- California fast-food franchisees say they are desperate to find ways to maintain profits.
- Restaurant companies are trying to offset the state’s new $20 minimum wage for fast food workers.
- In addition to raising prices, franchisees are laying off workers, cutting jobs and pivoting to technology.
California’s fast food franchisees are desperately looking for ways to cut costs as the state implements a $20 minimum wage for limited-service restaurant workers.
Supporters of the bill say it will help thousands of workers with basic living expenses. But fast-food chains and their franchisees are concerned about the impact wage hikes will have on profits.
“We’re pretty much in the red as of today,” Michaela Mendelsohn, owner of six El Pollo Loco restaurants in California, told NBC Los Angeles on Monday, the day the new wage was introduced.
“We’re losing money, so we have to make changes to the boat to stop the leaks,” she said.
Some chains, including McDonald’s and Chipotle, say California restaurants should expect higher prices because of the law. But some franchisees are wary of scaring off customers, since franchisees can largely set their own prices.
For example, a McDonald’s franchisee in Los Angeles County recently said that raising prices enough to offset the new wages would make his food “unaffordable.”
As a result, some stores are looking for other ways to absorb higher wages without hindering occupancy.
1. Dismissal of employees
Some franchisees are cutting salaries and laying off employees to avoid paying higher wages.
Two Pizza Hut franchisees in California say they plan to eliminate in-house delivery and rely on third-party services, resulting in the layoffs of about 1,200 employees. Round Table Pizza franchisees also filed plans to lay off 70 delivery drivers this month.
Auntie Anne’s Pretzel and Cinnabon franchisee Alex Johnson told The Associated Press that he has laid off his office staff and is relying on parents to help.
2. Reduce working hours and reduce employment
But many franchisees say they don’t want to lay off employees.
Instead, some, like Marcus Wahlberg, owner of several Fatburger restaurants in Los Angeles, are cutting back on their employees’ hours and suspending their employment. “The schedule is very tight,” he told BI in January.
Other franchisees have made similar comments. Mendelsohn, the El Pollo Loco franchisee, told NPR that preemptive price hikes are already discouraging some customers. “So what’s really left is… to reduce working hours,” she said. “And I hate saying that.”
Brian Hom, owner of two Vitality Bowl restaurants in San Jose, told the Wall Street Journal in March that he “absolutely has no intention of hiring anymore.”
3. Abolition of employee allowances
Walberg told BI in January that he had suspended the restaurant’s paid leave program in preparation for the wage increase.
“I can’t afford to do that anymore,” he said.
4. Converting to an ordering kiosk
Restaurants are turning to technology and automation to reduce labor costs.
Sharon Zakfir, a restaurant analyst at William Blair & Co., previously told BI: digital ordering kiosk It’s currently a key focus area for some fast-food chains, but it’s expected to become more widespread in California “even sooner.” A kiosk means you can order without having to speak to staff at the counter.
Mendelsohn, the El Pollo Loco franchisee, told CNN he has installed ordering kiosks and is considering adding an AI-powered drive-thru.
5. Reduce operational costs
Beyond labor costs, restaurants are looking for other ways to save on operating costs.
“Can I turn off the lights? Do I have to turn on the air conditioner now? Can I turn it on later?” Operated by Gem Restaurant Management Corporation, a KFC and Wendy’s franchisee. Chris Stuebner, executive vice president in charge, told ABC 30 Action News. “That’s what we’re looking at right now.”
Rising wages are causing some franchisees to put off making major changes to their operations, such as opening new restaurants.
Scott Rodrick, a McDonald’s franchisee with 18 locations in Northern California, told Fox News that some major investments, such as renovating the dining room and purchasing a new grill, may have to be postponed. He said he needed to seriously consider whether to open a new restaurant. state.
Auntie Anne’s Pretzel and Cinnabon franchisee Alex Johnson told The Associated Press that he has no plans to open any more stores in California. “We have to consider selling the business or going out of business,” he said. “Profit margins have become too thin.”
Are you a fast food restaurant employee and excited about the new minimum wage? Or are you a franchisee or restaurant manager worried about how it will affect your business? ? Email this reporter at gdean@insider.com.
