It’s been over a year since California raised the minimum wage for fast-food employees from $16 to $20 per hour, the highest of any state in the nation.
By all measurements, the large franchises, including McDonald’s, Subway, Chipotle and Burger King, have raised menu prices to protect their bottom line. At the same time, competing data points have obscured the impact on employment.
Trade groups say the law, Assembly Bill 1228, has led to widespread job losses. California Gov. Gavin Newsom’s office insists it has not.
KTLA recently spoke with Mike Keung, whose family owns seven McDonald’s restaurants in Los Angeles County (one in the city of L.A., four in Palmdale, and two in Lancaster), to learn how AB 1228 has impacted his business and staffing. Below is a transcript of the conversation.
Question: Mike, as a McDonald’s franchise owner, what has changed since AB 1228 was signed into law?
Keung: It’s definitely had a huge impact on our operations. Of course, the last thing we wanted to do was increase prices. To be honest, we had to take some measures prior to April (2024), but since then, I’ve been very hesitant to take those actions.
The biggest impact has been on our workforce. Since April, I’ve cut my hours in our restaurants by 16%, and my roster size has gone down. Twelve months prior to April, I had around 413 employees for seven restaurants. Now, I’m down to 384 the past year. That’s around a 10% cut in the number of employees across the entire organization. Thankfully, I haven’t had to do any layoffs, and that’s one of the first things we wanted to make clear to our employees is that we’re not going to have a mass layoff to compensate for the 25% wage increase. But to be fair, our hiring has gone down. Prior to April last year, we had hired 317 people. Since April of last year, I’ve hired 140, so my hiring is down by over 50% compared to the previous year.
Question: So, these cuts have been through attrition?
Keung: Yeah. But my retention has been great. The employees still continue to have great benefits, and the wages help supplement that. Prior to April, I had an 85% turnover rate, and it’s been cut in half, down to about 40% turnover for the last year. So, the employees we have are staying. I want to continue to invest in our employees, but it’s been very challenging to bring on new people. When we do have hours available, I want to invest in the people we already have. That’s part of the reason why our hiring has taken such a big turn compared to the previous year.
Question: When you get applicants for openings, have you found that they are more experienced or more mature? Are you getting a different caliber of candidates?
Keung: That’s definitely something we were interested in seeing. We used to have around 35 applicants per day across the entire organization. That’s jumped up to around 50 applicants per day, so we’ve seen a 40% increase in applications compared to the previous year.
We have a large variety of people coming in now with different backgrounds. More recently, we’ve been hiring teachers who are looking for second jobs. We’ve also hired people from the packaging industry, like FedEx and UPS, looking for second jobs on the weekends or after school. These types of employees are a huge benefit to our organization because they bring maturity.
We love working with teachers. We sponsor teacher events every May and almost quarterly, we host classes with schools and fundraise for those classes. With teachers in the restaurant, they show the same type of work ethic and mentality, and they serve as great role models for our younger employees.
Question: How’s business?
Keung: Business is tough. Looking at our gross sales and customer visits compared to last year, as an organization, I’m down around 16%. Customers are not coming in. I think with April (2024), a lot of the media showed that we needed to prepare for potential price increases. Although we did not increase prices as much as many of our partners, we’re still seeing the effects on customers. A lot of people don’t want to come into the restaurant, which is fair considering the feedback we’re seeing. The decline in business has sustained since last year. Anecdotally, when I talk to customers and drivers, it seems like a lot of people just aren’t going out. They don’t want to leave their homes, and we’re definitely seeing that in the restaurants.
Question: Have any of the new value meal promotions worked?
Keung: I think they have been effective. It’s not just McDonald’s; you see everyone trying to offer some type of fixed dollar meal. It definitely brings in additional customers. However, profitability-wise, it’s not fair. We’re trying to bring in customers and sustain their purchases, but it doesn’t do enough to balance the changes that came with AB 1228.
Question: Do you think lowering prices could move the needle for you as a volume play?
Keung: That’s pretty much what these value menu items and deals have done. With the $5 meal deal at McDonald’s, our average check has dropped around 10% compared to last year. When we don’t have as many customers coming in and our average check drops, it impacts our top line. It’s definitely been a challenge. McDonald’s is trying to bring in new items this year, and there’s a lot of excitement coming in the next two weeks that I can’t talk about yet. We’re trying to offer more products that hopefully more customers can enjoy.
Question: Anything else you’d like to share?
Keung: Another significant impact of AB 1228 is our ability to continue supporting the local community. In the past, we always held fundraiser events for local cops, sheriffs, and teachers. But one of the biggest challenges this year has been supporting more local charities and fundraisers in terms of monetary donations. That’s something we’ve had to step back from.
I also want to talk about what McDonald’s franchises do and what they are. There’s a misconception that McDonald’s in Southern California is a large corporation. But what people don’t see is that these are family businesses. There are 635 franchise restaurants in Southern California, operated by 90 individual owner-operated organizations that are all family-owned and operated for generations. My family has been here since we started our first restaurant in 2004, but there are multi-generational families in Southern California that invest in local communities and are great partners. With the changes last year, it’s just more challenging to support the community.
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