California McDonald’s Franchisee Strategizes Cost Reductions After Minimum Wage Hike

Following the recent increase in the minimum wage for fast-food restaurants in California, a McDonald’s franchisee in the state is raising prices, thinking about postponing dining room renovations, and evaluating potential changes to opening hours to save money.

Last Friday, Scott Rodrick, the owner of 18 McDonald’s locations in northern California, told Business Insider, “I am leaving no stone unturned.”

In California, the minimum wage rose by 25% for fast-food employees from $16 per hour to $20 per hour at the beginning of April. This left fast-food restaurants in a challenging situation with no choice but to find other ways to offset this rise in wages.

So far this year, Rodrick said that he’d already raised prices at his restaurants by between 5% and 7%. “My strategy was to do it in short steps over a longer period of time than do it as dramatically as overnight,” he stated. “I’ve been paying very, very close attention to the competition in my space.”

“The appetite that my customers have for price increases is not unlimited,” he added.

Rodrick explained that he’d been a McDonald’s franchisee for 30 years and usually tried to raise prices to match the consumer price index, a Bureau of Labor Statistics (BLS) measure of inflation.

According to BLS data, in 2023, prices at restaurants with limited service increased by 5.9%.

The costs linked to running restaurants significantly increased during the pandemic, with a specific rise in costs for ingredients. Rodrick said, “There is more than extraordinary labor costs stressing restaurant P&Ls right now. The same grocery inflation that consumers at home worry about is also worrying restaurants just as a basket of groceries.”

“So what I’m really dealing with, outside of the historical pace of things, is this double-barrel shotgun of backdoor food costs and now labor going off and leaving a brutal mark on my unit profitability,” he added.

Rodrick mentioned that aside from increasing prices to strengthen revenue, he was exploring methods to reduce expenses to “at the very least mitigate, if not come out a step or two ahead from the impact” of the wage hike.

He also added that he had to make some difficult choices regarding capital expenditures. “So for example, if I have to replace an HVAC [a ventilation or AC unit] on the roof, I might push that off to 2025 or 2026,” he said.

Rodrick explained that he might need to talk to his franchisor about reducing the scope or postponing the dining room remodel. To add to this, he mentioned altering day-to-day operations, like reducing the frequency of landscaping services from weekly to biweekly.