May 6, 2024 | Value Clients Exiled from Fast Food Chains

Blue states that implemented minimum wage hikes are seeing a drastic rise in food prices. Fast food chains like McDonald’s, Chick-fil-A, Chipotle Jack in the Box, Burger King, Domino’s, and more have reported menu item hikes in places like California that now require a much higher minimum wage.

This comes at a time when fast-food establishments are struggling to make ends meet. Last week, numerous establishments like Taco Bell, Starbucks, KFC, Pizza Hut, McDonald’s, and others noted a downtick in quarterly earnings. Fast food was once a cheap and quick alternative to the grocery store before inflation turned any outside dining experience into a luxury. Fast food chains that tend to attract upper-middle clientele like Chipotle have not seen as drastic of a reduction, but value clients earning >$45,000 annually, the core base that these establishments relied on, are not able to eat out.

McDonald’s said it has adopted a “street-fighting mentality” to attract new clients, but that will be a hard target to achieve domestically due to supply chain constraints, food inflation, and now minimum wage requirements. Fast food restaurants saw a 5% price increase overall in March, but states like California are witnessing prices surpass anything that the value client could once afford.

Effective April 1, fast food workers in California now receive a minimum wage of $20 thanks to a new law, AB 1228, signed by Governor Gavin Newsom. California already had one of the highest minimum wage brackets in the country at $15.50.

Chipotle, one of the few establishments that did not post a quarterly loss, was forced to raise prices between 6% and 7% across all 500 California-based locations. “The state isn’t making it easy,” Chipotle Chief Executive Brian Niccol reportedly said. The Wall Street Journal reported that menu items at Chic-Fil-A in California have risen by as much as 13% since mid-February.

Expect companies to begin issuing much smaller portions and automating their workforce. These measures are always passed down to the consumer, and in this instance, the target consumer is already priced out. McDonald’s is already looking at expanding internationally in places like China where it has become more profitable to conduct business. Politicians like Newsom pass these laws that sound great when spoken to the crowd but they are never properly executed because they go against the free market.

Martin Armstrong May 6th, 2024

Posted In: Armstrong Economics

Next: Used Car Prices Continue Historic Plunge, Wholesale Prices Gave up 59% of Crazy Pandemic Spike »