(Robert Gauthier/Los Angeles Times via Getty Images)
Los Angeles Times via Getty Images
California officials are reportedly considering another increase to the $20 minimum wage recently imposed for fast-food workers. The California Food Council, created by Gov. Gavin Newsom, plans to propose an additional 3.5% increase for 2025 at its next meeting in late July, according to Restaurant Business.
California’s minimum wage law, which goes into effect in April 2024, currently requires fast food restaurants with 60 or more locations nationwide to raise their workers’ pay to $20 an hour, $4 more than the state minimum wage.
In addition, the Council, made up of industry representatives and restaurant workers, was established. It is authorized to increase wages each year by up to 3.5%, in line with inflation. The Council also advises on health and safety standards for fast food workers and combats issues such as wage theft.
While the wage increase is intended to improve the living standards of more than half a million fast-food workers, it could have unintended consequences that could further harm those employees, including restaurant closures, job cuts, reduced hours and increased deployment of automation to cut costs.
Technologies to replace human workers
Automation and self-service technologies have proliferated. Restaurants are deploying self-ordering kiosks, kitchen automation software, and other labor-saving technologies to reduce their reliance on staff.
A major Burger King franchisee in California has confirmed plans to install kiosks at all of its locations in response to the $20 wage, Business Insider reported.
“We’re putting kiosks in every restaurant,” Harsh Ghai, owner of 180 fast-food restaurants in California, including about 140 Burger King locations and numerous Taco Bell and Popeyes restaurants, told BI in an interview in early April.
Fast-food chains are adopting a range of AI, robotics and automation technologies in their customer-facing and back-of-house operations to reduce labor costs and address staff shortages, while robotic kitchen assistants and software automate more behind-the-scenes tasks.
Restaurants like McDonald’s, Shake Shack and Panera Bread are rolling out self-service kiosks that allow customers to place their own orders, reducing the need for human cashiers.
Self-ordering systems offer improved accuracy in order taking and tend to encourage customers to spend more.
“Average kiosk sales generate 10% higher bills than counter sales and excellent profitability,” Yum Brands CEO David Gibbs told investors last August.
Using mobile apps for ordering and payments simplifies transactions and further reduces staffing requirements. AI and automation are also being applied to back-office processes, such as inventory management and planning, to increase efficiency.
Cut expenses and review plans
Some restaurants are reducing their employees’ hours, having fewer workers per shift to control labor costs, while others are laying off staff.
Michaela Mendelsohn, CEO of Pollo West Corporation, one of the largest franchisees of the California restaurant chain El Pollo Loco, who was also appointed to Newsom’s Fast Food Council, confirmed to Hello America In April, El Pollo Loco had to reduce its employees’ working hours by 10% to cut costs.
Additionally, Pizza Hut announced the layoff of more than 1,200 delivery workers in California due to the wage increase.
Chains like Vitality Bowls have streamlined their menus by adding more pre-prepared items and eliminating labor-intensive offerings to reduce ingredient costs and prep work.
Some franchisees have reconsidered plans to open new locations in California because of rising wages. Existing restaurants could close or halt hiring if they can’t maintain profitability despite rising labor costs.
Rubio’s Coastal Grill has closed 48 of its California locations due to high operating costs in the state.
“Making the decision to close a store is never easy,” the company said in a statement. “The closures were prompted by the increasing cost of doing business in California.”
Higher food prices for consumers
To offset rising labor costs, fast-food restaurants are raising menu prices for customers. Ghai said his restaurants typically implement annual price increases of 2 to 3 percent. However, last year he was forced to raise prices more significantly, between 8 and 10 percent.
He explained that most of this price increase is to offset the increase in food ingredient prices due to inflation. Mr. Ghai stressed that these increases are not even enough to cover the additional labor costs resulting from the recent minimum wage legislation.
Chipotle has implemented a 6 to 7 percent price increase on menu items at its approximately 500 California locations to offset reduced profit margins resulting from the new minimum wage law.
And now?
Finding a balance between raising wages to improve workers’ quality of life and business profitability is a major challenge. The law’s focus on large chains ignores the impact on small, independent fast food restaurants that may struggle to absorb high labor costs.
It is important to note that these are just some preliminary observations. Over time, we will have a clearer picture of its impact on workers, businesses and consumers.
