QSRs Raise Menu Prices in California After Wage Increase

The state has a new $20 minimum wage for fast-food workers.

October 31, 2023

Executives from McDonald’s and Chipotle Mexican Grill have both announced that they will raise their menu prices in California next year in order to offset the state’s new minimum wage increase for fast-food workers, CNBC reported.

CEO Chris Kempczinski said that McDonald’s has not decided how much prices will increase, while Chipotle expects to raise prices by a “mid-to-high single-digit” percentage in the state, but has not come to a final decision, said CFO Jack Hartung.

In September, California Governor Gavin Newsom signed a law stating that fast-food workers will earn a minimum of $20 an hour in addition to having a greater say in workplace standards. The legislation goes into effect April 1 and comes as part of a compromise between labor unions and the fast-food industry.

The law also creates the Fast Food Council, a nine person council that only has the power to set the pay floor for California’s fast-food industry through 2029.

Chipotle’s current average wage in the state is $17 an hour. With the new pay floor it will raise its wages around 18%. The company has raised menu prices four times since June 2021, with the most recent increase raising prices 3% earlier in October.

McDonald’s said that the price increase is only one method that the company is using to offset costs. The QSR chain is also looking to improve productivity, according to CNBC.

Most McDonald’s locations in California are run by franchisees, according to CNBC. “There will certainly be a hit in the short term to franchisee cash flow in California,” Kempczinski said on a quarterly earnings call.

In the long term, the company believes that the higher wages could help the company grow in California. “We believe we’re in a better position than our competitors to weather this, so let’s use this as an opportunity to actually accelerate our growth in California,” Kempczinski said.

In other McDonald’s news, the QSR’s revenue surged 14% in the latest quarter with a large boost from what it describes as “strategic menu price increases.”