Two weeks into California’s mandated $20 fast-food minimum wage hike and reactions continue to pour out. They’ve ranged from operators scrapping worker vacations to racing in kiosks to simply closing shop and moving on. But the most prevailing kickback was always the most obvious one—restaurants passing higher costs down to consumers.

This 25 percent increase, which went into place on April 1, has led to most restaurants raising prices in the high-single-digit range, per recent research by BTIG. While not a surprise (brands telegraphed this during earnings calls throughout 2023 into 2024), some of the variability has caught analyst Peter Saleh by surprise. It’s ranged from low-single digit to low-teens and taken on different tiers by area and category.

From pricing surveys, Saleh and BTIG found fast casuals to be the most aggressive thus far. Some Starbucks units in California bumped 8.9 percent; Shake Shack 7.8 percent; and Chipotle 6.8 percent. Fast-food chains were closer to mid-single-digits, like Jack in the Box at 4.7 percent.

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The average entrée price at Chipotle increased by 7.4 percent across the state. Yet it ranged from 11.1 percent in SoCal (San Diego) to 4.6 percent in northern DMAs, such as Oakland. Shake Shack had the opposite dynamic, as SoCal stores posted to the low-end range at 4.8 percent (average for entrees) and northern geographies took 9 percent. Jack in the Box featured lower pricing in the southern part of the state and higher up north.

Saleh admits he can’t offer a great explanation yet. It’s merely another indicator brands are working through an unprecedented dynamic with tactics that reflect internal pricing strategies or competitive analysis.

Interestingly, though, while every other restaurant BTIG tracked took price in recent weeks, McDonald’s appears to have held the line. “We expected McDonald’s to raise prices by a similar amount to the rest of the industry, and are somewhat surprised by the lack of pricing action,” Saleh said.

It is worth pointing out McDonald’s ramped up discounting in recent months (the app has become the new value menu, in some ways) as it works to regain traffic from lower-income guests. CEO Chris Kempczinski shared in a recent earnings call the $45,000 and under cohort was starting to pull back visits in favor of dining at home. It’s a development that “probably played into the calculus to be more patient with pricing,” Saleh noted. “That said, this analysis included a small sample size, so it is possible, but unlikely, that we selected restaurants in different geographies across the state that opted to take zero pricing.”

As for who might benefit from this climate, Saleh thinks casual-dining brands sit at an enviable spot. As do third-party delivery companies like Uber Eats and DoorDash. In both cases, bringing cost averages closer together will favor concepts that offer other lures (table service and ultimate convenience in this case). Narrow the price gap and the value equation blurs—something that doesn’t help restaurants that lead with that proposition.

Although casual-dining competitors, such as Applebee’s and IHOP, will likely have to raise their wages to back-of-house staff to remain competitive, the category’s reliance on servers who earn at least $16 per hour plus tips, putting them well above $20 per hour, “provides some insulation from the recent increase,” Saleh said.

Darden during investor meetings last week indicated average hourly employees were earning more than $20 per hour. For employees in California, it was even higher.

The labor regulations of AB 1221 apply to limited-service restaurants with more than 60 units nationwide. So it doesn’t hit casual-dining from a mandatory point. But to Saleh’s comment, the lifting of the wage tide will surely affect operators at all levels trying to recruit talent in an already tight pool. Even so, Saleh said, he believes it should allow casual dining to take less pricing in California relative to fast casual and fast food since it’s mostly going to affect just kitchen staff, “narrowing the value gap between the two and potentially driving modest share gains to casual dining.”

For third-party delivery providers, their labor force is classified as contract employees and, in turn, they’re not subject to the same minimum wage standards, either. Earlier this year, reports surfaced of two Pizza Hut franchisees in California deciding to lay off more than 1,200 delivery drivers ahead of the wage increase. The two companies—PacPizza and Southern California Pizza Co.—run hundreds of stores in Los Angeles, Riverside, Ventura, Orange, and San Bernardino counties. A WARN Act notice suggested 841 jobs would be lost in Southern California alone. Of course, this didn’t mean the Pizza Hut franchisees were getting out of delivery. They decided the economics of first-party delivery under this law just didn’t work any longer. So they’ll now depend entirely on third-party partners. “This should create a very interesting dynamic in our view,” Saleh said, “as some brands like Pizza Hut opt for the cheaper delivery alternative, albeit by giving away control of their primary customer interaction, while others like Domino’s choose the more expensive, self-delivery option.” Domino’s, to spotlight, deploys aggregators to reach guests but takes control of fulfillment. Has that strategy paid off to date, years after resisting altogether? Read more here.

Saleh also feels robotics companies stand to gain from the shift. Chipotle is on the verge of taking its first Hyphen automated make line into a California unit, progressing from test kitchen pilot to real operations (the chain is based in Newport Beach). “We doubt there will be a wide-scale automation revolution in the state, owing to the existing challenges around cost, restaurant infrastructure, reliability and service/repair availability, but think we will see growing embrace of automation in some areas of the restaurant where it is practical like order taking, answering phone calls and mechanical kitchen tasks,” Saleh said.

Chipotle in February announced it doubled its Cultivate Next venture fund to $100 million in anticipation of investing in more early stage companies. Introduced in 2022 (at $50 million), the goal was to support seed to Series B stage companies that can push forward Chipotle’s strategic priorities around operating restaurants, building technology, expanding access and convenience for guests, and advancing its Food with Integrity mission.

Among those included Hyphen and its automated digital makeline that builds bowls and salads underneath while employees use the top makeline to craft burritos, tacos, and quesadillas.

Chipotle ended up investing more into Hyphen after its initial move.

Another investment was Vebu, a product development company that’s allowing Chipotle to scale the “Autocado,” a robot that can cut, core, and peel avocados. The innovation is currently progressing through Chipotle’s stage-gate process and will undergo an operational test in one restaurant this spring.