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Restaurant chains McDonald’s (NYSE:MCD) and Chipotle Mexican Grill (NYSE:CMG) anticipate raising prices next year in California in order to pass on some of the hit from the U.S. state’s recent minimum wage hike for fast food workers.
In late September, California governor Gavin Newsom signed legislation that will raise the minimum wage for the state’s 500K fast food workers to $20/hour in April, 2024 from around $16/hour in 2022.
Newsom at that time had said that the legislation was one step closer to “fairer wages, safer and healthier working conditions, and better training.”
McDonald’s (MCD) top boss Chris Kempczinski on an earnings conference call on Monday said that there would “certainly” be a hit in the short-term to franchisee cash flow in California due to the minimum wage hike ruling.
“There is going to be a wage impact for our California franchisees. I don’t think at this point, we can say exactly how much of that is going to work its way through pricing,” Kempczinski said, while acknowledging that some element of higher pricing would be needed.
Meanwhile, Chipotle (CMG) finance chief John Hartung on an earnings conference call last Thursday anticipated a “mid-to-high single-digit price increase” next year in California.
“We haven’t made a decision on exactly what level of pricing we’re going to take,” Hartung said.
“Our average wages in California are right around 17%, so we get the minimum up to 20% and to make sure that we take care of compression as well. We’re going to have to increase wages in call it the high teens to 20% or so,” the CMG CFO added.
Restaurant chains in general have used price hikes over the last two years in order to offset rising ingredient, labor and fuel costs amid elevated interest rates and inflationary pressures. Prices for food away from home rose 6% Y/Y in September, according to latest data from the U.S. Bureau of Labor Statistics.