Fast-food giants McDonald's and Chipotle have announced plans to raise menu prices in California to compensate for the upcoming minimum wage increases set to go into effect next year. The move comes after Democratic Governor Gavin Newsom signed new regulations in September that will require certain fast-food workers in the state to be paid at least $20 per hour.

During an earnings call, McDonald's CEO Chris Kempczinski acknowledged the impact of the wage hike on California franchisees and hinted at the likelihood of price increases to offset the additional costs. While he did not provide specific details on the extent of the price hikes, he mentioned that franchisees would explore productivity improvements to mitigate the financial impact.

Chipotle's Chief Financial Officer, Jack Hartung, also confirmed that their chain would be raising prices by a "mid-to-high single-digit" percentage due to the new minimum wage law.

The minimum wage hike for fast-food workers in California is scheduled to take effect on April 1, 2024. This increase will raise the hourly minimum wage from an average of $16.60 to $20, making it one of the highest in the country for this particular sector. Additionally, the state's minimum wage for all other workers currently stands at $15.50 per hour, which is among the highest in the United States.

The decision to raise prices to meet the wage hikes reflects the challenges faced by franchises in maintaining profitability while complying with changing labor laws. Both McDonald's and Chipotle have already implemented price increases nationwide, citing strategic menu adjustments as driving factors behind their revenue growth.

McDonald's reported robust revenue of $6.69 billion in the third quarter, attributing this success, in part, to menu price increases. In comparison to the previous year, the fast-food giant's earnings rose nearly 17% to $2.32 billion.

It is important to note that the cost of items like the iconic Big Mac has seen a significant rise over the years, with prices increasing by 125% since 1996 and currently standing at $3.91.

The decision to raise menu prices has garnered mixed reactions from consumers. While some argue that it is necessary to ensure fair wages for workers, others are concerned about the potential impact on affordability and accessibility.

The signing of the minimum wage legislation by Governor Newsom was a significant victory for labor unions, as they have been advocating for improved wages and working conditions for fast-food workers. In exchange for higher pay, these unions agreed to abandon their pursuit of holding fast-food corporations liable for the actions of independent franchise operators in California, which could have potentially disrupted the industry's business model.

As the implementation of the minimum wage hike draws nearer, both McDonald's and Chipotle will navigate the challenges of balancing profitability and worker compensation in California, while consumers may experience the impact through adjusted menu prices.