LOS ANGELES (AP) – Lawrence Cheng, whose family owns seven Wendy’s locations in south Los Angeles, took orders at the register on a recent day and emptied hot baskets of fries and chicken nuggets, salting them with a flourish .
Cheng had nearly a dozen employees on the afternoon shift at his Fountain Valley location in Orange County. Now he schedules just seven per shift as he tries to absorb a dramatic increase in labor costs after a new California law raised the hourly wage for fast-food workers on April 1 from $16 to $20 an hour.
“We just cut back where we can,” he said. “I schedule one less person, and then I go in for the time I didn’t schedule and 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.
Experts say it’s still too early to tell the long-term impact of wage increases at fast-food restaurants and whether there will be widespread layoffs and layoffs. Wage increases in the past have not necessarily led to job losses. When California and New York nearly doubled their previous minimum wage to $15 compared to the federal level of $7.25 an hour, job growth continued, according to a University of California, Berkeley study.
So far, the industry has continued to show job growth. In the first two months after the law passed on April 1, the industry gained 8,000 jobs, compared to the same period in 2023, according to the US Bureau of Labor Statistics. There were no figures for June yet.
Joseph Bryant, executive vice president of the Service Employees International Union, which pushed for the wage increase, said the industry has not only added jobs under the new law, but “many franchisees have also noted that the higher wage already it’s attracting better job candidates, thus reducing turnover.”
But many major fast-food chain operators say they are cutting hours and raising prices to stay in business.
“I’ve been in business for 25 years and two different brands and I’ve never had to raise the amount of prices that I did this time in April,” said Juancarlos Chacon, an owner of the ninth Jersey Mike’s in Los Angeles.
A turkey sub for under $10? It’s now $11.15. While customers are still coming in, he’s seeing them cut short — no drinks, no fries, no dessert.
Since their main business is lunch, Chacon has reduced staffing in the mornings and evenings. It has also cut some part-time employees, going from 165 to about 145.
It wasn’t just entry-level workers who got a raise. Shift leaders, assistant managers and everyone else on the ladder should also get raises, 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 has received panicked calls from California restaurant operators and suppliers still recovering from the COVID-19 lockdown. He foresees a growing divide between corporations like McDonalds that have the money to invest in automation and cut costs through “menu reconfiguration, versus smaller, more regional chains that may transition or face a major reduction in shops”.
Cheng said he has no plans to lay off any of his 250 workers at Wendy’s and has instead turned to cutting overtime and reducing the number of workers per shift. It also raised menu prices by about 8% in January pending the law.
However, he said his books show 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 pinch from rising rents and food costs.
“When labor costs jump more than 25% overnight, any restaurant business with already tight margins will be forced to cut costs elsewhere,” Condie said. “They don’t have many options beyond raising prices, reducing hours or reducing the size of their workforce.”
Julieta Garcia, who has been at a Pizza Hut in Los Angeles for just over a year, said she is now working five days instead of six. But that’s not a bad thing, she said, since she can spend more time with her 4-year-old son. The extra money means she can pay her cellphone bill on time instead of having to turn off service and take her son to get his tonsils checked, she said.
Howard Lewis, a 63-year-old retiree who works at a Wendy’s in Sacramento, said he has been investing his extra money.
“Today was payday and I bought $500 worth of stock,” Lewis said. He is also helping his ex-wife fix the brakes on her car.
Gov. Gavin Newsom said the increase was needed to give the state’s more than half a million fast-food workers a living wage.
“We are a state that punishes fast food workers — who are mostly women — working two and a half jobs to get by,” Newsom said in his State of the Union address posted on social media.
For Enif Somilleda, a general manager at a Del Taco in Orange County, growth has been a mixed bag. She had four people working a shift. She now has only two.
“It has helped me financially,” she said. “But I have fewer people so I have to do a lot more work.”