California's new $20 minimum wage for fast food workers has already caused a surge in restaurant prices and a decline in foot traffic since it went into effect April 1, data shows.
A recent study released by Placer.ai found that as a result of the new law – which impacts restaurants with 60 or more locations – most quick-service chains have raised menu prices in the state by anywhere from the mid-single digits to midteens, percentage-wise, and the price hikes are hurting business.
The analysis found that during February and March of this year, foot traffic at major chain restaurants in California was actually up year-over-year and higher than the national average, but that abruptly shifted after the wage hike went into effect.
During April through May, foot traffic to fast food restaurants in California was below the national average for seven out of eight weeks, Placer.ai said. The analytics firm said quick-service burger chains were the hardest hit.
BUSINESSES ‘FED UP’ WITH CALIFORNIA'S MINIMUM WAGE HIKE AS PRICES SOAR, THOUSANDS FORCED OUT OF WORK
McDonald's, for instance, saw roughly the same year-over-year foot traffic at its California locations as the rest of its restaurants nationwide during the February-March timeframe. But after the minimum wage law went into effect, McDonald's California locations – which amount to around 9% of the company's U.S. restaurants – began underperforming by almost 250 basis points.
The study showed visits to California locations during April and May also underperformed the national average for Burger King, Wendy's, Jack in the Box, In-N-Out Burger and Chipotle, which had raised its prices 6%-7% in the state to offset the wage increases.
The Placer.ai analysis also pointed to broader impacts on the restaurant industry in the state as a result of the minimum wage increases.
"It’s early, but we’re starting to see the ripple effect of the minimum wage increase across the broader restaurant industry," said R.J. Hottovy, Placer.ai's head of analytical research. "First, we’ve started to see some operators close locations in the state, especially chains that were already facing financial difficulties."
THESE ARE THE MOST AFFORDABLE US CITIES FOR DINING OUT AND THE ONE MOST EXPENSIVE
The study noted that the new law has led several restaurant chains to shutter locations in California, including Rubio's Coastal Grill, which cited the minimum wage hikes as one of the reasons it filed for bankruptcy last week.
Meanwhile, the study said casual dining chains, which typically already paid workers more than the $20 minimum, appear to be benefiting from menu price increases at fast food restaurants.
GET FOX BUSINESS ON THE GO BY CLICKING HERE
The data showed Olive Garden and Chili's restaurants in California actually outperformed the chains' respective national averages in foot traffic year-over-year in April.
