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Fast-food giants like Starbucks and Chipotle are raising their menu prices by up to 8% due to a recent law change. This increase is in response to a rise in employee wages. Many other fast-food chains are following suit, straining customers' wallets.
California's New Law Spurs Menu Price Surge
Chains like Chipotle and Starbucks, among others, are bumping up menu prices by as much as 8% in response to California's recent legislation. Effective April 1, fast-food restaurants with over 60 outlets are mandated to pay a minimum wage of $20 per hour to employees in the state.
Industry analysts Eric Gonzalez and Mark Kalinowski, cited in Nation's Restaurant News, highlight the significant impact of this law on prices. For instance, at Chipotle, prices for items like the chicken burrito surged by 8.3%.
According to Kalinowski's research, the cost of a steak burrito increased 7% from February to April.
In a recent survey of 20 Starbucks stores in California, prices soared by an average of 7% between February and April. For instance, a venti iced caramel macchiato now sets customers back by 8.4% more than just two months ago.
Analyst Mark Kalinowski found that Wendy's franchisees followed suit, opting for an average 8% increase in menu prices.
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Chipotle Warns of Price Hikes
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During a February earnings call, Chipotle's chief financial and administrative officer, Jack Hartung, cautioned that covering the cost of a wage increase might lead to a mid-single-digit price rise in California.
The law, Assembly Bill 1228, signed by Gov. Gavin Newsom in September, is set to take effect on Monday. It mandates that restaurants with 60 or more establishments nationwide boost California-based workers' pay to $20 per hour, surpassing the state's minimum wage of $16 an hour.
While Chipotle hasn't decided on new pricing yet, other chains like McDonald's, Starbucks, and Jack in the Box have indicated plans to pass the increase on to consumers or modify their operations.
Additionally, the law stipulates the formation of a restaurant industry council to determine future pay raises and offer advice on working conditions.
Other chains have implemented smaller but still noticeable price adjustments. Taco Bell saw a 3% uptick, while Burger King raised prices by 2%. These changes reflect the ongoing adjustments to accommodate California's new wage law.
McDonald's franchisees have yet to implement significant price increases. Still, the chain's CEO, Chris Kempczinski, cautioned during a November 2023 earnings call that such hikes would likely be necessary due to the new law.
"The change in California law is not the only reason fast-food customers are feeling the pinch," Kempczinski stated, implying broader industry trends impacting prices.
In recent years, fast food, once known for its affordability, has become increasingly expensive. According to FinanceBuzz, between 2014 and 2024, McDonald's menu prices have doubled, far outpacing the 31% inflation rate during the same period.
The recent California law has implications for employees at fast-food chains with over 60 locations, but its impact varies depending on the size and structure of businesses.
For instance, there's a notable difference between a small business owner who operates two units of a concept like Vitality Bowls and a regional McDonald's franchisee who may own hundreds of stores.
Analyst Kalinowski suggests that franchisees diversify their holdings geographically to mitigate the law's impact. Meanwhile, franchising might be more appealing for parent companies.
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