Many of California’s largest quick-service restaurants—an industry that calls Orange County one of its main national hubs—are expected to raise menu prices and shed employees in the face of a new wage increase in the state.
On April 1, the minimum wage at fast-casual restaurant chains rose to $20 an hour, from $16. The “Fast Act” law was signed by Gov. Gavin Newsom last September.
The increase is expected to have a noticeable impact on OC.
The 29 largest locally based chains employ nearly 22,000 in OC, at both their headquarters and their nearly 640 area restaurants, according to Business Journal data.
Including non-locally based restaurants, the industry employs nearly 138,000 in OC, according to state figures.
“We know we have to take something as a significant increase, when you talk about a 20%-ish increase in wages,” Chipotle Mexican Grill Inc. (NYSE: CMG) Chief Financial Officer Jack Hartung told analysts during the company’s latest earnings report.
Automation
Many restaurant operators have been working to offset the wage increase by reevaluating food, labor and other operating costs.
A popular labor-saving initiative has been turning to automation in the kitchen and simplifying different food prep processes that employees have traditionally handled.
Newport Beach-based Chipotle, with 15% of its 3,400-plus restaurants in California, has been at work the past two years to incorporate a few different robot helpers behind the counter making chips and guacamole, as well as managing digital orders.
El Pollo Loco Holdings Inc. (Nasdaq: LOCO), headquartered in Costa Mesa, announced last year its intention to add salsa processing equipment throughout its 495 companywide restaurants.
That initiative is in addition to kiosks gradually being added to its locations since 2022, for customers to order food without the need of a staffer’s help.
Among non-local firms, Sweetgreen Inc., a Los Angeles-based fast-casual chain (NYSE: SG) focused on salads, bowls, plates and sides with a store count topping 200 locations, is using a new location at Huntington Beach’s 5 Points Plaza shopping center to test out its new Infinite Kitchen technology, which takes on the process of assembling meals.
The Surf City location is one of the first two Sweetgreen stores in the country to feature the Infinite Kitchen, which is designed to increase consistency, efficiency and productivity at the $2.8 billion-valued chain, while also enhancing the team member and customer experience.
Faster Salsa
Along with El Pollo Loco’s recent accelerated push for more in-store kiosks, the restaurant chain has turned a technological eye to the kitchen.
Its salsa fresca will be made with the new processing equipment that is on the way.
The equipment is expected to start entering locations by mid-2024, “which will further drive consistency of our products while also improve labor efficiency as the new equipment is both easier to use and easier to clean,” Chief Operating Officer Maria Hollandsworth said in a recent earnings call.
El Pollo Loco is testing out an automated dishwasher to help streamline operations.
“For 2024, we expect our pricing to be in the mid to high single digits to help offset the impact of the April 1 California minimum wage increase,” Hollandsworth said.
The chain anticipates wage inflation between 12% and 14% for 2024, largely driven by the state wage increase.
El Pollo Loco is rolling out an initiative to improve in-times and out-times for efficiency among other labor-saving projects. Overall, the company is looking to these initiatives to help offset roughly a third to a half of the impact of the wage increases.
“The rest of it, we’re working on taking some pricing. We’ve already taken a little bit,” Hollandsworth said.
El Pollo is currently valued at $286 million with shares trading around $9.17. Its fourth-quarter revenue fell 3.2% to $112 million.
More Accessible
One company that appears unfazed by the wage increase has been Irvine’s Kura Sushi USA Inc. (Nasdaq: KRUS).
“In terms of our California markets, our employees are already making wages that are competitive with the $20 that people are going to be making at QSR,” Chief Executive Hajime Uba told analysts on a January earnings call.
The restaurant chain, with 54 locations, has taken a 1% price increase in January and said it believes it’s “enough to offset the labor increases and really keep our margins flat year-over-year.”
“We really want to demonstrate to the world at large, not just our existing guests, how great a value Kura Sushi is,” Uba said.
Last year, Uba told the Business Journal that the average check at Kura had grown to about $28.
Most sushi plates at its restaurants come at a flat per-plate price, around $3.60 each.
Other items, such as noodle soups and hand rolls, can also be ordered.
Uba expects the growing price increases at other restaurants to make Kura Sushi a more accessible option.
The chain, already known for its tech-centric business model and revolving sushi bar, in 2022 introduced the robotic KuraBot server and last year focused on driving traffic through a new rewards program and improved its digital ordering system.
Total sales increased 30% to $57 million for the chain’s second quarter, it reported last week. Kura Sushi’s shares were trading around $104 apiece with a market cap of $1.2 billion at press time.
