Cava Keeps Prices as Is Despite the Trend to Price up Amid Wage Rises

Despite the trend being a price hike for most restaurants in California due to the rise in the state’s minimum wage for fast-food workers, one chain is committed to keeping prices where they are for customers, according to The Wall Street Journal.

Due to its recent business growth, Cava, the Mediterranean restaurant chain, says it is in a position to not price up its menu despite the higher labor costs that have taken effect.

The chain’s finance chief said that keeping prices as is for Cava’s menu items such as falafel and harissa honey chicken is the right move for consumers who are tired of rising fast-food prices.

According to Cava’s chief financial officer, Tricia Tolivar, the company expects a 30-basis-point impact on overall margins because of the change. Tolivar said, “But being thoughtful and mindful around the consumer in California, we’re not planning to put that on their back.” The restaurant’s growth lately and increased foot traffic means it can keep prices as they are. She said, “We’re going to absorb that in the business overall and evaluate it ongoing.”

The company’s labor costs will rise this April due to the law fixing the minimum wage for California fast-food workers at $20 an hour. This is a 25% spike from the state’s broader $16 minimum wage. In reaction to the recent wage change, restaurant chains that have plans to raise prices include McDonald’s, Shake Shack, Chipotle Mexican Grill, and Jack in the Box.  

Analysts anticipate that the legislation in California, which makes up around 7% of Cava’s 309 restaurants, will lead to an increase in Cava’s wages in the state by approximately 17%.

California passed a law in 2022 that gave oversight of the fast-food industry to state-appointed councils that could have raised pay to up to $22 per hour. In response, the restaurant industry put in tens of millions of dollars to fight for their rights and invalidate the law. Eventually, they reached an agreement to set the new minimum wage at $20.

Total labor costs are already among the top line items for many restaurants, typically about 30% of sales with hourly labor making up most of that, said Brian Vaccaro, a senior restaurant analyst at Raymond James & Associates. “For a lot of restaurants, hourly labor can be 20%, give or take, of your cost structure as a percentage of sales,” he said. “When that’s going up, there aren’t many options but to raise prices as a result.”