News

Fast-Food franchisees fear customers being drawn to Chili's or Applebee's after increasing prices due to $20 wage

California's recent increase in the minimum wage for fast-food workers to $20 has caused ripples throughout the industry.

Franchise owners are worried about losing customers due to rising menu prices.

Fast-food chains are raising prices to offset the higher labor costs. 

This could lead diners to opt for casual dining restaurants like Chili's and Applebee's, which are not subject to the new minimum wage and may offer more affordable prices.

Workers at limited-service restaurant chains are subject to the $20 wage.

The $20 minimum wage applies specifically to limited-service restaurants with at least 60 locations nationwide.

These restaurants typically lack table service and require upfront payment.

While the law took effect on April 1st, some restaurants implemented price hikes gradually to ease the burden on customers.  

Franchise owner Shane Paul, who operates seven Jack in the Box restaurants in San Diego, raised prices by 10-11% over the past year in anticipation of the wage increase.

He reports a downward trend in customer traffic, suggesting diners may be exploring alternative options. 

According to Insider, Paul believes customers might be drawn to casual dining establishments like Chili's or Applebee's.

Shane Paul, who owns seven Jack in the Box restaurants in San Diego, told BI he'd raised the prices at his restaurants by about 10% or 11% over the past six to 12 months in anticipation of the higher wages.

In previous years, he generally put prices up by around 3.5% to 4%, he said.

Similar concerns are echoed by Harsh Ghai, who owns a significant number of Burger King, Taco Bell, and Popeyes franchises in California.

He reports a negative impact on sales due to price hikes and anticipates further customer migration to grocery stores and casual dining chains.

However, fast-food chains in California have previously begun laying off workers in anticipation of the state's $20 minimum wage

This includes pizza chains, which are cutting back on delivery drivers in response to the new $20 minimum wage.

According to the report, Pizza Hut plans to lay off approximately 1,200 workers. 

These cutbacks primarily target delivery-driver positions, as the franchises opt to transition to third-party delivery services. 

Layoff details:

Southern California Pizza Company: Planned to lay off nearly 850 workers in February, according to filings with the state.

PacPizza (Pizza Hut Franchisee): Filed plans to lay off over 350 workers in February.

Excalibur Pizza LLC (Round Table Pizza Franchisee): Scheduled to lay off 70 workers in April, transitioning to third-party delivery.