The new $20 minimum wage went into effect this week
California’s new minimum wage hike looks likely to impact menu prices across fast food chains such as McDonald’s and Chipotle $CMG. A new state law, which went into effect on April 1, increased the minimum wage from $16 to $20 per hour. The 25% pay hike applies to fast food restaurants that have more than 60 locations across the U.S.
While workers celebrated the change, businesses are bracing for higher costs. Some employers have already signaled they will need to raise prices, cut staff hours, or lay off workers.
Jack Hartung, Chipotle’s chief financial officer, said during an earnings call last month that the restaurant chain knows that “we have to take something at a significant increase when you talk about a 20%-ish increase in wages.”
It remains to be seen how the minimum wage hike will effect prices at McDonald’s.
“I don’t think at this point we can say exactly how much of that is going to work its way in through pricing,” Chris Kempczinski, the CEO of McDonald’s, said during the company’s earnings call in February. McDonald’s already raised prices by 10% last year.
“Certainly, there’s going to be some element of that that does need to be worked through with higher pricing,” Kempczinski said.
The wage hike is impacting fast food chains such as Pizza Hut and Round Table Pizza differently, in part because they are owned by franchisees. At those particular locations, employers are laying off about 1,280 delivery drivers, The Wall Street Journal reports.
California has about 500,000 people that work in the fast food industry.
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