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California fast food franchisees cutting hours in wake of $20 minimum wage

California fast food franchisees cutting hours in wake of $20 minimum wage


California fast food franchisees cutting hours in wake of $20 minimum wage

LOS ANGELES — Lawrence Cheng, whose family owns seven Wendy’s locations south of Los Angeles, took orders at the register on a recent day and emptied steaming hot baskets of French fries and chicken nuggets, salting them with a flourish.

Cheng used to have nearly a dozen employees on the afternoon shift at his Fountain Valley location in Orange County. Now he only schedules seven for each shift as he scrambles to absorb a dramatic jump in labor costs after a new California law boosted the hourly wage for fast food workers on April 1 from $16 to $20 an hour.

“We kind of just cut where we can,” he said. “I schedule one less person, and then I come in for that time that I didn’t schedule and I work that hour.”

Cheng hopes the summer when business is traditionally brisk with students out of school and families traveling or spending more time eating out will bring a better profit that can cover the added costs.

Major fast food chain operators say they are cutting hours and raising prices to stay in business.

“I’ve been in the business for 25 years and two different brands and I never had to increase the amount of pricing that I did this past time in April,” Juancarlos Chacon, an owner of nine Jersey Mike’s in Los Angeles, said.

A turkey sub for under $10? It’s now $11.15. While customers are still coming in, he’s seeing them cut back — no drinks, no chips, no dessert.

Since their core business is lunch, Chacon has been reducing staffing in the mornings and evenings. He’s also cut a few part-time employees, going from 165 total to about 145.

It wasn’t only entry-level workers that got a pay raise. Shift leaders, assistant managers, and everyone else up the ladder had to get raises too, and labor represents about 35% of his costs.

“I’m very nervous,” Chacon said.

Aaron Allen, founder and CEO of a global restaurant consulting firm, said he’s gotten panicked calls from California restaurant operators and suppliers that are still recovering from the COVID-19 lockdown. He predicts a growing divide between corporations like McDonalds that have money to invest in automation and reduce costs through “menu reconfiguration, versus smaller, more regional chains that might go under or face a major reduction in stores.”

Cheng said he has no plans to lay off any of his 250 Wendy’s workers and instead has turned to cutting overtime and reducing the amount of workers on each shift. He also raised menu prices about 8% in January in anticipation of the law.

Still he said his books show that he was $20,000 over budget for a two-week pay period.

Jot Condie, president and CEO of the California Restaurant Association, which opposed the minimum wage bill, said businesses are simultaneously feeling the squeeze from rising rents and food costs.

“When labor costs jump more than 25% overnight, any restaurant business with already-thin margins will be forced to reduce expenses elsewhere,” Condie said. “They don’t have a lot of options beyond increasing prices, reducing hours of operation, or scaling back the size of their workforce.”