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This article originally appeared on Business Insider.
Marcus Wahlberg and his family operate four Fatburger franchises in Los Angeles. Over the years, restaurants have weathered economic downturns, state labor laws that increase operating costs and the coronavirus pandemic.
But business in California is “more tense right now than at any time I can remember,” Wahlberg told Business Insider.
The main reason is that under a new state law that goes into effect in April, fast-food workers in California will receive a significant pay increase to $20 an hour. The new wages are nearly 30% higher than what most employers pay fast-food workers. The law affects 557,000 fast food workers at 30,000 California restaurants.
Fast-food franchisees are preparing for an increase in labor costs by cutting staff and implementing hiring freezes.
Some of the moves are bold.
Two Pizza Hut franchisees with hundreds of locations in California are eliminating their in-house delivery vehicles. The workforce reduction strategy has resulted in 1,200 drivers losing their jobs.
“Franchise owners will be forced to take drastic measures, which will cause significant pain to workers,” Wahlberg said.
Walberg said the changes are being made to ensure the new wages “don’t let us down.” Some of the changes are surprising, such as the type of fast food workers he plans to hire in the future.
Here’s a closer look at what he’s doing to ensure his restaurant survives come April.
1. Menu prices go up again
Wahlberg said price hikes are the No. 1 topic of conversation among California fast-food restaurant owners.
“This is scary because customers are already complaining that prices are too high,” he says.
He said prices at his four restaurants have increased 8% year over year. When fast-food wages rise to $20 an hour in April, “another 8 to 10 percent increase will be needed,” he told BI.
He said he is checking menu prices at rival restaurants to see if Fatburger’s price increases are in line with “other companies.” Still, he said he was concerned about raising prices for customers who were already “straining” from rising prices due to inflation.
he is not alone.
Over the past two years, chains like Starbucks, McDonald’s and Chipotle have raised menu prices to combat rising prices and wages. McDonald’s, which has raised prices 20% over two years, said late last year that it was starting to lose low-income customers.
2. Reducing employee working hours and implementing a hiring freeze
Wahlberg isn’t laying off workers like Pizza Hut, but he’s cutting costs in other ways.
He said the company is reducing employee hours and implementing a hiring freeze.
“We’re not hiring new people to fill jobs,” he said. “We have a very tight schedule.”
Seth Lederman, CEO of Frannexus, a Florida franchise consulting firm, said fast-food chains have few options to offset wage increases.
“If the minimum wage goes up, we’re going to either have to raise prices to cover the increase in labor costs, or we’re going to have to consolidate the workforce and free up people,” Lederman told BI. told.
3. Elimination of employee holidays
Walberg said he was offering paid time off to eligible workers. He said the average worker receives about 48 hours of paid vacation, capped at 72 hours a year.
But he said the company eliminated the PTO program, which was first introduced in 2021, at the beginning of the year “to prepare for wage increases in 2024.”
He said employees liked the program because it gave them flexible time off for family days.
“We can’t afford to do that anymore,” he said, adding: “It’s really unfortunate.”
4. Increase wages for managers and shift leaders so they don’t run away
California’s minimum wage is $16 an hour. In Los Angeles, where Mr. Wahlberg runs a restaurant, the minimum wage is slightly higher, at $16.78 an hour.
“Rather than raising the minimum wage for California staff by 25% in one day, this program should have been phased in over time,” he said.
Walberg said the minimum wage for entry-level workers, which starts at $20 an hour, would force pay increases for shift leaders and managers who earn about the same but have much more responsibility. .
“If you’re a shift leader and you’re responsible for making sure everyone gets their breaks, you’re not going to do extra work for a $20 minimum wage,” he said, adding that if the same pay is He pointed out that he would be paid. “The man who makes hamburgers and goes home.”
The result, he said, would be a “domino effect” of top executives either demanding more money or fleeing.
“Entry-level managers are going to be looking for more than $20 an hour,” he said. “Landlords won’t lower rents, so customers are going to have to pay more money. That money has to come from somewhere.”
5. Employment patterns will change, with casual dining workers leaving for fast food.
Although not employed, Walberg said he expects applications to flood in April from casual dining employees looking for more money. California’s new law does not apply to employees at full-service chains like Chili’s and Cheesecake Factory.
Lederman, a veteran franchise consultant, agreed. He said he fully expects casual dining employees to “jump ship” to fast food restaurants because they pay better.
“They’re going to go where they can get the most money,” he said.
Wahlberg said there are good and bad aspects to this expected development of new jobs.
He said he would consider someone who has worked at Chili’s or Applebee’s because they have more hospitality experience. As a result, more people are applying for fast food jobs, which may be due to past shortages.
“Maybe not right away, but in a short period of time, employee evaluations will go up,” he says. “It will allow us to have enough highly dedicated, service-oriented employees.”
What are the drawbacks? Wahlberg said franchisees probably wouldn’t want to hire an inexperienced teenager. “What you lose is your kids getting their first jobs at McDonald’s.”
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