California Restaurant Owner Says Wage Hike Will Cost Him $470K, Plans to Expand Business Out of State

By: Georgia | Published: May 18, 2024

California has implemented a new law that raises the minimum wage to $20 per hour for fast food workers. 

Alex Johnson, who owns several Auntie Anne’s and Cinnabon locations in San Francisco, shared that this increase will significantly raise his operational costs. He told Fox Business, “Across my 10 locations, the increase in the wage rate is going to cost me $470,000. So, just about $50,000 per location.”

Rising Operational Costs Lead to Price Increases

Due to the increased operational costs from the wage hike, Johnson has decided to raise the prices of his menu items. 

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A Cinnabon store located in a mall with a circular service counter

Source: Wikimedia Commons

He expressed his reluctance in doing so during an interview with Fox Business, stating, “I think immediately what we’re doing though, is raising prices, something that I really don’t want to do.”

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Potential Staff Reductions Being Considered

Johnson mentioned that the new wage increase puts him in a tough position where he might need to consider reducing his staff. 

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Photo of a man in a suit paying cash at a Cinnabon counter. The store is brightly lit, and a smiling female employee wearing a Cinnabon cap is serving him

Source: Wikimedia Commons

He explained the difficult choices ahead, telling Fox Business, “Everything’s on the table,” which suggests that layoffs could be a possible response to manage the financial strain.

Statewide Concerns Over Price Hikes

The minimum wage increase is expected to cause a ripple effect throughout California, leading to higher menu prices across the state.

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Night shot of an In-N-Out Burger outlet with its iconic neon sign glowing in green and white

Source: Wikimedia Commons

Andrew Wiederhorn, chairman of FAT Brands, highlighted the inevitable price rise, saying, “So, prices are going to go up.”

Consumer Adjustment to High Prices

Jon Taffer, a prominent figure in the restaurant industry, discussed the adaptation of consumers to increasing prices. 

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Close-up image of a juicy hamburger with lettuce, tomato, and cheese on a sesame bun, accompanied by a side of crinkle-cut fries

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He noted the new reality of dining costs: “The consumer is starting, dare I say, to get used to the $30 hamburger.”

Decline in Sales and Customer Traffic

Johnson has observed a decline in sales and customer traffic, which complicates the financial impact of the wage hike.

Interior of a contemporary fast food restaurant with a long counter labeled 'Fries, Shakes, Hot Dogs, Condiments Station'.

Source: Wikimedia Commons

This decline exacerbates the challenges posed by increased labor costs, putting additional pressure on his business operations.

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Exploring Business Opportunities Outside California

Due to the challenges in California, Johnson is looking to expand his business elsewhere. 

Image shows an Auntie Anne's store located in a bright shopping mall. The storefront is clearly visible with its iconic blue and yellow branding

Source: Wikimedia Commons

He stated his intentions to stop expanding within the state, saying, “I’m not growing anymore in this state. I’m not expanding any new locations.”

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Nevada as a More Business-Friendly Alternative

Johnson has chosen Nevada as a new location for expanding his franchise operations due to its less restrictive regulatory environment. 

A vibrant night scene of the Las Vegas Strip showing neon signs and illuminated facades of famous casinos like Bally's and the replica of the Eiffel Tower

Source: Wikimedia Commons

He explained his preference for Nevada, saying, “There just isn’t so much regulation, there isn’t so many different types of people telling you how to run your business.”

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Economic Viability Under New Wage Law

Johnson emphasized the precise economic conditions needed for a restaurant to profit, which he believes are compromised by the new wage law. 

Inside view of an In-N-Out Burger restaurant with staff in white uniforms and red aprons serving customers

Source: Wikimedia Commons

His concerns reflect the broader implications of such legislation on business operations.

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The Economic Threshold for Restaurants

The increase in minimum wage has created a new economic threshold for restaurant owners like Johnson, who must now navigate the increased costs while trying to maintain profitability. 

Daytime image of a Del Taco fast food restaurant exterior featuring a bright red and yellow color scheme and the Del Taco logo

Source: Wikimedia Commons

This shift is prompting owners to reconsider their business strategies in California.

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Broader Implications for the Restaurant Industry

Johnson’s situation could become widespread among California restaurant owners. 

A person wearing a Cinnabon apron is holding a tray of freshly baked cinnamon rolls, each topped with white icing

Source: Cinnabon/Facebook

The increased costs from wage hikes may drive similar business decisions throughout the industry.

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Reevaluating Business Strategies in California

The future of the fast food industry in California could see significant changes if more business owners decide to follow Johnson’s lead and seek out states with more favorable business climates. 

A male customer in a red hoodie stands at a Carl's Jr. counter, looking at the menu above

Source: Wikimedia Commons

This potential trend could prompt a reevaluation of wage policies and business regulations in California.

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