Black Box Intelligence published this on August 28, 2024:

The recent increase in California’s minimum wage from $16 to $20 an hour has caused considerable excitement in the industry.

While some brands have had to close their doors, others have raised their prices to cope. However, many restaurants are thriving and have found new opportunities in the changes. Here’s a quick look at the key developments – according to our data – you need to know about these changes and what to expect in the future.

Rising dough: Check if growth is increasing
We know from history that the growth of check payments is influenced by many factors, but the biggest influence is price increases.

In the case of California, our data show that the significant wage growth in quick service restaurants (QSR) is almost perfectly correlated with the change in the minimum wage.

QPR’s average per transaction (PTA) growth accelerated by an average of 6.8 percentage points more than the rest of the country compared to the second half of 2023.

What is interesting about this data is the comparison with the PTA growth of fast casual.

Even when accounting for factors like weather and holidays like Memorial Day weekend, fast casual was not as badly affected as QSR.

In fast casual, average check growth increased 0.2%.

In contrast to QSR, this is more closely aligned with national trends.

Traffic Jam: Navigating Comp Traffic and Sales
Then when we look at revenue and traffic, particularly in QSR, we see that comp traffic is down an average of 3.5% compared to the second half of last year.

Our team was not surprised based on the data we saw regarding the overall decline in the total number of transactions.

Despite the drop in traffic, we see that comparable sales have improved by an average of 2.8%. In other words, prices have increased and so have sales.

So that’s a win, right?

Not exactly.

Our historical data shows that the more you increase prices, the worse traffic becomes – which ultimately leads to lost revenue despite short-term gains.

But fast casual saw traffic increase by an average of 1.9% and sales increase by an average of 2.1%, so there was little to no notable change compared to national trends (with a brief exception of anomalies due to the Easter holiday).

Steady Cook: Staff levels unchanged
Before California’s minimum wage change, many people were concerned about staffing.

It was assumed that the wage increase would lead to higher prices and lower sales, and therefore there were fears of higher staff turnover.

But as mentioned above, sales are currently going well, so these concerns have ultimately proven to be unfounded.

In fact, our net data shows that California still has more employees per location than the rest of the country.

Interestingly, the minimum wage change in California had no negative impact on employment trends in QSR and fast casual.

What’s on the table?: What the data predicts
What does all this mean? We had a bad start to the year, but things are better now, right?

At Black Box Intelligence, we create year-over-year (YOY) forecasts based on four variables:

• Real disposable personal income
• Real consumer spending
• Prices for food at home
• Unemployment rate

On the one hand, based on our figures on real disposable personal income, we expect that consumer purchasing power will be higher.

However, based on consumer behavior, food prices and unemployment figures, we expect it to be a weak year for the restaurant industry.

We hate to say it, but it would be wise to bet on a larger decline in traffic and a decline in comparable sales.

We can help
Due to the increase in the minimum wage in California, many brands have been affected by low customer traffic, prompting them to raise their prices.

However, the data shows that this approach is not sustainable in the long term.

We also expect the second year to be more difficult for restaurateurs in general, so how can you counteract any impending negative impacts?

By being data-driven. Only then can you make informed decisions about how to respond to the impacts.

The good news is that Black Box Intelligence can help you. If you want to dig deeper, consider meeting with one of our experts.