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Restaurants weigh price increases after California raises minimum wage

Chipotle's CFO said, "We are definitely going to pass this on" as the minimum wage for workers will increase by more than $4 an hour.
Restaurants weigh price increases after California raises minimum wage
Posted at 7:13 AM, Nov 01, 2023

Top fast food restaurants McDonald's and Chipotle said some price increases will be coming in California as the state enacts a higher minimum wage for workers. 

In April 2024, fast food workers will begin earning a minimum of $20 an hour due to the passage of Assembly Bill 1228. The bill came after a previous bill was passed requiring a $22 minimum wage. After legislators approved the $22 minimum wage, a ballot initiative was underway to block the $22 minimum wage from going into effect.

McDonald’s was among several companies objecting to the previous law. According to state data, In-N-Out, Chipotle, McDonald's and Chick-fil-A each spent over $11 million to oppose the $22 minimum wage law.

Now that it appears settled that fast food workers will earn a minimum of $20 an hour, chains must decide how much of the cost to pass along to customers. 

"It's going to be a pretty significant increase to our labor," Chipotle Chief Financial Officer Jack Hartung said in a call with investors. "We haven't made a decision on exactly what level of pricing we're going to take. But to take care of the dollar cost of that and/or the margin part of that, we haven't decided yet where we will land. It's going to be a mid to high single-digit price increase, but we are definitely going to pass this on."

SEE MORE: McDonald's says it's eliminating iconic McFlurry spoons

McDonald's too said prices will increase, but to what extent is unknown. The company added that the new law provides an opportunity. 

"Longer term, what we've been talking about with our franchisees is this is an opportunity for us to gain share, because this is an impact that's going to hit all of our competitors. We're in a better position. We believe we're in a better position than our competitors to weather this," McDonald's CEO Chris Kempinski said in a call with investors. "And so let's use this as an opportunity to actually accelerate our growth in California and accelerating our growth along with some mitigation. The two of those in combination is the best way to minimize any impact long term on franchisee cash flow."

The current minimum wage in California for workers in fast food and other industries is $15.50 an hour. 

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