McDonald’s CEO Struggles in California’s Minimum Wage Battle Amid Value Menu Woes

This adjustment aims to improve living conditions in a state known for high living costs. Scott Rodrick, a McDonald’s franchise owner, finds this change challenging as he manages 18 locations in California.

Businesses knew the price increase would be their best response to the increased wages, cutting restaurant costs, and improving productivity.

He stated, “I realized that my customers’ appetite for higher prices is not unlimited. So when I take price to relieve margin pressure, it has to be done thoughtfully with a plan.”

“There will certainly be a hit in the short-term to franchisee cash flow in California,” Kempczinski said. “Tough to know exactly what that hit will be because of some of the mitigation efforts. But there will be a hit.”

For example, last summer, a user on X, formerly Twitter, reported a Big Mac meal costing $17.59 at a Connecticut rest stop. More recently, a TikToker in California highlighted a $25.39 price tag for a 40-piece chicken McNuggets and two large fries.

According to a report from FianceBuzz, fast food prices have doubled at McDonald’s more than any other chain analyzed in the study.

However, McDonald’s stands out for having raised their prices the most. The study found that the fast food chain has raised prices nearly three times the national inflation rate.

Because McDonald’s is a chain model, pricing can vary from location to location. The fast food company states that listed 2024 average prices are significantly inflated due to price variations from state to state.

Rather than taking the blow in stocks and quarterly profit to benefit the people, companies are trying to justify raising prices and making it a problem for the consumer.

According to CNBC, Starbucks, Pizza Hut, and KFC have reported shrinking same-store sales for the last quarter. These shrinking sales are sending shares in the companies down significantly.

He said, “I think what you’re going to see as you head into 2024 is probably more attention to what I would describe as affordability.”

He explained the need to consider a mix of approaches including adjusting prices, evaluating capital expenditures, optimizing labor efficiencies, and expanding market share to manage the impact on his franchise locations in California.

“The battleground is certainly with that low-income consumer,” Kempczinski said at the time as he told investors that the company will live or die on its “value menu.”

“Consumers continue to be even more discriminating with every dollar that they spend as they faced elevated prices in their day-to-day spending, which is putting pressure on the [quick-service restaurant] industry,” Kempczinski said on the company’s conference call (via CNBC).

“Clearly, everybody’s fighting for fewer consumers or consumers that are certainly visiting less frequently, and we’ve got to make sure that we’ve got that street-fighting mentality to win, irregardless of the context around us,” CFO Ian Borden said.

For instance, a Fosters Freeze outlet in Lemoore closed down on April 1st, directly citing the new minimum wage as a contributing factor. The owner claimed that small businesses could not survive under these economic pressures.

They stated, “Time and time again, research – and reality – show that raising fast-food workers’ pay in California will only lead to higher living standards for workers and a more equitable economy.”

Tilly continued: “But the findings really for the last 30 years or so have said actually the minimum wage has been low enough that we haven’t seen those effects.”

“We do have to think about how to help people,” he said. “But to do that by hurting other low-income people doesn’t seem like the right strategy to me.”

He highlighted the importance of considering all other options first, saying, “There’s a lot of discussion on that subject on restaurants closing, restaurants laying people off. Frankly, in my organization, that’s the very last thing I’m looking at.”

He said, “But right now the focus is survival,” underlining the severe impact of the wage increase on his operations and decision-making processes.

He expressed his contemplations about relocation, stating, “The thought [of leaving] has crossed my mind a few times.”

This price point is seen as potentially excessive, reflecting his concern over how far consumer prices can be pushed without alienating customers.

The focus remains on maintaining a balance between managing rising operational costs and retaining customer loyalty through reasonable pricing strategies.