A Study Shows That California’s $20 Minimum Wage Caused Fast Food Prices to Go Up and Customer Traffic to Go Down

The new $20 minimum wage in California for fast-food workers started on April 1. Since then, prices have gone up in restaurants and people have walked less, according to data.

There was a study released recently by Placer.ai that found most quick-service chains in the state have raised menu prices by between 1% and 17% because of the new law that affects restaurants with 60 or more locations. The price increases are hurting business.

The study found that in February and March of this year, foot traffic at big chain restaurants in California was up year-over-year and higher than the national average. However, after the wage hike, things changed quickly.

Placer.ai said that from April to May, less people went into fast food places in California than in the rest of the country seven out of eight weeks. The company that did the analysis said that fast food burger chains were hit the hardest.

For example, between February and March, McDonald’s restaurants in California had about the same amount of foot traffic as McDonald’s restaurants across the country. Because of the new minimum wage law, however, McDonald’s California restaurants, which make up about 9% of the company’s U.S. restaurants, started doing about 250 basis points worse than they were before.

According to the study, visits to California sites of Burger King, Wendy’s, Jack in the Box, In-N-Out Burger, and Chipotle in April and May were also lower than the national average. This was because these chains had raised their prices 6% to 7% in California to make up for the higher wages.

The study by Placer.ai also showed that the higher minimum wage had bigger effects on the state’s restaurant business.

“It’s still early, but we’re starting to see how the higher minimum wage has affected the restaurant business as a whole,” said R.J. Hottovy, head of analytical research at Placer.ai. “First, we’ve started to see some operators close locations in the state, especially chains that were already facing financial difficulties.”

The study said that the new law has caused several food chains to close locations in California. One of these was Rubio’s Coastal Grill, which said that the higher minimum wage was one of the reasons it went bankrupt last week.

The study also found that menu price increases at fast-food places seem to be good for casual dining chains, which already paid their workers more than the $20 minimum wage.

Source: Fox Business