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When minimum wage goes up, menu prices also rise

Some chains plan to partially offset increases by passing them to consumers.

By MSN Money producer Feb 25, 2014 8:36PM

 A Jack In The Box restaurant © Howard Lipin/SDU-T/ZUMA PressBy Venessa Wong, Bloomberg BusinessWeek Bloomberg Businessweek

Supporters of a higher minimum wage applauded Gap's decision last week to increase hourly pay. While Lynn Albright, vice president of the company's Old Navy brand, told CNN that higher prices won't be needed if costs can be lowered by, for instance, reducing staff turnover, the effects of such decisions often trickle down to customers.

In the restaurant industry, some chains have already prepared to boost menu prices in response to minimum-wage changes in such large markets as California, New York and Washington. At the national level, Congress and President Obama continue to grapple with increasing the federal minimum wage; progress could bring similar hikes at eateries across the country. 

Restaurants are a large low-wage employer, and industry executives have grumbled that wage increases -- combined with additional costs resulting from the Affordable Care Act -- are driving up the price of doing business. 

To maintain profits, a number of chains have recently announced plans to partially offset the increases by passing them to consumers:

  • Jack In The Box expects the higher minimum wage in California -- where it has about 40 percent of its restaurants -- to reduce quarterly operating margins by 0.8 percent when it rises from $8 to $9 in July, Chief Financial Officer Jerry Rebel said in an earnings call last week. The state's minimum wage will rise again, to $10, in 2016. To compensate, by 2015 Jack in the Box plans to increase menu prices either 1.4 percent just in California or a little less than 1 percent across all its restaurants. These higher prices would come in addition to any other price increases triggered by such factors as commodities costs.
  • Cheesecake Factory operates about one-fifth of its restaurants in California, where it expects to sustain an additional $2 million to $3 million in costs from the state's new minimum wage. This was part of the chain's reasoning in boosting prices by 2 percent this year.
  • Denny's said it will plan on "an additional modest price increase" at its California restaurants in July, affecting about a quarter of the chain's restaurants.
  • BJ's Restaurants, which has about half its units in California, anticipates that a 1.7 percent menu price increase will help cover the change.
  • Nathan's Famous said the state increase to $8 per hour, effective Dec. 31, 2013, amounted to a 4.6 percent average salary increase for affected employees. The company estimates that this will add 0.5 percent to the cost of sales if prices remain the same. The costs are clear, though the impact on menu prices is not.

The effect of raising the federal minimum wage to the proposed $10.10, compared to the current $7.25, would be more widespread. 

More from Bloomberg Businessweek

Feb 26, 2014 12:29AM
Menu prices rise. People stop eating there. Layoffs come. These workers now make enough that their safety net money is cut or gone. Their life is no better just different. Tax payers see no relief as the guberment waste that money saved on some other assine pork. The only people that benefited....... Crooks.

WE NEED GOOD JOBS BACK....... These are not careers. 
Feb 25, 2014 9:35PM
"When minimum wage goes up, menu prices also rise Some chains plan to partially offset increases by passing them to consumers."

Well when they overpay the CEO types, they pass those cost onto consumers. When they waste corporate funds by borrowing to Buy at the Highs, not at the lows, they pass those cost onto consumers. When they handout Golden Parachutes to fired CEOS, they pass those costs onto consumers. But the moment the working poor and fading Middle-Class demand just a taste of the Income their increased Productivity has produced, there's a freaking problem.

Fact, when workers make more, they can buy more. The cost to pay more to workers is hardly the massive increase in consumer prices the fear-mongers continually lie about. Study after study has proven this. When workers were getting real Wage increases, the economy was booming. Now that has become a Joke to overpaid CEO types, the economy is basically on life support.

Companies have had a hard time rising prices and creating Real Revenue and profits because wages have stagnated or declined.  They invest more in already SuperRich speculators as opposed to  the actual company. The result, $4Trillion in fake Dollars from the FEDS and a sub par Recover.

