California’s $20 minimum wage led to fast food price hikes, lower customer traffic, study shows

Before the minimum wage increase went into effect, foot traffic at major chain restaurants in California was actually up year-over-year and higher than the national average. This information was revealed in a recent study by Placer.ai which analyzed the impact of the new law on fast-food restaurants in the state. The analytics firm reported that during February and March of this year, foot traffic to fast-food restaurants in California was above the national average, with quick-service burger chains being the most frequented.

However, the trend took a turn after the implementation of the $20 minimum wage law. During April through May, foot traffic to these restaurants in California was below the national average for seven out of eight weeks. The underperformance was mainly noticed among fast-food chains with over 60 locations, indicating that the wage hike might have played a role in the decline.

For instance, McDonald's, which accounts for roughly 9% of the company's U.S. restaurants, saw a similar year-over-year foot traffic at its California locations as the rest of its restaurants nationwide during the February-March time frame. But after the minimum wage law went into effect, its California outlets began underperforming by almost 250 basis points.

Other fast-food chains like Burger King, Wendy's, Jack in the Box, In-N-Out Burger, and Chipotle also saw visits to their California locations underperform the national average after the wage increase. Chipotle had raised its prices by 6%-7% in the state to offset the wage increases.

The study also highlighted broader impacts on the restaurant industry in the state due to the minimum wage increases. Some operators have started to close locations, especially chains that were already facing financial difficulties. Rubio's Coastal Grill, for example, cited the minimum wage hikes as one of the reasons it filed for bankruptcy last week.

On the other hand, casual dining chains, which typically already paid workers more than the $20 minimum, seem to be benefiting from the menu price increases at fast-food restaurants. Olive Garden and Chili's restaurants in California actually outperformed the chains' respective national averages in foot traffic year-over-year in April.

Quick-service chains in California increased their menu prices by a range of the mid-single digits to mid-teens percentage-wise following the new minimum wage law.