California McDonald's Franchise Owner Says, 'The Focus Is On Survival' With 'Unprecedented' $20 Per Hour Minimum Wage Forcing Higher Prices

In response to California's new $20 minimum wage law, fast food franchises are being forced to rethink their business strategies to stay afloat. 

Scott Rodrick, who owns 18 McDonald's franchises in the state, is considering measures to manage the increased labor costs without resorting to layoffs, which he sees as a last resort.

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Since the implementation of the new wage earlier this month, there have been several changes in the fast-food industry, including reduced employee hours and increased menu prices at multiple chains. According to Kalinowski Equity Research, Wendy's has increased its menu prices by about 8%, and Chipotle Mexican Grill has seen a price rise of approximately 7.5%. Starbucks has adjusted the prices of its offerings in California locations by around 7%, and Taco Bell has raised its prices by 3%.

Rodrick described the past few weeks as a "whirlwind" of activity trying to adapt to the new financial pressures the "unprecedented law" has created.

"The focus is survival," Rodrick said during an interview on "Varney & Co." 

He noted that raising prices is a delicate balance, as consumer tolerance for higher costs has limits. Initially, he increased menu prices by 5% to 7% between January and March but recognizes that further adjustments are necessary.

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Looking forward, Rodrick is exploring several strategies to enhance business resilience. These include judicious capital expenditures, improving labor efficiencies and expanding market share. 

"This is my family's 50th year in the McDonald's business, and I plan on fighting and surviving for another 50 years," he said, underscoring his commitment to sustaining the business amid challenging conditions.

The new wage law not only raises operational costs but also prompts business owners like Rodrick to consider broader implications for their business locations and future family involvement in the industry. He shared concerns about whether continuing the business in California remains viable for the next generation, considering the state's regulatory environment.

According to Bloomberg, the law has instigated broader economic changes across various industries. Michaela Mendelsohn, who operates six El Pollo Loco locations, has had to raise managers’ salaries by over 10% to more than $83,000 annually to align with new wage regulations. This adjustment is a response to a specific provision in the law that requires salaried staff at fast-food establishments to earn at least double the hourly minimum wage.

This stipulation has set off a cascade of wage adjustments that extend beyond the fast-food sector. Businesses in other industries may feel compelled to increase salaries to remain competitive in attracting and retaining talent. This could particularly affect industries with similar labor models or those competing in the same labor pool. 

The wage adjustments are likely to influence overall employment costs, potentially leading to higher prices for goods and services as businesses strive to maintain profit margins while accommodating increased labor expenses.

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