Fast-food franchisees fear that new California legislation will further drive up already soaring food prices.
The legislation in question, the Fast Food Accountability and Standards Recovery Act, or FAST Act, is aimed at improving the lives of fast-food workers in the Golden State by creating a state-run council that would set standards on minimum wage, working hours, and labor conditions. But detractors say it will end up hurting franchisees and the poorest consumers.
An economic analysis by the University of California, Riverside Center for Economic Forecast and Development found that Californians will end up shelling out 20% more for fast food should the proposal become law because the state-run council would likely increase pay at the fast-food locations. Provisions in the legislation also would increase the legal liabilities of fast-food companies, adding to the price pressures.
Sanna Shere is a Burger King franchisee based out of Southern California with about two dozen locations. She came into the business about a decade ago to help her father, an immigrant who came to the United States with little money and put all he had into his first restaurant.
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Shere told the Washington Examiner that it would be difficult to imagine keeping her Burger Kings afloat should the legislation be passed, and they would have to consider abandoning the state if it does.
“It’s a shame because we’ve had these restaurants for over 30 years. It’s kind of the hardest decision that we would have to [make], but we don’t have any options because we’re not able to pay our bills,” Shere said.
Christopher Thornberg, director of the UC Riverside economic forecast center, pointed out in a statement that the 20% burden would be in addition to already soaring food prices. Food prices have increased by nearly 11% in the 12 months ending in July, according to the consumer price index.
“If the FAST Act passes, we can expect a very sharp increase in food costs from the affected restaurants, and that could push these families to the breaking point given the financial pressures working families already feel from rising rents, gas, and other necessities,” Thornberg said.
Shere said her stores are already suffering under the weight of inflation and, as a whole, are struggling to make any profit at all.
“We’re really value-driven, and our customers come to us because we’re affordable, so we can’t go so high because we’re going to … lose customers. So we’re kind of in a hard spot where we can’t really increase our prices tremendously,” she said.
Shere said her franchise has already had to increase prices by a bit and, as a result, has seen traffic to her stores decrease. She said that’s because many customers are “poverty level” so are sensitive to any price changes.
Greg Flynn is the founder and CEO of Flynn Restaurant Group, one of the largest franchise operators in the world. His company operates 2,400 restaurants in most states with six different brands — Applebee’s, Taco Bell, Panera Bread, Arby’s, Pizza Hut, and Wendy’s.
Flynn said his franchise has two dozen Panera Bread locations in Northern California that would be affected by the law.
Flynn also questioned why Panera Bread, which is known to emulate a full-service restaurant, is included in the definition of fast food in the legislation. He said lawmakers took a broad brush to their definition by making the bill apply to all counter service restaurants (where you pay before you eat) despite some of those not traditionally being seen as fast food.
Proponents of the legislation, particularly organized labor, allege there is a high incidence of wage theft and illegal labor practices, although Flynn pointed out that those are already violations under existing law and that new laws aren’t needed because they are already on the books.
“What you need is enforcement,” he said. “But [the legislation] has literally no new mechanism for enforcement and has no new funding for enforcement, and in fact, what it does is create a separate bureaucracy, which needs to be funded and administered and will generate new types of complaints that will probably slow enforcement of existing labor violations.”
Many of Flynn’s Panera Bread locations still haven’t recovered from the pandemic, he said, with dine-in business down 35% and catering down even more. The combination of high inflation and other problems has caused store margins to tumble from 9% to just 3.5%.
Those increased costs will have to be passed along to consumers in the form of more expensive food, dinging the company as fewer people are able to spend money at the restaurants because they can’t afford it.
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Flynn noted that his company has restaurants in 44 states and highlighted just how difficult it already is to do business in California.
“If they do this, I guarantee you I will never build another restaurant in California. Why would you?” Flynn said.
