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- A franchisee told BI how he's trying to absorb California's $20 minimum wage for fast-food workers.
- The Vitality Bowls franchisee in San Jose said he's put up prices and is reducing staffing.
- "Right now I'm trying to size what the true impact will be," he said.
Fast-food franchisees in California are desperately trying to boost their revenues and cut their costs to absorb the impact of the state's new $20 minimum wage.
The wage, which came into effect on April 1, applies to limited-service restaurant chains with at least 60 restaurants nationwide and covers both corporate-owned locations and franchise restaurants.
As well as companies selling typical fast food like burgers, chicken, sandwiches, and pizza, the wage applies to those serving coffee, bubble tea, and pretzels.
Brian Hom, who owns two branches of smoothie and acai bowl chain Vitality Bowls in San Jose, talked to Business Insider about the measures he's taking to offset his higher payroll and ensure he remains profitable.
"Right now I'm trying to size what the true impact will be," he said. "I'm just trying to see if I'm going to be able to cover my payroll and still make a profit."
1. Putting up prices
Most impacted restaurants seem to be raising menu prices to account for the new wage.
Hom said that he had put his prices up by about 5% in January — when San Jose's minimum wage went up from $17 to $17.55 an hour — and by between 5% and 10% on April 1, when the state's fast-food worker wage came into force.
"All our increases in January and April were due to wage increases," he said. "We're waiting to see if the customers will start coming in or not."
Some customers had told him that they planned to cook more at home instead as limited-service restaurant prices rose, Hom said.
He's also concerned that as restaurants like his put up their prices, some diners could go to sit-down places instead as the price difference between fast-food and casual-dining restaurants narrows.
2. Reducing staffing
Restaurants are concerned that too many price increases will deter diners — so they're also looking at other ways to cut costs, including labor.
Hom's stores have cut the number of workers on each shift down from three or four to just two, he said.
He also told BI that he has around 30 workers across his two stores and wouldn't add any more.
"We stopped hiring," he said. "We are not hiring anymore right now."
But the higher minimum wage has meant that Hom's more experienced workers have also got a boost.
"Now everybody's making 20 bucks, the assistant managers had to go up as well as the leads and the manager," he said. He declined to say how much he paid them, but noted that it was "significantly higher than the minimum wage."
Hom said he would evaluate the company's profit and loss statement over the coming months to see if he needed to lay people off. Some franchisees of Pizza Hut and Round Table Pizza have laid off all their delivery drivers, believed to be because of the $20 wage.
3. Toying with kiosks
Hom said that though he isn't a fan of digital order kiosks, he's considering getting some for his stores to cut labor costs. Some other Vitality Bowls locations already have them, he said.
A major Burger King franchisee in California told BI that he was rapidly installing kiosks at all his restaurants in response to the $20 wage.
4. Shrinking its menu
"We've taken significant measures to optimize profitability as increased costs have arisen," Roy Gilad, CEO of Vitality Bowls, told BI in late March. He said the chain had introduced some "menu innovations" to cope with a range of rising costs, including the new minimum wage.
Hom said that the company had streamlined its menu by adding more pre-made bottled juices and cutting some items like the Detox Bowl, Energy Bowl, and Graviola Bowl to reduce how many unique ingredients each store needed to stock.
5. Closing stores
Hom warned that he may even have to consider closing his stores.
"I can't work and not make any money," he said.
Other franchisees have said the new wage made them reconsider plans to open new restaurants in California.
Are you a fast-food worker excited about the new minimum wage? Or a franchisee or restaurant manager worried about how it will affect your business? Email this reporter at gdean@insider.com.