California fast food chains fret Chili’s, Applebee’s could steal customers

Fast-food franchisees are worried that customers will defect to fast-casual options like Chili’s and Applebee’s as the state’s minimum-wage law forces basic burger joints to jack up menu prices to offset soaring labor costs.

The higher-priced chains aren’t subjected to the new wage requirements, which took effect April 1 and only apply to workers at limited-service restaurant chains — or eateries with at least 60 outposts nationwide where diners pay before eating and there is either no or limited table service.

As a result, the price disparity between fast-food and casual-dining restaurants could shrink, Business Insider earlier reported, especially after California-based eateries have already lifted menu prices to offset the new $20 hourly wage — which is 25% above the state’s general minimum pay.

As of April 1, California implemented a new wage law that requires limited-service chains — or eateries with at least 60 outposts nationwide where diners pay before eating and there is either no or limited table service — to pay their workers at least $20 hourly. Anadolu Agency via Getty Images

Shane Paul, who owns seven Jack in the Box outposts in San Diego, told BI that he’s lifted prices at his restaurants by as much as 11% over the past six to 12 months in anticipation of the higher wages.

In years prior, before the wage-hike was imminent, Paul had only put prices up as much as 4%, he said, according to BI.

As a result, Paul said that transactions at his Jack in the Box restaurants “are already trending down,” and speculated that diners are oing to Chili’s or Applebee’s for a sit-down meal for “a dollar or two more than us.”

Similarly, Harsh Ghai — who owns about 180 Burger King, Taco Bell and Popeyes restaurants across California — predicted that he’s also “gonna start to compete with” casual dining restaurants and even grocery stores as a result of the wage law, BI reported.

Ghai — who’s already lifted prices at his fast-food restaurants between 8% and 10% over the past year to combat food inflation alone — said that he’s weary to lift prices any further to absorb higer wages because customers simply wouldn’t return.

For reference, in a typical year, Ghai’s restaurants only up their menu prices between a mere 2% and 3%, according to BI.

California fast food franchisees have been worried that customers will opt for fast-casual options like Chili’s and Applebee’s, where they could get the restaurant experience for just a few more bucks per head. @chilis / Instagram

Ghai also shared that he’s expediting the rollout of self-service kiosks to cut down on labor costs.

Scott Rodrick, a McDonald’s franchisee who owns 18 outposts in The Golden State, also told BI that he’s rethinking the length of operating hours and whether to plow money into capital expenditures to compete with Chili’s and Applebee’s.

“So for example, if I have to replace an HVAC [unit] on the roof, I might push that off to 2025 or 2026,” Rodrick added.

Scott Rodrick owns 18 McDonald’s in northern California via his company, Rodrick Management Group. He’s reportedly owned outposts of the Golden Arches for the past 30 years.
Scott Rodrick/Facebook

He’s also discussed delaying a dining room remodel at one of his McDonald’s locations, which are run via his company, Rodrick Management Group.

Even before the California law went into effect, McDonald’s CEO Chris Kempczinski admitted that inflation would compel the fast-food chain to raise menu prices.

McDonald’s locations in wealthy areas such as Fairfield County, Conn. are charging around $18 for a Big Mac meal.

Rodrick’s strategy for offsetting California’s new $20 minimum wage requirements for fast food workers includes delaying a dining room remodel at one of his 18 McDonald’s, and having landscapers come biweekly rather than weekly.
Los Angeles Times via Getty Images

A separate McDonald’s restaurant in Connecticut was charging diners $7.29 for an Egg McMuffin and $5.69 for a side of hash browns.

Sit-down Japanese chain Kura Sushi’s CEO Hajime Uba told analysts earlier this month that he thinks the $20 wage law will increase the sushi bar’s value proposition as its prices are getting “closer and closer and closer” to fast-food pricing, according to BI.

Kura Sushi, for reference, has 60 locations across the US — most of them in Califonia — with seven more set to open this year.