LOS ANGELES (AP) — Lawrence Cheng, whose family owns seven Wendy's locations south of Los Angeles, recently took orders at the cash register and emptied steaming baskets of fries and chicken nuggets, dousing them with salt.
Cheng used to have nearly a dozen workers on the afternoon shift at his Fountain Valley location in Orange County. Now he schedules just seven per shift as he scrambles to absorb a dramatic jump in labor costs after a new California law raised the hourly wage for fast-food workers from $16 to $20 an hour on April 1.
“We just cut where we can,” he said. “I schedule one less person, and then I come in for the time that I didn't schedule and I work that hour.”
Cheng hopes that the summer, when business is usually good because students are out of school and families travel or eat out more, will bring in more profits and help cover the extra costs.
Experts say it’s too early to predict the long-term impact of the wage hike on fast-food restaurants and whether there will be widespread layoffs and closures. Previous wage hikes haven’t necessarily led to job losses. When California and New York nearly doubled their minimum wages to $15 from the federal level of $7.25 an hour, job growth continued, according to a study by the University of California, Berkeley.
So far, the industry has continued to grow jobs. In the first two months after the law passed on April 1, the manufacturing sector added 8,000 jobs, compared with the same period in 2023, according to the U.S. Bureau of Labor Statistics. Figures for June were not yet available.
Joseph Bryant, executive vice president of the Service Employees International Union, which pushed for the wage increase, said the industry has not only created jobs under the new law, but “several franchisees have also noted that the higher pay already attracts better applicants, which reduces employee turnover.”
But many large fast food chains say they are cutting hours and raising prices to survive.
“I've been in the business for 25 years and have two different brands, and I've never had to raise prices as much as I did in April,” said Juancarlos Chacon, owner of nine Jersey Mike's locations in Los Angeles.
A turkey sandwich for under $10? It’s now $11.15. Though customers are still coming in, he sees them cutting back — no drinks, no chips, no dessert.
Because their core business is lunch, Chacon has reduced the morning and evening staff. He has also laid off a few part-time employees, from 165 total to about 145.
It wasn’t just the entry-level workers who got a raise. Shift leaders, assistant managers, and everyone higher up the ladder were also due a raise, 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 been fielding panicked calls from restaurant owners and suppliers in California still recovering from COVID-19 lockdowns. He predicts a growing divide between companies like McDonald’s that have the money to invest in automation and cut costs through “menu reconfiguration, versus smaller, more regional chains that could go out of business or face a major reduction in store count.”
Cheng said he has no plans to lay off any of his 250 Wendy's workers and has instead moved to cut overtime and reduce the number of employees per shift. He also raised menu prices by about 8% in January in preparation for the law.
Still, he said his books showed 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 pressure of rising rents and food prices.
“When labor costs increase by more than 25 percent, any restaurant business with already thin margins is going to be forced to cut costs elsewhere,” Condie said. “They don’t have many options other than to raise prices, shorten hours or reduce the size of their workforce.”
Julieta Garcia, who has worked at a Pizza Hut in Los Angeles for a little over a year, said she now works five days instead of six. But that’s okay, she said, because she can spend more time with her 4-year-old son. The extra money means she can pay her cell phone bill on time, instead of having to turn off service and take her son to get tonsils, she said.
Howard Lewis, a 63-year-old retiree who works at a Wendy's in Sacramento, says he's investing his extra money.
“Today was payday and I bought $500 worth of stock,” Lewis said. He also helps his ex-wife fix the brakes on her car.
Gov. Gavin Newsom said the increase was needed to provide a living wage for the state's more than half a million fast food workers.
“We are a state that cares about fast food workers — who are predominantly women — who are working two and a half jobs to make ends meet,” Newsom said in his State of the State address posted to social media.
For Enif Somilleda, general manager at Del Taco in Orange County, the pay raise was a mixed bag. She used to have four people on a shift. Now she has just two.
“Financially it has helped me,” she said. “But I have less people, so I have to do a lot more work.”
