Retail CEO warns of more closures as Rubio’s abruptly closes 48 restaurants – businesses are at ‘breaking point’ – The US Sun

RUBIO’S Coastal Grill has closed nearly 50 locations, blaming California’s new fast food minimum wage law.

Starting in April, the state implemented new legislation that requires fast-food workers to be paid $20 an hour, $4 more than the state’s standard minimum wage of $16.

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Since this law went into effect, the Southwestern chain closed 48 locations last week, blaming it for making its business unsustainable.

Of the 48 locations closed, 11 were in Northern California, 24 were closed in the Los Angeles area and 13 were in San Diego, according to the restaurant.

“Making the decision to close a store is never easy,” the store said in a statement.

“Rubio’s Coastal Grill…after a thorough review of its operations and the current business climate, has decided to close 48 underperforming locations in California effective May 31, while keeping 86 stores open in California, Arizona and Nevada.”

Jot Condie, president and CEO of the California Restaurant Association, told local ABC affiliate KXTV-TV that Rubio’s closures are just a glimpse of what California can expect in the future.

Condie also says that if the state’s newly proposed $18 standard minimum wage is approved by voters in November, fast-food restaurants won’t be the only ones to jump ship and leave California.

“Daily headlines have chronicled job losses, reduced work hours, restaurant closures and higher prices for California’s inflation-weary consumers as a direct result of this minimum wage increase,” Condie said.

“Feedback from our members suggests this has become a breaking point for many small restaurants.”

And these companies have increased food prices since the law came into effect.

Since April in California, Wendy’s prices have increased 8%, Chipotle prices have increased 7.5%, and Starbucks prices have increased 7%.

McDonald’s has also announced that it will increase prices, with many other fast-food franchises also announcing hiring freezes.

Although fast-food companies blame this mandatory wage increase for straining their pockets and forcing them to raise prices and cutbacks, much of the fast-food industry has seen dramatic increases in profit margins over the past decade, helping pave the way to a record level. industry profits, according to research by Roosevelt Institute.

In fact, corporate profits now represent the largest share of national income in more than 10 years, according to the National Bureau of Economic Analysis.

In 2023 alone, the 10 largest publicly traded fast-food companies spent $6.1 billion on share repurchases.

These buybacks occur when a company buys its own shares on the stock market, which can increase the value of the remaining shares because there are fewer shares left.

The same 10 companies also made a combined $20.9 billion in profits in 2023.

To put this in perspective, the total additional cost that fast-food companies would bear for this increase in the minimum wage is estimated at about $4.6 billion annually, less than they spent on repurchasing their own shares.

This estimate uses the “most generous — and unrealistic — assumptions,” meaning it likely represents a more sophisticated estimate of what the cost could be, according to the Roosevelt Institute.

This means that these companies could easily cover the cost of the minimum wage increase simply by reducing the amount spent on their share buybacks.

Even if they didn’t, the nearly $21 billion in profits could easily cover the cost.

“Over the last five years, there has been an upward trajectory for McDonald’s stock and today the price is about 40% to 50% higher,” said UC Davis professor emeritus Paul Leigh.

“So it seems to me that McDonald’s can certainly pay its workers more.”

Even though Rubio’s doesn’t make McDonald’s any money and isn’t part of this top 10, they still generate almost $200 million in revenue each year and the average wage for their 4,000 employees is almost $19 an hour anyway , according to data collected by Zípia.

And after eliminating $35 million in debt since filing for Chapter 11 bankruptcy in 2020, it’s clear that Rubio’s and many other fast-food establishments have the means to afford this pay raise.

Still, Leigh estimates there could be a 5% to 10% increase in fast food prices despite the industry’s record profits.