Some California restaurants face harsh realities and burdens after minimum wage increase

It’s been nearly a month since California raised the minimum wage at some restaurants, highlighting a course correction that many say is long overdue.

But for some — and not just fast-food franchise owners — the newly raised bar on compensation also marks a crucial point for restaurants to remain competitive in an already challenging post-pandemic landscape. The sector, with notoriously low margins, is once again being pushed to make monetary and operational adjustments to stay afloat, all without compromising consumer expectations.

Some customers have already felt the impact of costs being passed on to them, as The Wall Street Journal recently reported, which restaurant owners and executives at chains like Chipotle and McDonald’s say could result from the state’s vote to increase the minimum by 16 dollars. to $20 an hour at chain restaurants with at least 60 locations nationwide.

Market research firm Dataessential provided ABC News with an analysis of menu prices from 70 limited-service restaurants (LSRs), which include both fast food and fast-casual chains, that showed that California restaurants overall have increased their prices by 10% since September and outpaced all other states.

“I know that we are in the process of correcting the situation from a minimum wage which has not kept up with the cost of living index and has not kept pace with inflation. The pendulum has swung to sort of compensate for a lot of inactivity and wage stagnation But for restaurants, it’s very difficult to be the first sector to suffer the consequences,” said Briana Valdez, founder and CEO of HomeState in California. South, on “Good Morning America.”

“Coming out of a time where restaurants, who were essential workers during the pandemic and fought so hard to keep their doors open and keep their teams employed, are now having another major impact on our ability to keep our teams happy and keep our doors open. , and continue to offer affordable options to our diners,” she continued. “It’s another big challenge that’s just getting our feet back on the ground.”

Valdez, who has put equity and wellness at the forefront of his business, brought a taste of Texas cuisine and hospitality to Hollywood, California, for the first time with Mexican-style tortillas. homemade flour, breakfast tacos, queso and brisket in 2013 and has since expanded to eight restaurants throughout Southern California with 350 employees.

Although her restaurant group doesn’t cater to the same volume as restaurants in the LSR category mandated by the new law, the daughter of first-generation Mexican-American parents candidly told “GMA” that “$20 an hour now, it’s not competitive – it’s just the starting point now for most restaurants competing for the same talent pool.

“All things being equal,” she said of potential applicants, “most people are going to apply for a job that has a higher rate, so you really start to compete directly with people who are mandated by (AB 1228) to have a starting wage of $20 per hour: this increases everyone’s wages.”

Valdez, who previously worked in fine dining at Thomas Keller’s Bouchon in Beverly Hills, opened “with a shared house and it was revolutionary at the time,” she said of the fair pay structure that distributes tips equitably between kitchen and serving staff.

On average last year, Valdez’s employees made nearly $24 an hour, which is how she said they’ve “been able to stay competitive.” But since that can’t be considered a starting salary due to tips, she had to get creative in how to present the overall work experience with attractive benefits “to make work-life balance really healthy personal care”, such as telehealth at $5 per person. a salary that extends to employees’ families, pet insurance, a family meal and two consecutive days off.

In addition to the immediate challenges the public faces following this sudden financial shift, restaurateurs must also juggle rising food costs and other supply chain variables that can have a significant impact on overhead costs. and restaurant results.

“Our suppliers are all under the same pressures as us – they are all fighting to keep their relationships with their restaurants intact – but their costs are increasing as well,” Valdez pointed out. “As restaurants, we are at the back of all those products and markets that came before us,” such as farmers, harvest labor, crop transit, storage, packaging and processing. food distribution.

“We’re being as transparent as possible because costs have gone up,” she continued, sharing for example that HomeState “loses money every time we sell a brisket taco.”

Ultimately, Valdez said this increase in costs for operators has to go somewhere: “It’s going to change the landscape for the restaurant – we’re going to see an increase in menu prices and that’s just a sub- product of this.”

Even Michaela Mendelsohn, who was appointed to Gov. Gavin Newsom’s Fast Food Council last fall before AB 1228 was signed, is seeing the immediate financial impact on her restaurants.

The CEO of Pollo West Corporation, one of the largest franchisees of the California fast food chain El Pollo Loco, told “GMA” that they anticipated the price increases in February before the minimum wage law does take effect April 1 to test the waters and “had a 3% drop in transactions.”

“It has become very clear to us that our customers are experiencing sticker shock and price fatigue,” Mendelsohn said. “With inflation we have had to increase too many times and that is no longer the solution, otherwise we will just continue to reduce our business to fewer and fewer people.”

“We quickly went from being profitable to losing money on April 1,” the former president of the El Pollo Loco franchise association for nine years said candidly. “We’re in a difficult position right now where we have to accept the fact that we won’t make any money for a while until we resolve this.”

To cut costs and stay afloat, Mendelsohn said their restaurants have had to reduce operating hours by approximately more than 10%, simplify menus and implement new technology such as automated ordering kiosks, which , she explained, can require a long learning curve for customers and has “It didn’t save money in the short term.

“We are also exploring the possibility of some stores opening later or closing earlier, as these off-peak hours are often not profitable. And now they have become even less profitable,” she added. “AI will be the next big step, we will be one of the test stores – to start testing automation in our drive-thru,” but in the meantime, an employee still needs to wear a headset to monitor every transaction.

Mendelsohn, who has owned El Pollo Loco franchises for 36 years, said this “is a throwback to the recession,” when the business “was in a double-digit decline for three years.” “It was supposed to be something I wanted to leave for my kids, but I’m not sure what’s going to stay. I’m fighting to keep something there that’s valuable to them.”

The mother of five and transgender activist who has worked closely with the California legislature on a range of trade policies, said: “I am sad to say that this law was so ill-advised in my eyes and many. others to concentrate it only on 500,000 people quickly. food workers, but there are 40 million people living in the state. When you pick just one industry it’s a good size of the state but certainly only a small part of the whole, why doesn’t everyone get $20 an hour and why isn’t that the case. Isn’t this done over a period of time so that everyone can adjust accordingly? I don’t see this as a solution. »

Although it is still too early to know what impact the wage increase has had on hiring or staffing, according to a representative of the National Restaurant Association, hard data will be available next month from the Bureau of Labor Statistics in the April jobs report, which may help. paint a clearer picture of the inaugural impact of the new law.