In a bold move to address income inequality, California recently implemented a $20 per hour minimum wage, targeting the fast-food industry. While the intention behind the decision is to uplift workers, the repercussions are sending shockwaves through the fast-food landscape, forcing businesses to adapt or face dire consequences.
The state’s ambitious wage hike, set to take effect in April, has left owners and operators of fast-food establishments scrambling to find solutions.
In his latest video, Michael Bordenaro talks about a recent interview with Marcus Wallberg, an owner-operator of several Fat Burger franchises in the Los Angeles area, which sheds light on the challenges businesses are grappling with in the wake of this significant change.
Rising Costs and Menu Prices
Bordenaro says that one of the immediate effects of the $20 minimum wage is the unavoidable rise in menu prices. Wallberg emphasizes that this move is a last resort, as patrons are already expressing dissatisfaction with existing prices. In an industry where affordability has been a key selling point, increasing prices poses a significant risk, potentially altering consumer behavior.
With a year-over-year increase of 8% to keep up with inflation, Wallberg now faces the prospect of an additional 8 to 10% hike due to the new minimum wage law. This situation raises questions about how much consumers are willing to pay for their favorite fast-food items before seeking alternatives.
To cope with the financial strain, fast-food establishments are implementing hiring freezes and cutting employee hours.
The shift toward a $20 minimum wage has forced businesses to reevaluate their workforce, with some opting for drastic measures to maintain profitability. The move impacts job creation and leaves existing employees with reduced hours, potentially exacerbating financial challenges for those reliant on these jobs.
Elimination of Employee Benefits
Surprisingly, some businesses are eliminating employee vacation time to offset the increased labor costs. Bordenaro notes that this decision is not taken lightly, recognizing the impact on the workforce.
The removal of paid time off, which employees valued for its flexibility and family time benefits, highlights the difficult choices businesses face to navigate the financial burdens imposed by the wage hike.
The wage increase for entry-level positions also necessitates higher wages for managers and shift leaders to maintain hierarchical distinctions.
Bordenaro acknowledges the need to prevent a perception of inequality within the workforce, but this move further contributes to the overall financial strain on businesses.
Potential Industry Exodus
As businesses brace for the minimum wage increase, there are concerns about a potential exodus of workers from sit-down restaurants to the fast-food industry.
Experienced workers from establishments relying on tips may find the allure of a guaranteed $20 per hour enticing, creating a more competitive environment for fast-food job seekers.
People in the comments are not fans of fast food chains: “We need less fast food and more local mom and pop restaurants. Franchise fees are ridiculous.”
Another commenter noted the absurdity: “These restaurants can sprout up everywhere and spend millions in advertising, but paying people to work for them is just too much.”
Some see this as a good change: “I see this as an absolute win. No one is really going to be hurt by this— millionaires can boohoo all they want. Good for you, California. Of course, $20 is no longer a living wage ANYWHERE in the US, but it’s better than nothing.”
And others named successful alternatives to the most popular chains: “In & Out Burger has much better taste and quality, it’s much cheaper, and has long paid their employees $20 starting pay. How do they do that? No franchise fees! The problem is not the wages, the problem is too many investors leeching off the profit.”
Uncertain Future for Fast Food
California’s experiment with a $20 minimum wage in the fast-food sector serves as a precursor to potential nationwide changes. While the intention is to uplift workers, the unintended consequences may reshape the industry’s dynamics.
As businesses grapple with rising costs, reduced staffing, and increased menu prices, the fast-food landscape faces an uncertain future. The true impact of California’s wage experiment on the industry will unfold in the coming months, potentially shaping discussions around minimum wage policies across the United States.
What are your thoughts on this? How do you think this will influence the wider discussion on minimum wage policies in other states?
As businesses face increased costs and the need to raise menu prices, do you believe consumers will be willing to pay more for fast food, or will this drive a shift in consumer behavior towards more affordable alternatives?
The elimination of employee benefits, such as vacation time, underscores the tough choices businesses are making. What trade-offs do you think are acceptable in balancing employee benefits with the financial viability of businesses?