California’s minimum wage for fast food workers has been raised to $20 per hour, as of April 1, marking a 23% increase from the previous average minimum wage of $16.20 per hour.
Fast-food operators, ranging from large chains to individual franchises and private businesses, have been analyzing their operating margins to assess profitability and overall financial health. The impact of this new policy on their profits has prompted many operators to explore creative strategies.
While some operators may try to pass on the added costs to customers, economic pressures make it unlikely that they will be able to fully or partially transfer these costs.
Alternatively, there are several approaches operators might consider to manage labor demands and maintain margins, including:
- Automation: Leveraging mobile app-based ordering systems can reduce labor requirements during order processing. Self-checkout is also a way to increase efficiency with less labor. Although many businesses already use self-checkout, the increased labor costs will most likely drive further automation.
- Limited operating hours: By evaluating peak traffic times, operators can strategically reduce low-profit operating hours. For instance, they might choose to close dining rooms between 2 p.m. and 5 p.m., offering only takeout or drive-thru.
- Streamlined menus: Opting for smaller menus allows operators to maintain a leaner kitchen staff with more efficient cook lines. Analyzing the performance of menu items and identifying low-performing options or labor-intensive dishes enables operators to make informed decisions that balance revenue and productivity.
The impact of the $20 minimum wage extends beyond fast-food establishments. Workers in other industries may compare their compensation to this new minimum wage and pressure companies to raise wages as well. Retailers, hospitality businesses, manufacturing companies and entry-level professional jobs could also experience significant cost increases.
The takeaway
Overall, fast-food operators will need to adapt to tighter operating margins and adjust to accommodate the new labor cost levels. It is important for operators to assess data to evaluate which options will improve margins while maintaining demand without sacrificing the customer experience.
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