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In California, fast-food restaurants underperform but full-service does just fine

Traffic to fast-food concepts has underperformed the national average, according to data from Placer.ai, while full-service restaurants there have outperformed.
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California fast-food restaurants have underperformed since the state began requiring $20/hour wages. | Photo: Shutterstock.

Traffic to fast-food restaurants in California have underperformed national averages since the state began requiring them to pay workers $20 per hour in April, according to data from the tracking firm Placer.ai.

The same cannot be said for full-service restaurants, which have more often than not outperformed national averages in the 12 weeks after the law went into effect.

Traffic to fast-food restaurants in California underperformed national averages in 10 of the 12 weeks since the law was put into effect, according to Placer.ai, which tracks consumer traffic to restaurants and retailers.

California began requiring limited-service chain restaurants to pay $20 an hour on April 1, an overnight 25% increase in the minimum wage. Many restaurants have raised prices there as a result, because they cannot cut costs enough to offset that increase in wages.

By contrast, traffic to full-service restaurants in California outperformed national averages in eight of those 12 weeks.

“In June, we saw QSR chains in California underperform national averages with respect to year-over-year visitation trends,” R.J. Hottovy, head of analytical research for Placer.ai, said in a statement to Restaurant Business. “This continued a pattern that we saw in April and May after the state’s minimum wage increase requirements went into effect and many chains subsequently raised prices.”

“Interestingly, we also saw full-service restaurants in California, many of which did not raise their menu prices to the same extent as QSR chains, outperform national averages,” he added.

To be sure, traffic to fast-food chain restaurants has been positive for seven of the past 12 weeks in California, including each of the past five—suggesting that there hasn’t quite been the mass exodus from restaurants in the state that many expect.

At the same time, full-service restaurants have outperformed quick-service restaurants in California in each of the past 12 weeks, according to Placer.ai.

The data provides a mixed view on the state of the restaurant business in the state, which accounts for about 15% of the U.S. restaurant business.

The data appears to confirm some speculation that full-service restaurants would get a benefit from the law’s implementation. Because they don’t have to raise wages to that extent, full-service restaurants might in theory get some customers fleeing quick-service restaurants.

That said, the data also suggests that full-service restaurants in the past three months have actually outperformed quick-service brands, at least when it comes to traffic. On average, traffic to full-service restaurants is up 1.6% over the past 12 weeks. By comparison, traffic is up just 0.67% at fast-food restaurants.

California full-service restaurants have outperformed the national average by 73 basis points over that period, according to Placer.ai. But the state’s fast-food restaurants have underperformed the national average by 44 basis points.

The outperformance by full-service restaurants according to Placer.ai data runs counter to recent comments from Kura Sushi, which said that its sales were weaker than expected recently. The company said people were not eating out as much because they thought all restaurants were more expensive.

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