On Sunday, June 23rd, a McDonald’s franchise store located in a shopping center in San Francisco announced its permanent closure after over thirty years in operation. This decision comes as another business owner in the fast-food industry in California takes action due to the increased pressure of operating costs following the rise in minimum wage for employees.
Scott Rodrick, the CEO of Rodrick Foods, the franchisee of McDonald’s, posted a statement on the store’s door. “Our team and I are grateful to have served the community for over thirty years and appreciate being a part of your daily dining choices,” the statement read. “All valuable team members have been offered opportunities to continue working with our food company elsewhere, and we encourage you to visit other stores or order takeout online.”
Rodrick also owns another 17 McDonald’s stores, with his father being one of the first McDonald’s franchisees in the 1960s. Before closing the store, he considered options such as increasing menu prices, reducing operating hours, with the last resort being layoffs. However, over the past year, he was unable to reach a mutually agreeable agreement with the landlord.
“The landlord’s insistence on rent per square foot, high property taxes, and the high fees of the shopping center have led to a difficult but clear decision to close,” Rodrick stated. “The changing economic landscape in California, coupled with a series of ill-timed legislation, has significantly shortened the path for restaurants to continue.”
Starting from April 1st, according to new legislation, California has raised the minimum hourly wage for fast-food workers from $16 to $20, prompting fast-food operators to increase prices. According to Yahoo Finance, the cost of dining out statewide rose by 4% in May, and fast-food menu prices increased by 10.12% from September last year to April this year.
Data analysis platform Placer.ai reported that McDonald’s stores in California, accounting for approximately 9% of all McDonald’s locations in the U.S., experienced a 2.48% decline in foot traffic from April to May. McDonald’s CEO Chris Kempczinski commented, “This is largely due to what is happening in California. Nationwide, we anticipate a higher single-digit rate of labor inflation.”
Not only McDonald’s, but some other fast-food chain stores in California also saw a decrease in foot traffic in May, including Burger King (-3.86%), Wendy’s (-3.24%), and In-N-Out (-2.59%); Chipotle Mexican Grill raised prices by 6% to 7%, with foot traffic in April and May below the national average.
With the increase in labor costs for businesses, some critics are hoping that Governor Newsom will reconsider the law raising the minimum wage. The California Business and Industrial Alliance (CABIA) stated that nearly 10,000 fast-food industry jobs were cut in California since the legislation was enacted in the fall. CABIA’s Chairman and Founder Tom Manzo said, “Legislators need to wake up and support job creators in California, not punish them.”
Ab Igram, Executive Director of the Tariq Farid Franchise Institute at Babson College, believes the real impact of the minimum wage increase will be seen in the coming months. He stated that they will closely monitor the “impact on California brands’ foot traffic three months later, six months later, and nine months later.”
Introduced by Democratic lawmakers in the state assembly, the AB1228 legislation aims to raise the minimum hourly wage for fast-food workers from $16 to $20, applicable to chain fast-food restaurants with 60 or more locations nationwide, benefiting an estimated 500,000 employees. The purpose of this legislation is to provide a “living wage” for employees of large chain fast-food stores, as many of them are not traditional teenage part-timers but adults with family responsibilities.