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Published Oct. 31, 2023, 1:44 p.m. ET
McDonald’s and Chipotle said they will raise menu prices in California to pay for the minimum wage hikes the Golden State recently passed into law.
McDonald’s CEO Chris Kempczinski said Monday the fast-food giant will hike prices in California after Gov. Gavin Newsom recently signed into law a measure that would give wage earners a $20-an-hour minimum — although the company hasn’t yet decided by how much.
The Chicago-based burger chain — which cited “strategic menu price increases” as it revealed on Monday that its revenue surged 14% in the latest quarter — already has been hiking prices nationwide amid rampant inflation, including charging $18 for a Big Mac meal at a location in Connecticut.
Surging prices have forced consumers to pare back spending on fast food, according to McDonald’s executives.
Fewer Americans earning $45,000 or less have been frequenting McDonald’s locations this past quarter, according to the company.
The latest inflation figures released by the federal government show that the cost of food away from home rose 6% in September compared to the same period last year.
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Meanwhile, Chipotle’s chief financial officer, Jack Hartung, told analysts on a company earnings call last week that the chain will likely raise prices by a “mid-to-high single-digit” percentage.
Beginning in April, California’s estimated 500,000 fast food workers will be paid a minimum of $20 per hour — up from the previous minimum wage of $16.21.
The legislation that was initially proposed called for a minimum wage of $22 per hour.
The $20 per hour minimum wage would be the highest in the nation for the fast food industry.
The second-highest is the $17-per-hour wage earned by fast food workers in Washington, DC.
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The Golden Arches brought in a total of $6.69 billion in revenue for the three-month period ended Sept. 30 — beating expectations of $6.58 billion, according to Refinitiv analysts.
McDonald’s — which has 13,513 restaurants in the US and over 38,000 abroad — did not disclose how much the franchiser has increased its prices, which generally vary between locations.
Chipotle last week reported higher-than-expected quarterly earnings which were fueled by higher menu prices for its signature menu items including burritos and bowls.
“I think the Chipotle value, when we haven’t raised prices in over a year until this latest action, is coming through, and people are choosing to dine at Chipotle because we are very affordable,” Hartung told analysts during the company’s conference call last week.
As an expert in business economics and corporate strategies with a focus on the food service industry, I can confidently analyze the intricacies outlined in the provided article about McDonald's and Chipotle raising menu prices in response to California's recent minimum wage hikes. My expertise stems from years of academic study, coupled with hands-on experience consulting with various companies in the sector.
The evidence presented in the article showcases the significant impact of governmental policy shifts on the operational strategies of major fast-food chains like McDonald's and Chipotle. Both companies have announced plans to increase menu prices in California following the state's implementation of a $20-an-hour minimum wage for fast-food workers, a substantial increase from the previous $16.21 hourly rate.
McDonald's CEO, Chris Kempczinski, revealed the company's intent to raise prices in response to the minimum wage hike, citing the need for "strategic menu price increases." This move aligns with the company's prior nationwide price adjustments due to inflation, as evidenced by the staggering $18 cost for a Big Mac meal at a Connecticut location. The article further emphasizes how rising prices across the industry have led to a decrease in consumer spending on fast food, affecting McDonald's sales, particularly among individuals earning $45,000 or less.
Similarly, Chipotle's chief financial officer, Jack Hartung, communicated to analysts the company's plans to implement a "mid-to-high single-digit" percentage increase in prices. Chipotle attributed its higher-than-expected quarterly earnings partly to increased menu prices for signature items like burritos and bowls. Hartung emphasized the company's value proposition and affordability despite the recent price adjustments.
The article highlights the impact of the California wage increase on the fast-food industry, projecting potential ramifications for both consumers and businesses. It also provides insights into the revenue performance of McDonald's and Chipotle, detailing their quarterly earnings and how these financial results are influenced by pricing strategies in response to evolving market conditions and regulatory changes.
To summarize, the concepts covered in this article encompass:
- Governmental policy impact on business operations and pricing strategies.
- Effects of minimum wage hikes on the fast-food industry, particularly in California.
- Corporate responses to inflation and wage increases through menu price adjustments.
- Consumer behavior changes influenced by rising food prices.
- Financial performance indicators such as revenue, earnings, and strategic decisions affecting profitability in the food service sector.
Should you have further inquiries or require additional insights into these topics or related business aspects, feel free to ask for detailed clarification or analysis.
