Rising wages for California fast food workers mean chains are cutting hours and raising prices to cover costs

Lawrence Cheng, whose family owns seven Wendy’s restaurants south of Los Angeles, recently took orders at the cash register and emptied steaming baskets of fries and chicken nuggets, salting them with panache.

Cheng used to have about a dozen employees per afternoon shift at his Fountain Valley, Orange County, location. Now he has just seven per shift as he struggles to absorb a dramatic increase in labor costs after a new California law raised the hourly wage for fast-food workers from $16 to $20 an hour on April 1.

“We make cuts where we can,” he said. “I schedule one less person, then I come in for the time I didn’t schedule and work that hour.”

Cheng hopes that summer, when business is traditionally booming, with students on vacation and families traveling or spending more time eating out, will bring better profits that can cover the extra costs.

Experts say it’s too early to assess the long-term impact of higher wages on fast-food restaurants and whether there will be widespread layoffs and closures. Past wage increases haven’t necessarily led to job losses. When California and New York nearly doubled their minimum wages to $15 from the federal level of $7.25 an hour, job growth continued, according to a University of California, Berkeley, study.

So far, the sector has continued to see job growth. In the first two months after the law passed on April 1, the sector gained 8,000 jobs, compared with the same period in 2023, according to the U.S. Bureau of Labor Statistics. No figures were yet available for June.

Joseph Bryant, executive vice president of the Service Employees International Union, which lobbied for the raise, said the industry has not only created jobs because of the new law, but “many franchisees have also noted that the higher pay already attracts better candidates, thereby reducing turnover.”

But many large fast-food chain operators say they are cutting hours and raising prices to stay in business.

“I’ve been in the business for 25 years and I have two different brands and I’ve never had to raise prices like I did last April,” said Juancarlos Chacon, owner of nine Jersey Mike’s in Los Angeles.

A turkey sandwich for less than $10? It’s now $11.15. Even as customers continue to come in, he sees them cutting back: no drinks, no fries, no dessert.

Since lunch is their main business, Chacon has cut morning and evening staff. He has also laid off some part-time employees, dropping the number from 165 to about 145.

It wasn’t just entry-level employees who got a pay raise. Team leaders, assistant managers and all other employees in higher positions also got raises, and labor accounts for about 35% of its costs.

“I’m very nervous,” Chacon said.

Aaron Allen, founder and CEO of a global restaurant consulting firm, said he’s been fielding panicked calls from California restaurateurs and suppliers still recovering from the COVID-19 shutdown. He predicts a growing divide between companies like McDonald’s, which have money to invest in automation and cut costs through “menu reconfigurations, and smaller, more regional chains that could go bankrupt or face significant store reductions.”

Cheng said he has no plans to lay off Wendy’s 250 employees and has instead decided to cut overtime and the number of workers per shift. He also raised menu prices about 8 percent in January in anticipation of the law.

He said, however, that his accounting records showed he had gone $20,000 over budget for a two-week pay period.

Jot Condie, president and CEO of the California Restaurant Association, which opposed the minimum wage bill, said businesses are feeling the pressure of rising rents and food costs at the same time.

“When labor costs increase by more than 25% overnight, any restaurant business with already thin margins will be forced to cut costs elsewhere,” Condie said. “They don’t have much choice but to raise prices, reduce hours or cut staff.”

Julieta Garcia, who has been working at a Los Angeles pizzeria for a little over a year, says she now works five days a week instead of six. But that’s not a bad thing, she says, because she can spend more time with her 4-year-old son. The extra money allows her to pay her cellphone bill on time, instead of having to cut off service, and to take her son to get his tonsils checked, she says.

Howard Lewis, a 63-year-old retiree who works at a Wendy’s in Sacramento, said he invests his extra money.

“Today was payday and I bought $500 worth of stock,” Lewis said. He also helps his ex-wife fix the brakes on her car.

Gov. Gavin Newsom said the raise was needed to give the state’s more than half a million fast-food workers a living wage.

“We are a state that cares about fast food workers — who are predominantly women — who work two and a half jobs to get by,” Newsom said in his State of the State address posted on social media.

For Enif Somilleda, general manager of a Del Taco in Orange County, the increase has been mixed. She used to employ four people per shift. Now she has just two.

“Financially, it has helped me,” she said. “But I have fewer staff, so I have to work a lot more.”

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