The economic theory about wage laws was that fast-food companies would face two options as the minimum hourly wage jumped sharply. Those two alternatives were to cut workers or raise prices. How much of the cost would the customer be willing to bear? Chick-fil-A has found out in California. It has raised prices on some of its meals by over 10%.
This month, California raised the minimum wage to $20 an hour. It had been $16, still one of the highest of any state in the country. Afterward, the Wall Street Journal published a description of one customer’s experience. “In Los Angeles on a recent April afternoon, Seth Amitin, a 39-year-old therapist, said his usual $16 meal that he picks up weekly at the Chick-fil-A in Hollywood, Calif., now costs $20.” Price increases vary. Research firm Gordon Hackett estimated some prices in California rose just over 11%. The newspaper points out that both figures were based on prices between mid-February and mid-April.
Chick-fil-A is a private company. So, there is no way to know what it plans to do with price or employee levels if the reaction to higher meal prices drives customers away. (Fast-food chains you should never eat at.)
Two large publicly held companies could face a California crisis. Each has a significant presence in America’s largest state by population, which is home to about 12% of the U.S. population. The effects of price increases will start to show in McDonald’s and Starbucks’ quarterly earnings. Additionally, minimum wages went up in several other states this year, and the list of states that have raised or will raise wages continues to grow.
Wage inflation is not the only form of inflation fast-food companies face. Chocolate prices, for example, have doubled in many parts of the country due to a lack of cocoa from the world’s largest producers in West Africa. Moreover, food is shipped to retail outlets by truck. The price of crude has pushed both diesel and gasoline prices higher.
In many places, fast food is not cheap food anymore.
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