Burrito, Big Mac prices in California to go up as pay rises: ‘Someone has to pay,’ FAT Brands founder says
As businesses consider passing costs on to consumers, Fat Brands chairman Andy Wiederhorn stated "someone's got to pay" for the jump in wages.
"The consumers who are voters must have known what they were getting into by promoting this legislation to raise the minimum wage from 15 to $20 and on its way to $25," he said on "The Big Money Show" Tuesday.
"Everyone wants their employees to make more money, but it just costs. And someone's got to pay for it. And the restaurant operators don't have the margin for that. So prices are going to go up."
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California passed legislation last fall that will require a $20 per hour minimum wage at all restaurants with at least 60 locations nationwide – though the law includes an exception for restaurants that make and sell their own bread.
The increase is set to take effect on April 1, 2024.
Several major fast-food franchises, including McDonald’s and Chipotle, have already signaled that prices will have to rise in response to the increased labor costs.
McDonalds has recently received heavy criticism over its Big Mac combo which is priced at nearly $18, among other menu hikes, and has promised to focus on affordability, the New York Post reported.
While there are calls for restaurants and fast food chains to lower prices for consumers, Wiederhorn noted there's "no way" for owners to cut costs and maintain quality for customers.
"A restaurant operator makes anywhere from 5 to 15%, the bottom line at the end of the day, and if your labor cost is one-third of your cost, so 30%, and you raise the wage from 15 to 20 or $25 over the next couple years, you're almost doubling that cost. And so they're going to have to raise prices."
Wiederhorn also noted business operators have some options to "promote value," but that, overall, to provide a good experience for guests "just costs money."
"There are things you can do as an operator to promote value. You know, just as an example, you could do an all-cheese pizza instead of a pepperoni pizza or barbecue chicken pizza, things like that. You can control your portion size. You can use a little bit of technology," he said.
"But look, we're still in the hospitality business and the guest experience has to be number one. As we return from Covid to dining rooms and dining out and even to-go food, the guest wants a good experience - and that just costs money."
FOX Business' Eric Revell contributed to this report.