour wages. | Photo: Shutterstock.
Traffic at fast-food restaurants in California has been below national averages since the state began requiring them to pay workers $20 an hour in April, according to data from tracking firm Placer.ai.
The same cannot be said for full-service restaurants, which have more often than not outperformed national averages in the 12 weeks since the law took effect.
According to Placer.ai, which tracks consumer traffic to restaurants and retailers, traffic to fast food restaurants in California has been below national averages in 10 of the 12 weeks since the law went into effect.
On April 1, California began requiring limited-service restaurant chains to pay $20 an hour, a 25% increase in the minimum wage. Many restaurants have raised prices because they can’t cut costs enough to offset the wage increase.
In contrast, traffic to full-service restaurants in California exceeded national averages in eight of those 12 weeks.
“In June, we saw that fast-food chains in California underperformed national averages when it came to year-over-year traffic trends,” RJ Hottovy, head of analytics research for Placer.ai, said in a statement to Restaurant Business. “This is a continuation of the trend we saw in April and May after the state’s minimum wage increase requirements went into effect and many chains raised prices.”
“Interestingly, we also found that full-service restaurants in California, many of which have not increased their menu prices to the same extent as QSR chains, have outperformed national averages,” he added.
To be sure, traffic at fast-food chains has been positive for seven of the past 12 weeks in California, including each of the past five, suggesting there hasn’t been the mass exodus from restaurants in the state that many expect.
At the same time, full-service restaurants have outperformed quick-service restaurants in California in each of the past 12 weeks, according to Placer.ai.
The data paints a mixed picture of the state of the restaurant industry in the state, which accounts for about 15% of the U.S. restaurant sector.
The data appear to support some assumptions that full-service restaurants could benefit from the law’s implementation. Since they don’t have to raise wages to that extent, full-service restaurants could theoretically drive some customers away from fast-food restaurants.
That said, the data also suggests that full-service restaurants have outperformed fast-food brands over the past three months, at least in terms of traffic. On average, traffic at full-service restaurants has increased by 1.6% over the past 12 weeks. By comparison, traffic at fast-food restaurants has increased by just 0.67%.
According to Placer.ai, California full-service restaurants outperformed the national average by 73 basis points during that period. But the state’s fast-food restaurants underperformed the national average by 44 basis points.
The outperforming results for full-service restaurants according to Placer.ai data run counter to recent comments from Kura Sushi, which said its sales have been weaker than expected recently. The company said people aren’t eating out as much because they think all restaurants are more expensive.
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Jonathan Maze, Restaurant Editor, is a longtime industry journalist who writes about restaurant finance, mergers and acquisitions and the economy, with a focus on quick-service restaurants.
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