- A McDonald's franchisee in California warned that customers' acceptance of price increases is "not unlimited."
- Fast-food chains have been raising prices and cutting costs to offset the state's new $20 minimum wage.
- The franchisee said he'd upped prices at his restaurants by between 5% and 7% in just three months.
A California McDonald's franchisee says that he's putting up prices, considering delaying remodels of his dining rooms, and even mulling changing his restaurants' opening hours to absorb the impacts of the state's new minimum wage for fast-food workers.
"I am leaving no stone unturned," Scott Rodrick, who owns 18 McDonald's in northern California, told Business Insider on Friday.
California put up the minimum wage for fast-food workers to $20 an hour on April 1 — 25% more than the state's general minimum wage. Fast-food franchisees say they're desperately looking at ways to offset their higher payrolls.
Rodrick told BI that he'd already increased prices at his restaurants by between 5% and 7% in the three months since January.
"My strategy was to do it in short steps over a longer period of time than do it as dramatically as overnight," he said. "I've been paying very, very close attention to the competition in my space."
"The appetite that my customers have for price increases is not unlimited," he added.
Rodrick said he'd been a McDonald's franchisee for 30 years and typically tried to raise prices in line with the consumer price index, a Bureau of Labor Statistics measure of inflation. In 2023, prices at limited-service restaurants rose 5.9% on average, per the BLS data.
Restaurant operating costs skyrocketed during the pandemic, with a particular surge in spending on ingredients. "There is more than extraordinary labor costs stressing restaurant P&Ls right now," Rodrick said. "The same grocery inflation that consumers at home worry about is also worrying restaurants just as a basket of groceries."
"So what I'm really dealing with, outside of the historical pace of things, is this double-barrel shotgun of backdoor food costs and now labor going off and leaving a brutal mark on my unit profitability," he continued.
Rodrick said that as well as putting up prices to boost revenue, he was looking at ways of cutting costs so that he could "at the very least mitigate, if not come out a step or two ahead from the impact" of the $20 wage.
"In my organization I have to make some harder choices around capital expenditures," he said.
"So for example, if I have to replace an HVAC [a ventilation or AC unit] on the roof, I might push that off to 2025 or 2026."
"If I have to do a dining room remodel, I might have to engage with my franchisor to allow me a less broad scope or push that CapEx down the road, and even on day-to-day operations, instead of the landscaper coming in every week to take care of the outside shrubs, perhaps it's every other week," Rodrick continued.
When asked whether he was considering changing his opening hours to offset the impacts of the new wage, Rodrick said that he could potentially increase them to boost revenue or decrease them to cut operating costs.
Fast-food franchisees say they're worried they'll have to put their prices up so much to help absorb the higher wages that some diners may go to casual dining chains like Chili's and Applebee's instead for just a few dollars more per head.
Rodrick told BI that this was a "deep concern" that "narrows the competitive gap" between different types of restaurants.
The new wage only applies to limited-service restaurant chains — where diners typically pay before eating and there is no or limited table service — with at least 60 locations nationwide. It's expected, however, that the legislation will ultimately boost wages in other industries as employers compete for labor. Some analysts think it could therefore ultimately push up menu prices at restaurants not covered by the legislation.
Fast-food workers and the unions representing them say that the boost to their pay is much-needed and will help them with basic living costs.
But Rodrick said he didn't understand why the California legislature set a $20 minimum wage just for workers at limited-service restaurants.
"Whether you work at my drive-thru, whether you work at the bookstore down the street or the gas station next door, a fair starting wage for one should be a fair starting wage for all," he said.
Are you a fast-food worker excited about the new minimum wage? Or a franchisee or restaurant manager worried about how it will affect your business? Email this reporter at [email protected].