California’s new minimum wage laws are impacting four Fatburger franchises in Los Angeles.
Marcus Walberg, owner of the franchises, feels he has no choice but to raise his prices in response to these new changes. In addition to increasing the price of menu items, he will also cut hours for employees and paid time off. Walberg maintains that these changes are necessary to keep his business afloat.
Fatburger’s Payroll Costs
Walberg estimates that his new payroll costs will increase by as much as 30% for his business to conform to the new minimum wage standards (via MSN).
The new laws increase the minimum wage to $16 per hour for all employers, with higher wages possible depending on the employer and location. For example, fast food employers like Fatburger must pay employees a minimum of $20 per hour.
Drastic Measures for Franchise Owners
In an interview with Business Insider, Walberg emphasized how difficult the situation will be for his business and workers.
“I feel that there will be a lot of pain to workers as franchise owners are forced to take drastic measures,” he said. The date to conform with the new law’s requirements is April 1, 2024. The final effects of the law remain to be seen.
Fatburger’s Rising Prices
Walberg’s Fatburger franchises will raise prices by as much as 10% before the law is active. This comes off the back of a previous 8% increase that Walberg implemented just the prior year.
Walberg cited his fears to Business Insider: “It’s a scary thing because customers are already complaining that prices are too high.” Walberg currently sells The Original Fatburger with toppings for $7.75 at one of his franchises.
Hiring Freeze
Walberg predicts that he will need to cut down on employee hours to save money. This will create more work for the existing employees since Walberg is not going to be hiring new people while resources are tight.
“We’re not hiring new people to fill jobs,” Walberg said. He also added, “We’re being very tight on schedules.” Customers may see longer queue times for food as a result of these changes.
End of Paid Time Off
In 2021, Walberg started offering employees 72 hours of paid time off (PTO) every year as part of their regular employment. He is unfortunately ending this practice in an effort to further cut costs and offset losses.
Walberg said, “We just can’t afford to do that anymore.” Employers benefit from offering paid time off because it can boost productivity and help keep employees from leaving.
Fatburger Compared with McDonald’s
As a burger-focused restaurant, Fatburger is competing with many big names. One of its competitors, McDonald’s, has also been raising prices in recent years.
The company already announced menu price hikes in response to the passing of California’s minimum wage law, per CNBC. And The New York Post reported the popular Big Mac combo at McDonald’s could cost as much as $15 when the minimum wage changes.
Chipotle’s Price Hikes
Chipotle, another fast food chain, also told members on an earnings report that prices will increase by “mid-to-high” single digits.
“How all of that plays out, there will certainly be a hit in the short-term to franchisee cash flow in California, tough to know exactly what that hit will be because of some of the mitigation efforts,” said McDonald’s CEO Chris Kempczinski (via The Daily Mail).
Falling Consumer Confidence
These price and wage hikes exist in the background of negative consumer perception of the economy. When polled, many Americans feel like the economy is in a recession.
As people become pessimistic about the economy, they are prone to spend less on eating out. When the economy is struggling, restaurants like Fatburger are often cut out of many people’s budgets to save money.
Potential Layoffs
While Walberg did not mention in his Insider interview whether he plans to lay off workers, many franchises are doing just that.
Pizza Hut franchises in California plan to fire delivery drivers before the new law can take effect. These franchises can afford to cut their delivery services thanks to the availability of food-delivery apps like Uber Eats and DoorDash.
Worker Benefits
While workers are getting their hours cut at Fatburger, their pay is also increasing. If someone was working at minimum wage before, this represents a 29% increase in pay.
Theoretically, a worker could get another job to substitute for the lost hours. This would mean that their overall earning potential would increase as long as they can find suitable employment in California.
Automation Worries
The increasing minimum wage laws in California are adding further woes to workers worried about being replaced by automation. Companies are under more pressure to decrease their reliance on human employees as wages increase.
McDonald’s recently revealed their first fully automated restaurant. If more companies invest in this infrastructure and technology, any jobs lost from this minimum wage increase might not come back.
