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Devouring a McDonald’s Big Mac or a Chipotle burrito is on a fast-track to becoming a luxury for many U.S. consumers, according to DailyFinance. This is mainly because of minimum wage increases and the increase in the cost of beef.
Chipotle said that they won’t raise the prices everywhere minimum wages are set to increase, like Chicago. But they have increased prices in some places, like San Francisco. Recently they have increased prices by 10% in San Francisco and 7% in nearby Oakland.
“In San Francisco, our occupancy costs are about double the Chipotle average as a percentage of sales, and our menu prices there [were] right around the average for Chipotle restaurants around the country, so increases to wages can have a greater impact than they might elsewhere,” Chipotle spokesman Chris Arnold said in an email. Occupancy costs are the expenses related to doing business in a location, including charges for rent, electricity and water.
However, McDonald’s will most likely raise their prices in cities that have passed higher minimum wage laws.
“The minimum-wage cost, as well as all other costs, certainly impact how we look at pricing,” McDonald’s CFO Kevin Ozan said.
The newest state to consider minimum wage increases to $15.00 an hour is New York, who will target the increase only at fast-food restaurants. While this will be a big blow to franchisees, it’s the small fast-food operators who could be pushed right out of business.
Earlier this year New York raised the minimum wage for tipped workers from $5 to $7.50, which are required to go into effect by the end of the year.
“It’s catastrophic, quite frankly,” Applebee’s owner-operator Zane Tankel said in an interview with TheStreet, referring to the mandated increase in wages for tipped workers.
The other reason for price increases are due to the cost of beef, which has risen 76% since June 2010. Droughts in various parts of the country is mainly to blame for the high rise in beef costs.
So the next time you go through the drive-through and notice an increase in fast food prices, you will now have a better understanding of the reason why.
