ANGELS (AP) — Lawrence Cheng, whose family owns seven Wendy’s locations in South Los Angeles, previously had about a dozen employees on the evening shift at his Fountain Valley, Orange County, location. He now has just seven people per shift as he struggles to absorb a sharp increase in labor costs after a new California law raised hourly wages for food workers from $16 to $20 on April 1.
“We’ve cut back where we can,” he says. “I’ve scheduled one less person and then I get to a time slot where I didn’t schedule and I didn’t work that hour.”
Cheng is confident that summer, when businesses are typically busier, students are out of school and families spend more time traveling or eating out, will generate more profits to cover the extra costs.
Lawrence Cheng, center, whose family owns seven Wendy’s locations in South Los Angeles, takes orders from customers on June 20, 2024, at his Wendy’s restaurant in Fountain Valley, California.
(Jae C. Hong/AP)
Experts say it’s too early to tell what the long-term impact of the wage hike will be at fast-food restaurants and whether there will be widespread layoffs and closures. In the past, wage increases did not necessarily lead to job losses. When California and New York nearly doubled their minimum wages to $15 an hour from the federal level of $7.25 an hour, employment increased, according to a study by the University of California, Berkeley.
So far, the industry has continued to increase employment. According to the U.S. Bureau of Labor Statistics, in the first two months after the law was passed on April 1, the sector gained 8,000 jobs compared to the same period in 2023. Figures for June are not yet available.
“We just figured out what we could,” Cheng said. “I plan for one less person and then I get to the point where I didn’t plan and I didn’t work that hour.”
Joseph Bryant, vice president of the Service Employees International Union, which pushed for the increase, said that not only has the industry added new jobs under the new law, but “many employers have also noticed that higher wages are already attracting better job candidates, thereby 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 I have two different brands and I’ve never had to raise prices like I did in April,” said Juancarlos Chacon, owner of nine Jersey Mike’s locations in Los Angeles.
A turkey sandwich for less than $10? Now it’s $11.15. Even though customers keep coming, he’s cutting back: no drinks, no fries, no dessert.
Lawrence Cheng, left, works with part-time employee Adriana Ruiz at a Wendy’s restaurant in Fountain Valley, California, on June 20, 2024.
(Jae C. Hong/AP)
Because its core business is lunch, Chacon is cutting staff in the morning and afternoon. He will also reduce some part-time employees, from 165 to 145.
It wasn’t just entry-level workers who got a raise. Shift managers, assistant managers and anyone else at the top levels were also expected to receive high salaries, with labor accounting for about 35% of their costs.
“I’m very nervous,” Chacón said.
Aaron Allen, founder and CEO of a global restaurant consulting firm, said he’s fielded panicked calls from California restaurant operators and suppliers still reeling from the COVID-19 shutdown. He predicts a growing gap between corporations like McDonalds, which have money to invest in automation and spend on “menu reconfiguration, versus smaller regional chains that may go under or face significant store reductions.”
Cheng said he doesn’t plan to lay off any of Wendy’s 250 workers, but instead decided to cut overtime and reduce the number of workers per shift. He also raised menu prices by about 8% in January, in anticipation of the law.
However, he said his books show he went $20,000 over budget for a biweekly pay period.
Joe Conde, president and CEO of the California Restaurant Association, which opposed the minimum wage bill, said businesses are feeling the pressure of rising rents and food costs at the same time.
“When labor costs increase more than 25% overnight, any restaurant business with already thin margins will be forced to cut costs elsewhere,” Condi said. “They don’t have many options but to raise prices, reduce hours or reduce the size of their workforce.”
Julieta Garcia, who has worked at Pizza Hut in Los Angeles for just over a year, said she now works five days instead of six. But that’s not a bad thing, she said, because she gets to 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 cut off service and take her son to get his tonsils checked, she said.
Howard Lewis, a 63-year-old retiree who works at Wendy’s in Sacramento, said he invests 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 is needed to pay a daily wage to more than half a million of the state’s fast-food workers.
“We are a state that doesn’t care about fast food workers, mostly women, who work two and a half hours to survive,” Newsom said in his State of the Union message on social media.
For Enif Somilleda, general manager of Del Taco in Orange County, growth has been uneven. She used to have four people on a shift. Now she has just two.
“It helped me financially,” he says. “But since I have fewer people, I have to do more.”
