The California minimum wage took effect on April 1, 2024, and since then, there have been complaints about the hike in food prices. In a viral TikTok video, one of McDonald’s customers, a lady, complained about the cost of the “40-piece chicken McNuggets bundle,” stating that the price was absurd.
“OK, so it’s $25.39 for 40-piece nuggets and two large fries,” the customer said in the video. “You couldn’t even throw in a medium Sprite in there? Holy crap.” She called it “McFlation.” The company had to increase its prices to keep up with inflation and maintain profitability.
McDonald’s CEO’s Response to Impact of California Minimum Wage on Labor Inflation
The new government law doesn’t seem to favor businesses, as they’ll have to reduce work hours and charge customers more for meals. The law was set in favor of fast-food workers to give them a better standard of living. The CEO of McDonald’s restaurant, Chris Kempczinski, stated that there’ll be an increase in labor across California.
He also hinted that the policy change might increase the cost of goods nationwide. According to Kempczinski, the cost of paper and food has returned to how they usually were, but that isn’t enough to alleviate financial issues.
The prices of eggs and other raw products have increased in the past years, so McDonald’s has adjusted its pricing strategy.
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Details on the California Minimum Wage Law
The new California minimum wage law was signed in September 2023 by Gov. Gavin Newsom, and it is called Assembly Bill 1228(AB 1228). The law states that any fast food business with 60 or more restaurants worldwide should offer workers an hourly starting wage of $20, up from the state’s minimum wage of $16.
In addition to the new law, the California government established a Fast Food Council comprising workers and industry representatives authorized to set standards to increase the wage by 3.5% further. The council is also mandated to ensure that workers’ health and safety are considered and to prevent wage theft.
McDonald’s CEO Says Customers Are Becoming More Conscious of Their Spending
This new law by the California government is taking a toll on the citizens as they now have to be careful of the amount they spend while eating in a restaurant. According to McDonald’s CEO, customers have become more cost-conscious— they are now choosier about what they buy with their money.
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Some even compare prices before buying or look for deals they can take advantage of. Chris Kempczinski also stated that because customers are finding it difficult to keep up with the hike in price, fast food restaurants are finding it difficult to attract or retain customers, which in turn is affecting their profitability.
Businesses Reaction to California’s New Minimum Wage
Following the new minimum wage increase, some fast food in California have reduced their hours and slashed jobs. In April, Excalibur Pizza eliminated 21% of its delivery workers, and in December, two other Pizza Hut operators plan to cut down over 1,200 in-house delivery jobs.
Additionally, other fast-food restaurants, including Burger King and Chipotle, shut down some of their locations. If they didn’t shut down, they raised their food prices. Businesses used this strategy to try to reduce the effect of the increased wage cost on their profitability.
Lastly, business owners might choose to use robots and automation as their workforce instead of humans. This will prevent them from worrying about increased labor costs and help reduce the number of workers they employ.
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