Feb 26, 2014 2:04PM
Before even thinking about raising the minimum wage we need to close our borders, round up and kick out as many illegals as we can, and restrict legal immigration. Then we know those benefiting from the raise will be real Americans.
Feb 26, 2014 10:37AM

More than menu prices, everything goes up, the greater the increase, and the more widespread it is.


In time, the increase is eaten up, so to speak in higher prices.  That's called Wage inflation for the stoopids out there who don't know a jot about economics. Eventually the increase buying power disappears altogether.  


You can't have increases in wages without corresponding increases in your production without incurring inflation.


For a primer in how the increase in the minimum wage works, look back to the Pre-WIN era of Gerald Ford, and 13% mortgage rates.



Feb 26, 2014 11:03AM
Oh really?  When you pay more to produce a product, you have to charge more for it?  Gee, Obama didn't figure that one out?  And he's our President?
Feb 26, 2014 10:59AM

higher wages means higher prices for consumers?  omg who would have thought?  are you liberal pos website just figuring this out?  business owners have been preaching this the whole time and libs called them crazy and said they were wrong.


msn your website sux

Feb 26, 2014 11:09AM
Here we go again.......... All the kings horses and all the kings men, couldn't put this economy, back together again.

We have studied the interactions of an economy by academics and paid professionals alike, did computer modelling out the wazooooo, been blessed by Presidential and Congressional decrees, and STILL we are clueless on how to stimulate the economy or manage the upward or downward mobility of our citizens.

Pathetic losers all and we will soon lose our right to hold any kind of wealth due to feeding the needs of overreaching government.

Talk about living in the moment. 
Feb 26, 2014 2:29PM
So raising the minimum wage will increase the cost of goods and services??  I guess they'll just have to raise the minimum wage again after that so that people can afford the more expensive items.  

Feb 26, 2014 1:55PM

If you are raising a family on a minimum wage job you sure f'd up big time somewhere along the line or you're just dumb as a box of rocks.


Most common reasons for living in poverty:


Drug and alcohol problems ( stupid decision making)

Little education ( drop outs - stupid decision making)

Mental disorders

Low intelligence

Children before marriage ( stupid decision making)

Voting for a living is easier than getting your azz up and working for a living

Criminal behavior ( stupid decision making)

Lost all your money ( stupid decision making)

having more children when you couldn't afford the first one ( stupid decision making)

lost your job and unwilling to settle for something paying less

bad luck .....usually related to one of the above

Feb 27, 2014 5:02PM
California ALREADY passed a min wage increase to $10, also, in CA, tipped workers don't make that **** $2.17/hour the rest of the country thinks is funny. They earn the state min wage. This isn't preemptive at all. These also aren't small chains struggling to survive and a cost of living adjustment will put them out of business... these are corporations that earn a LOT of money.

They don't pass on costs to customers because the market forces them to, they do it because they're greedy ****s. You want companies to stop stealing from the rest of us? Stop buying their crap. 
Feb 25, 2014 11:02PM
Sure everything costs more, but I make more, so its OK because I make more, therefor, I am better off;-/
Feb 26, 2014 10:52AM
Do not get too excited because we opened up this morning; yes, we are up 30-40 points on the Dow but it wont last...Things not looking good down here, plenty of manipulators ready to make their move.....Be cautious, this is not a good morning...More later.
Feb 26, 2014 10:59AM

The increase in the minimum wage hits the people that will return that money into the economy, not in hidden offshore bank accounts. It increases payroll taxes including SSA and Medicare and will move some out of the Earned Income Credit (Republican backdoor welfare).

When I started working in 1965 the minimum wage was $1.25 per hour, in today's dollars that would be $11.40. Several of my married co-workers were raising families and the wife stayed home on that wage. Not going to happen today.

Feb 26, 2014 9:46AM
Higher wages at the low end reduces government subsidies and increases buying. What don't you get ? History of raising wages PROVES it works. Those oppose, is just rhetoric.
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