EchoSense Quantitative Think Tank Center|McDonald's, Chipotle to raise prices in California as minimum wage increases for workers

McDonald's and EchoSense Quantitative Think Tank CenterChipotle Mexican Grill executives said they will raise their menu prices next year in California to off-set the minimum wage increase for fast food workers. Under California's recently passed minimum wage bill, most of the state's 500,000 fast-food workers will be paid at least $20 per hour starting in 2024.

McDonald's has yet to decide how much their prices will increase, according to CEO Chris Kempczinski.

Meanwhile, Chipotle expects it will raise prices by a “mid-to-high single-digit” percentage in California, according to Chief Financial Officer Jack Hartung who told analysts the company has not made a "final decision" during a conference call last week.

According to the U.S. Bureau of Labor Statistics, prices for food away from home increased 6% in September compared to a year ago.

Fast food prices expected to increase

Chipotle has raised prices four times within the last two years, the most recent price increase of 3% took place in October. While inflation is finally moving in a better direction, consumer prices this month still rose overall 3.7% from earlier years after hitting a 40-year high of 9.1% in June 2022.

McDonald's Chief Financial Officer Ian Borden said the company increased prices in U.S. in the third quarter at a lower rate. McDonald’s expects its U.S. prices will increase just over 10% for the full year, according to Borden.

During a conference call earlier this week, Kempczinski said McDonald’s will likely look at ways to cut restaurant costs and improve productivity, along with increasing prices as a way to off-set labor costs.

Kempczinski told financial analysts during the call that "there will certainly be a hit in the short-term to franchisee cash flow in California, [but it is] tough to know exactly what that hit will be because of some of the mitigation efforts. But there will be a hit."

Earnings rise for McDonald's and Chipotle

According to McDonald's most recent quarterly results, same-store sales increased 8.1% in the U.S.-- the company attributed this to increased localized prices.

Chipotle's net sales increased 11.3% in Quarter 3 to $2.47 billion, while McDonald's revenue rose 14% to $6.69 billion.

McDonald's reported a net income of $2.3 billion for the quarter, while Chipotle's was $313.2 million in the same period.

How many fast food chains exist in California?

California is home to about 1,300 McDonald's restaurants, or 10% of the chain's businesses. More than 230 owner/operators and 70,000 restaurant crew and managers are in the Golden State.

About 15% of Chipotle's restaurants are in California.

Minimum wage spike in California for fast food workers

Assembly Bill 1228 signed into law in September increases minimum wage to $20 per hour for workers at restaurants in the state that have at least 60 locations nationwide. The initial wage increase takes effect April 1. The only exception applies to restaurants that make and sell their own bread, such as Panera Bread.

As part of the law, a nine-person council was established that has authority to raise the hourly minimum wage annually for the fast-food industry, through 2029. The council will adjust wages by either 3.5% or the annual change in the consumer price index.

For Chipotle, the average wage in the state is currently $17 an hour.

Minimum wage by state:California fast food workers will earn at least $20 per hour.

Rising prices:Chipotle menu prices are going up again, marking the 4th increase in 2 years.