Even as food inflation shows signs of slowing down, fast-food customers might not get much relief. The ongoing rise in labor costs suggests that fast-food chains could increase their prices even more this year.
This means that while overall food prices might stabilize, the cost of grabbing a quick burger or fries could still increase, affecting customers who frequent these fast-food outlets.
Fast-food chains Face Rising Costs; Customers May Pay More
Fast-food customers across the United States, particularly California, might soon notice higher prices on their favorite menu items. This comes after 22 states raised their minimum wage at the start of the year, boosting incomes for nearly 10 million workers.
In a significant move, California has passed a law requiring fast-food chains with over 60 locations to pay a minimum of $20 per hour starting April 1.
Such changes have prompted popular fast-food chains like Dutch Bros and Chipotle to consider price hikes in California to balance the increased labor expenses, as reported by Yahoo Finance.
Nationwide, the Chicago-based fast-food chain Portillo's has already implemented a 1.5% price increase to cope with commodity and labor wage inflation.
Portillo's CEO, Michael Osanloo, highlighted the impact of these changes, stating that with California's new minimum wage law, wages will need to exceed $20 to maintain market balance.
As a result, fast-food prices in California are likely to rise to ensure consistent profit margins across various states, including Minnesota, Texas, and Florida.
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Fast-Food Chains Adjust Prices Amid Rising Labor Costs
Portillo's, a well-known Chicago-style fast-food chain, has recently increased its prices by 1.5% nationwide. This move aims to balance out the rising costs of goods and higher wages for workers, as explained by CEO Michael Osanloo in a statement to Yahoo Finance.
Osanloo pointed out the challenge in California, where a new law mandates a minimum wage of $20 per hour. He emphasized that simply meeting this wage isn't enough; they might need to go beyond $20 to maintain a consistent profit margin across various states, including Minnesota, Texas, and Florida.
Meanwhile, other fast-food giants like Dutch Bros and Carolls Restaurant Group, which operates over a thousand Burger King and Popeyes franchises, are closely monitoring the increasing wages.
Chipotle also shared that they are considering a significant price increase, potentially in the mid-to-high single digits, to counteract the higher labor costs in California.
Some companies are finding innovative solutions as fast-food chains grapple with rising labor costs. Salad and Go, for example, uses central kitchens to minimize its need for labor.
Charlie Morrison, CEO of Salad and Go, explained to Nation's Restaurant News how this strategy reduces labor in the kitchen. By simplifying the supply chain, they manage to keep prices low for customers.
Typically, restaurants aim to maintain their labor expenses at around 30% of their total revenue. However, the new California law significantly impacts these figures. Under this law, fast-food workers putting in a 40-hour week will earn an annual salary of $41,600.
This is a substantial increase from their current average wage of $16.60 per hour, which amounts to just over $34,000 yearly, barely above the poverty line for a family of four in California.
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