In a response to the upcoming increase in minimum wage for fast-food workers in California, major chains like Chipotle, McDonald's, Starbucks, and Jack in the Box are considering raising prices or implementing operational changes to offset the rising labor costs. Assembly Bill 1228, which was signed by Governor Gavin Newsom in September, raises the minimum wage for California-based workers to $20 an hour, $4 higher than the state's overall minimum wage of $16 an hour. The law applies to both corporate and franchise-owned restaurants with at least 60 establishments nationwide.

During an earnings call, Chipotle's Chief Financial and Administrative Officer, Jack Hartung, stated that the company might need to implement a mid-single-digit price increase in California to cover the cost of the wage hike. However, Chipotle has not yet made a final decision on new pricing. Other chains like McDonald's and Jack in the Box are also exploring ways to pass the increased costs onto consumers.

While McDonald's plans to raise menu prices at its corporate-owned stores, franchise locations, which comprise 95% of the brand's U.S. portfolio, will have the final say on pricing adjustments. Starbucks, on the other hand, has not disclosed how or when it will increase its prices but has already decided to raise wages for its employees regardless of their experience level.

Meanwhile, Pizza Hut operators in the state have chosen to eliminate in-house delivery, resulting in more than 1,200 driver layoffs. Instead, they will rely on third-party delivery apps, which may lead to higher fees for customers. Round Table Pizza franchisee, Excalibur Pizza, also plans to eliminate 73 driver positions, shifting to third-party service providers.

Franchisee Alexander Johnson, who operates several Auntie Anne's and Cinnabon locations, is considering layoffs and potentially closing some of his California-based restaurants due to the wage increase. Johnson stated that the price of his offerings might also have to be raised, although it remains unclear when and to what extent.

In recent earnings calls, Jack in the Box CEO Darin Harris predicted menu prices could increase from 6% to 8% to compensate for the wage hike. The company is expecting upward price adjustments to maintain profitability.

As the wage increase takes effect on Monday, it remains to be seen how consumers will respond to the potential price hikes and operational changes implemented by these fast-food chains. The new law also establishes a restaurant industry council to advise on future pay raises and working conditions. Chains will have to strategize and find a balance between maintaining their margins and providing affordable options for their customers.