Los Angeles — Lawrence Cheng, whose family owns seven Wendy’s restaurants south of Los Angeles, accepted orders at the register on a recent day and emptied boiling baskets of French fries and chicken nuggets, seasoning them with a flourish.
Cheng used to have over a dozen employees working the afternoon shift at his Fountain Valley facility in Orange County. He now only schedules seven people for each shift as he tries to absorb a significant increase in labor costs caused by a new California law that raised the hourly rate for fast food workers from $16 to $20 on April 1.
“We kind of just cut where we can,” he told me. “I schedule one less person, and then I come in for that time that I didn’t schedule and I work that hour.”
Cheng thinks that the summer, when youngsters are out of school and families are traveling or eating out more, would result in a higher profit that can pay the additional costs.
Experts believe it’s too early to predict the long-term impact of the wage increase on fast-food restaurants, including whether there would be mass layoffs and closures. Past wage rises have not invariably resulted in job losses. According to a University of California, Berkeley research, job growth persisted after California and New York virtually increased their minimum wages to $15 per hour from the federal level of $7.25 per hour.
So far, the industry has continued to provide job growth. According to the US Bureau of Labor Statistics, the industry added 8,000 employees in the first two months after the bill was implemented on April 1, compared to the same period in 2023. There were no numbers available for June yet.
According to Joseph Bryant, executive vice president of the Service Employees International Union, which advocated for the raise, the industry has not only added jobs since the new law but “multiple franchisees have also noted that the higher wage is already attracting better job candidates, thus reducing turnover.”
However, several large fast-food firms say they are reducing hours and hiking prices to stay in business.
“I’ve been in the business for 25 years and two different brands, and I’ve never had to raise prices like I did in April,” said Juancarlos Chacon, owner of nine Jersey Mike’s in Los Angeles.
A turkey sub for less than $10? It now costs $11.15. While people continue to come in, he notices that they are cutting back on drinks, chips, and desserts.
Because their primary business is lunch, Chacon has reduced staffing in the mornings and evenings. He also reduced the number of part-time staff from 165 to approximately 145.
It wasn’t just entry-level workers that received salary raises. Shift leaders, assistant managers, and everyone else up the ladder had to be given raises as well, since labor accounts for approximately 35% of his spending.
“I’m very nervous,” Chacon admitted.
Aaron Allen, the founder and CEO of a worldwide restaurant consulting firm, says he has received worried calls from California restaurant operators and suppliers who are still recuperating from the COVID-19 lockdown. He sees a rising difference between corporations with the resources to invest in automation and lower costs through “menu reconfiguration, versus smaller, more regional chains that might go under or face a major reduction in stores.”
Cheng stated that he had no intentions to lay off any of his 250 Wendy’s employees and has instead focused on lowering overtime and the number of workers on each shift. He also raised menu pricing by around 8% in January in anticipation of the law.
Still, he said that his books show he was $20,000 over budget for a two-week pay period.
Jot Condie, president and CEO of the California Restaurant Association, which opposes the minimum wage measure, said companies are being squeezed by rising rents and food expenses.
“When labor costs jump more than 25% overnight, any restaurant business with already-thin margins will be forced to reduce expenses elsewhere,” Condie informed me. “They don’t have a lot of options beyond increasing prices, reducing hours of operation, or scaling back the size of their workforce.”
Julieta Garcia, who has worked at Pizza Hut in Los Angeles for a little over a year, said she is now working five days instead of six. But that’s not a bad thing, she says because it allows her to spend more time with her 4-year-old son. The extra money allows her to pay her telephone bill on time rather than having to turn off service, and she can take her son to have his tonsils checked out, she explained.
Howard Lewis, a 63-year-old retiree who works at Wendy’s in Sacramento, stated that he has been investing his surplus money.
“Today was payday and I bought $500 worth of stock,” Lewis informed me. He’s also assisting his ex-wife with the brakes on her car.
Gov. Gavin Newsom said the increase was vital to provide a decent wage for the state’s more than 500,000 fast-food workers APNEWS reported.
“We are a state that gives a damn about fast food workers — who are predominantly women — working two and a half jobs to get by,” Newsom remarked in his state-of-the-state address, which was posted on social media.
For Enif Somilleda, a general manager at a Del Taco in Orange County, the raise has been mixed. She used to have four workers working each shift. She now has just two.
“Financially, it has helped me,” she stated. “But I have fewer people so I have to do a lot more work.”