McDonald's, Chipotle To Spike Prices In CA, Blaming Minimum Wage Hike

CALIFORNIA — Big Macs and burrito bowls are about to get more expensive. McDonald's and Chipotle will both raise menu prices next year in response to California's upcoming minimum-wage hike for fast food workers, the companies announced this week.

On April 1, fast food workers in California will have one of the highest minimum wages in the country at $20 an hour. That's nearly 30 percent higher than the current state minimum wage of $15.50.

While proponents of the wage increase said the move will help lift workers out of poverty in a state home to some of the most expensive cities in the country, opponents said higher wage costs would be a burden to franchisees and would be passed on to consumers.

"It's going to be a pretty significant increase to our labor," Chipotle CFO Jack Hartung said during the company's earnings call last week. "We are definitely going to pass this on."

Hartung said he expects Chipotle's prices to go up as much as 9 percent at its approximately 450 California stores, saying the increase would be somewhere in the "mid-to-high" single digits.

McDonald's leaders, meantime, were less clear about how much prices will go up.

"There is going to be a wage impact for our California franchisees," CEO Chris Kempczinski said during the company's Monday earnings call. "Certainly, there's going to be some element of that that does need to be worked through with higher pricing."

McDonald's leaders say they expect the company to increase the cost of its food by just over 10 percent annually by the year's end, which comes after another 10 percent hike last year. That's in addition to increases expected next year, when the law goes into effect.

News of the impending price increases came as both companies continue to see income growth. McDonald's brought in $6.69 billion in revenue for the three-month period ending Sept. 30 (up 14 percent from the same period last year) while Chipotle reported $2.5 billion in revenue last quarter (up 11.3 percent).

California's fast-food minimum wage hike was a settlement between labor and business groups over how to regulate the industry. In exchange for higher wages, unions dropped their attempt to make fast food corporations liable for the misdeeds of their independent franchise operators in California, which threatened the industry's entire business model.

In return, the industry agreed to keep a referendum related to wages off the 2024 ballot.

McDonald's earlier this year announced that it will raise the fee it charges new franchise owners from 4 to 5 percent beginning Jan. 1. It's the first time in nearly three decades that the company will increase the fee that applies to a restaurant owner's gross sales.

Most fast food workers 18 and older are the main providers for their families, according to Enrique Lopezlira, director of the University of California-Berkeley Labor Center's Low Wage Work Program.

On average, fast food workers in California earn $16.60, or about $34,000 per year, according to the U.S. Bureau of Labor Statistics. That's below the e $39,900 California Poverty Measure for a family of four, a figure that accounts for housing costs and publicly-funded benefits.

Next year's wage hike is just the beginning. Fast food wages will be eligible for increases by as much as 3.5 percent each year through 2029. The higher wages apply to workers at restaurants that have at least 60 locations nationwide, with an exception for restaurants that make their own bread, like Panera.

The Associated Press contributed to this report.