As discussed in previous posts, California’s minimum wage for fast food workers will increase to $20 an hour by next April (2024). Most employers and business owners could easily predict the likely outcome of an increase in labor costs: an increases in menu prices. In fact, both McDonald’s and Chipotle Mexican Grill have already confirmed that they will be raising their menu prices next year in order to make up for the increase in fast food workers’ wages. Now, the question is: how much will the menu prices increase by?

To be clear, many business owners have already been forced to increase their prices since the 2020 pandemic due to the ever-rising costs of ingredients, raw materials, and labor. In fact, the U.S. Bureau of Labor Statistics have calculated that the prices of restaurant foods have increased by 6% in the last year. Clearly, a very high and fast increase in labor costs like California’s mandated minimum wage for fast food workers, will sharply and negatively affect the menu prices of these fast food establishments- and possibly more!

According to one report by the National Owners Association, an independent group that represents McDonald's American franchisees, the cost of compliance with California’s new fast food minimum wage will be staggering for franchisees. Each McDonald’s franchisee can expect to pay an extra $250,000 in labor costs annually to comply with the new law. Yes, that’s a quarter of a million dollar increase in labor costs alone for each McDonald’s franchisee.

The skyrocketing labor costs may now be the incentive some franchisees need to work toward automating food preparation and sales, ultimately leading to less available positions for actual employees. Earlier this year, a McDonald’s in Fort Worth, Texas made headlines because it was the first fully automated McDonald’s restaurant in the United States. The restaurant had no employees at the location. Instead, customers were required to order using the McDonald’s application via their mobile devices or a kiosk on the premises. The food can be picked up via the drive through window or at a front counter.

The legislature, in establishing California’s new fast food worker minimum wage, may have failed to deliver high wages to California fast food workers. If the menu prices increase significantly, the fast food workers may find that their higher wages do not significantly increase their buying power at their own workplace- and perhaps in other areas of their life. In addition, if fast food franchisees choose to go fully automated and not hire employees, there are no higher wages for these workers. Indeed, there will be no wages at all.

It will be interesting to see if fast food franchisees can survive (and thrive) despite the staggering increase in labor costs in such a short amount of time or whether the franchisees will be forced to slim down their workforce.