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California is starting to see the ripple effects that the state’s minimum wage hike is having on fast food chains, according to a report by foot traffic analytics firm Placer.ai.
According to the report, burger chains have been hit the hardest by the state’s minimum wage increase, which went into effect on April 1. During that time, the state raised the employee wage from $16 to $20 an hour.
Since then, chains — including McDonald’s, Burger King, and Wendy’s — have raised prices to offset the cost, which has led to an overall decline in foot traffic.
Between April and May of this year, visits to McDonald’s declined 2.48%, Placer.ai found. Burger King had the biggest decrease in visits, falling 3.86%, while visits to Wendy’s fell 3.24%, during that period.
Placer.ai’s report contends that consumers are trading their quick service purchase for a discount retailer, such as a grocery store. However, it is important to consider that there are other factors at play, such the popularity of delivery apps and larger economic issues affecting consumers’ income levels. It can also be argued that instead of passing the price increase onto consumers, burger chains have the option to eat the cost or find other ways to trim expenses.
In March, Pizza Hut franchisees said they would be cutting hours and laying off staff in effort keep costs down.
And while higher menu prices may be pushing people away from fast food chains, it isn’t keep them from dining elsewhere. Placer.ai found that casual dining chains, including Olive Garden and Chili’s, are seeing an increase in visits.
In the coming months, it’s likely that fast food joints will look to emphasize value, even as they face higher labor costs, Placer.ai said.
Nonetheless, in the value wars, consumers remain kings. In May, McDonald’s said that it would introduce a $5 meal deal by the end of June. Less than a week later, Wendy’s announced a $3 breakfast meal deal. And Burger King quickly said it was preparing its own $5 meal deal. Just this week, Starbucks jumped on the bandwagon with its own $5 bundle.