BTN News: The year 2024 has been tough for fast-food places in California. In 2023, a new law raised the minimum wage for fast-food workers. This law started last April. This change has been very hard on two big fast-food chains in the state. They went bankrupt because their costs went up so much.
Two Big Chains in California File for Bankruptcy Due to Increased Costs
One Table Restaurant Brands owns Tender Greens and Tocaya, two fast-food chains in Los Angeles. The company has filed for bankruptcy, according to court papers. They have 37 restaurants in California and over 1,100 workers. The new wage rules and rising prices have made it very hard for them to stay in business.
Harald Herrmann, the CEO of One Table, said the new law that raised the minimum wage for fast-food workers from $16 to $20 per hour is a big reason for their money problems. He said they can’t raise their menu prices enough to cover these higher costs.
“Even though the FAST Act only affects fast-food chains with more than 60 locations, it has made it harder for the whole restaurant industry and increased labor costs,” Herrmann said.
COVID-19 Pandemic and Inflation Make Recovery Difficult for Fast-Food Chains
One Table was created in 2021 after the COVID-19 pandemic hurt Tender Greens and Tocaya. The goal was to share human resources and supply chain help, Herrmann said.
But both brands have not been able to get back to their sales levels from before the pandemic. Tender Greens’ average unit volume (AUV) went down from $3.4 million in 2019 to $2.9 million in 2023. This was a partial recovery from its low of $2.3 million in 2020. Tocaya’s AUV dropped from $3.4 million to $2.1 million in 2023, which is the lowest it has been, including 2020 numbers.
Inflation and New Local Rules Create More Problems for Small Fast-Food Chains
According to the State Inflation Tracker by the Joint Economic Committee of the Senate, prices in California have gone up by 19.8% from January 2021 to June 2024. The mix of the pandemic, inflation, and new local rules has made it hard for small fast-food chains to survive. Passing these higher costs on to customers has also reduced the number of people coming to the restaurants.
“Customers can’t handle more price increases, which means the company has to absorb the difference. This has increased the cost of doing business for the debtors, and they can’t get out of this situation without risking even more traffic loss in an already tough sales environment,” Herrmann said.
Looking for Solutions in the Tough Fast-Food Industry in California
These financial problems are not just about One Table. They show bigger issues in the fast-food industry in California. As living costs and business expenses keep rising, many small and medium chains are having a hard time staying financially stable while keeping their prices competitive. The situation needs new ideas and support to help these businesses deal with the tough economy and stay in the market.
