Operations

How BJ's could benefit from Calif.'s fast-food wage law

Higher QSR prices could boost the value of sit-down meals, CEO Greg Levin said. But BJ's will still feel some labor inflation.
BJ's exterior
More than 60 of BJ's 216 restaurants are in California. | Photo: Shutterstock

BJ’s Restaurants expects to feel some heat from California’s fast-food wage law, but it believes it could benefit from the new regulations, too.

The law approved last month will push QSR workers’ minimum hourly pay to $20 by April, a move that will likely have knock-on effects for other types of restaurants in the state.

At the full-service BJ’s, which is headquartered in California and has more than 60 restaurants there, “many” hourly employees already earn close to or above $20 an hour, before tips, CEO Greg Levin said. Still, the law will put some pressure on BJ’s labor costs, which it expects to rise in the mid- to high single digits next year. The chain said it will offset the increase with higher menu prices.

But because BJ’s won’t have to raise its wages as much as QSRs, the corresponding price hike will also be smaller. That could make BJ’s a better value for consumers deciding between fast food and casual dining.

“You're going to see fast food … and fast casual raising the prices and getting their prices closer to casual dining,” Levin said, according to a transcript from financial services site Sentieo/AlphaSense. “I still think that it's a different experience at times in that regard, and we're trying to drive guests into our restaurant that want that more experiential dining.”

At Chipotle, California wages are expected to rise as much as 20% under the law. That will translate to a mid- to high single-digit price increase that will be passed on to customers, executives said Thursday. BJ's, meanwhile, could raise prices about 3% next year, CFO Thomas Houdek said.

Levin noted that the wage hike is fairly unprecedented and the impact is difficult to game out. “I'm not sure there is a market that we can compare to where we are today,” he said. 

California Gov. Gavin Newsom signed the wage bill into law in September following a contentious battle between organized labor and restaurants in the state. It will apply to limited-service restaurants with at least 60 locations nationwide and calls for the possibility of annual pay increases through 2029.

In the third quarter ended Oct. 3, BJ’s same-store sales rose just 0.4% year over year, which it blamed on a return to normal seasonality that created difficult comparisons to a year ago. Executives said there has been no significant change in per-guest spending and noted that comps have rebounded in October to the low single-digit range.

BJ’s restaurant-level margins for Q3 increased 160 basis points, to 11.9%, thanks in part to a cost-cutting initiative that identified $30 million in annual savings.

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