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McDonald’s and Chipotle to Increase Menu Prices in California in Response to $20 Fast-Food Wages

McDonald’s, Chipotle to raise menu prices in California next year as fast-food wages rise to $20

McDonald's and Chipotle to Increase Menu Prices
FILE PHOTO: People are served in a Chipotle outlet in Manhattan, New York City, U.S., February 7, 2022. REUTERS/Andrew Kelly

Fast-food giants, McDonald’s and Chipotle Mexican Grill, have announced plans to increase menu prices in California next year as a direct response to the state’s rising minimum wage for fast-food workers, reaching $20 per hour. Both companies unveiled this strategy while reporting their quarterly earnings.

  • “McDonald’s and Chipotle to Adjust Menu Prices in California Amid $20 Fast-Food Wages”
  • “Rising Costs Prompt Fast-Food Giants to Increase Menu Prices, Impacting Consumer Dining Habits”
  • “California’s Compromise on Fast-Food Wages Spurs Wage Hikes and Price Adjustments in the Restaurant Industry”

While McDonald’s is yet to finalize the extent of the price adjustments, Chipotle anticipates a “mid-to-high single-digit” percentage increase in the state. These decisions come against the backdrop of the ongoing challenge of surging ingredient and labor costs, which have prompted the restaurant industry to incrementally raise prices for more than two years.

Over the past few years, the restaurant industry has grappled with escalating costs, leading to a gradual increase in menu prices. According to the U.S. Bureau of Labor Statistics, food prices for dining out surged by 6% in September compared to the previous year. While diners have grown accustomed to the idea of paying more for their meals, some have started to eat out less frequently to manage their budgets. In this context, McDonald’s noted that consumers with incomes below $45,000 have reduced their visits, contributing to a decrease in the company’s U.S. foot traffic during the quarter.

The state of California witnessed an extended and costly debate between the restaurant industry and labor groups over a bill that aimed to establish a 10-person council governing fast-food chains in the state. The council would have set guidelines for working conditions and wages. Ultimately, a compromise was reached, resulting in the creation of a nine-person council with the authority to establish a minimum wage floor for the fast-food industry in California until 2029.

Starting April 1, fast-food chains with at least 60 national locations will be required to pay their employees a minimum of $20 per hour. Between 2025 and 2029, the council will have the power to annually raise the minimum wage based on the lower of 3.5% or the annual change in the consumer price index.

For Chipotle, the new wage floor implies an approximate 18% increase in its wages. Currently, the chain’s average wage in California stands at $17 per hour. As a result, Chipotle customers in the state will see higher prices for their burritos and bowls. California is home to roughly 15% of Chipotle’s restaurants, including the company’s headquarters. In response to rising costs, Chipotle has already implemented four price increases since June 2021, with the most recent hike of 3% occurring in October.

While price increases will be one approach to mitigate the impact of increased labor costs, McDonald’s will also explore ways to enhance productivity and reduce restaurant-level expenses, as stated by CEO Chris Kempczinski. It is worth noting that unlike Chipotle, which predominantly owns its locations, a substantial portion of McDonald’s California restaurants are operated by franchisees. These franchisees have the autonomy to set prices, although the company provides guidance on the most effective pricing strategy. The impact of the wage hike on franchisee cash flow in California remains uncertain but is anticipated to be challenging in the short term.

Despite the immediate challenges, McDonald’s views the higher wages as a potential long-term advantage for its business. CEO Chris Kempczinski sees an opportunity to leverage their position and accelerate growth in California relative to competitors.

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