California’s $20 Minimum Wage Forces Fast Food Franchises to Innovate or Cut Costs

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California’s $20 Minimum Wage Forces Fast Food Franchises to Innovate or Cut Costs

Implementing a $20 minimum wage in California sends shockwaves through the fast food industry, compelling franchise owners like Scott, who operates 18 McDonald’s restaurants, to rethink their business strategies drastically. This substantial increase in labor costs is challenging franchisees to find a balance between raising prices, leveraging technology, and potentially reducing their workforce to sustain profitability.

Scott, reflecting on the changes since the law took effect, shared that the past 12 days have felt like an eternity, with immense pressure to adjust. “The price of a Big Mac can’t realistically jump from its current price to $20 overnight without losing customers,” Scott said. He emphasized that while minor price increases are inevitable, doubling the price of a burger is not a viable solution. Instead, Scott is considering a holistic approach that includes tweaking menu prices moderately and optimizing other areas of operation.

“Price is a lever that independent business owners like myself can pull to alleviate some of the pressure, but it’s about more than adjusting the cost to consumers,” Scott explained. He is exploring various strategies to absorb the increased labor costs without sacrificing service quality or customer loyalty. These include enhancing efficiency through capital expenditures, judiciously managing supplies, and possibly expanding market share to distribute the cost burden broadly.

However, Scott is desperately trying to avoid the prospect of layoffs. With 800 employees under his wing, he views them as the last aspect of his operation he would want to compromise. “These are human beings, not just numbers on a payroll. Layoffs are the last lever I’d want to pull,” he affirmed.

Technological investments are also on the table. Since 2017, McDonald’s has been integrating customer kiosks and partnering with delivery services like Uber Eats and DoorDash, which have helped reallocate restaurant labor. “It’s not about replacing people, but enhancing where they are assigned in the operation,” Scott noted. The focus is on using technology to improve efficiency rather than reduce the workforce.

The familial aspect of Scott’s business adds a personal dimension to the challenges of the new wage law. His daughter, representing the third generation, has recently joined the business. Scott faces tough conversations about whether California remains the right environment for their family business or if relocating might provide a more sustainable future.

As franchise owners like Scott navigate these turbulent changes, the fast food industry in California stands at a critical juncture. Businesses must adapt to the higher wage demands creatively and efficiently or risk faltering under the increased financial pressure. The outcome of these adaptations could well set precedents for other regions considering similar wage hikes.

California’s $20 Minimum Wage Forces Fast Food Franchises to Innovate or Cut Costs
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