Fast Food Has Become A Luxury In California, A Franchisee Says

A California franchisee has warned that some of his customers think fast food is becoming a "luxury" as restaurants increase prices to cover the state's new $20 minimum wage for fast-food workers.

Brian Hom, who owns two branches of smoothie and Acai bowl chain Vitality Bowls in San Jose, told Business Insider that the price hikes could be scaring off diners.

"I've had some customers say: 'the cost of going out is so high now, I'm looking to buy my own ingredients and make my own food at home because going out to a fast food has become a luxury' versus 'hey, I want to go get something to eat now,'" Hom said.

"They have to think twice: 'Am I going to be able to afford it or not?'" he continued.

The new wage in California comes amid rising prices of fast food across the US more generally. A combination of wage and food inflation pushed prices up during the pandemic, and some diners say they're cutting down on how much fast food they eat because it's no longer affordable.

Hom said that his two stores had already changed their prices twice this year: He increased them by about 5% in January, when San Jose's minimum wage went up from $17 to $17.55 an hour, and then by between 5% and 10% on April 1, when California's fast-food worker wage came into force.

Other fast-food franchisees have also expressed concerns that raising prices to absorb California's new wage could push customers' willingness to pay to the limits.

"The appetite that my customers have for price increases is not unlimited," Scott Rodrick, a McDonald's franchisee with 18 restaurants in northern California, previously told BI.

Franchisees worry that some diners will turn to casual-dining chains like Chili's and Applebee's instead, some of which may offer a sit-down meal for only a few dollars more than fast-food restaurants. Some franchisees and analysts say they also expect people to buy more groceries, too.

"Fast food is generally supposed to be a less expensive alternative than going out … to a sit-down restaurant," Tony Nix, a 55-year-old cybersecurity consultant in California who says he typically eats out three times a week, told BI in March.

"But it's not becoming that at all. It's becoming as expensive, if not more," he said.