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The Burger and Fry Economy

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In a burger and fry economy, part-time workers pay the price of reckless policies. When the government comes to help, run. In The Wall Street Journal, Heather Haddon explains how California’s government has altered the landscape of the state’s fast food economy. She writes:

Restaurants for months have said menu prices in California would rise as the state raised the minimum wage for fast-food workers. Now they are following through.

Consumers picking up burgers, burritos and chicken sandwiches at chains in the Golden State are grappling with prices that for months have been rising at a faster clip than in other states, according to market-research firm Datassential.

Since September, when California moved to require large fast-food chains to bump up their minimum hourly pay to $20 in April, fast-food and fast-casual restaurants in California have increased prices by 10% overall, outpacing all other states, the firm found in an analysis of thousands of restaurants across 70 large chains.

Prices at Chick-fil-A, Domino’s, McDonald’s, Burger King, Pizza Hut, Jack in the Box and other fast-food chains have increased since September, the firm found. Chipotle said in an investor call Wednesday that prices at its nearly 500 California restaurants climbed 6% to 7% during the first week of April compared with last year, playing out across its menu.

“The state isn’t making it easy,” Chipotle Chief Executive Brian Niccol said in an interview.

In Los Angeles on a recent April afternoon, Seth Amitin, a 39-year-old therapist, said his usual $16 meal that he picks up weekly at the Chick-fil-A in Hollywood, Calif., now costs $20. The price for a spicy chicken sandwich at that location had gone up to $7.09 from $6.29, or 13%, since mid-February, according to research by Gordon Haskett Research Advisors. Chick-fil-A’s prices increased 10.6% on average in California during that time period, Gordon Haskett found.

“There’s a really good taco spot just down the street. They kept their burrito prices at $10. I’m definitely eating there more often,” Amitin said.

California raised the minimum wage for fast-food workers to $20 an hour in April, a 25% increase from the state’s broader $16 minimum wage. Supporters, including Democratic California Gov. Gavin Newsom, said the law would improve wages and working conditions for hundreds of thousands of fast-food employees in the state.

A spokesman for the governor said fast-food companies can afford to give their workers a deserved bump in pay. “These are wages that will go towards basic necessities like rent and groceries,” he said.

The restaurant industry spent millions fighting the wage law and was ready to mount a referendum campaign but then negotiated a deal with backers last September. McDonald’s, Jack in the Box, Shake Shack and others said they would raise menu prices in California in response, with some McDonald’s franchisees estimating hundreds of thousands of dollars per restaurant in added labor costs.

Action Line: What happens when an employee can’t generate $20/hour in profit for the franchise? They’ll be fired, of course. No business can survive paying its employees more than they can generate. The artificial pricing of labor will put those who need fast food jobs the most out of work. Click here to subscribe to my free monthly Survive & Thrive letter.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.

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