Following a 14 percent minimum wage increase in San Francisco, Chipotle Mexican Grill Inc. had to raise its prices proportionately, according to a report from William Blair, a global investment banking and management firm.
William Blair claimed that the price hike was likely a direct result of the increased minimum wage.
Chris Arnold, a Chipotle spokesman, confirmed to Slate that this was largely the case.
“In San Francisco, for example, our occupancy costs are about double the Chipotle average as a percentage of sales, and our menu prices there are right around the average for Chipotle restaurants around the country, so increases to wages can have a greater impact than they might elsewhere,” Arnold explained.
In these San Francisco locations, Investor’s Business Daily reported that Chipotle has increased its prices all across the menu by 10.5 percent on average, affecting chicken, tofu, vegetarian and beef prices.
Specifically, beef entrée prices are up 14.4 percent, large soda increased by 11.1 percent and even chip prices have been raised by 10.3 percent.
To put that in perspective, a San Francisco Chipotle customer will be paying about one dollar extra for each burrito bowl, according to Mark Perry, a scholar at the American Enterprise Institute.
These hikes in fast food prices come after San Francisco raised its minimum wage on May 1 from $10.74 per hour to $12.25 per hour.
“When the government increases the minimum wage above the market wage, restaurants have no option but to raise prices and pass those costs onto customers,” explained James Sherk, a research fellow specializing in labor economics at The Heritage Foundation.
“They do not make nearly enough money to absorb those losses from their profits,” Sherk said.
If businesses do not raise their prices to account for the higher wages they pay their employees, the only other option is to reduce their costs by firing workers.
Perry coined the term “TANSTAAFMWH,” which stands for “There ain’t no such thing as a free minimum wage hike,” in order to explain this parallel price increase phenomenon.
The slim profit margins that most restaurants experience helps explain why Chipotle has had to raise its prices so high.
“The typical fast food restaurant makes only 3 cents in profits on each dollar of sales,” explained Sherk.
San Francisco fast food customers can continue to expect prices to rise. The city is on its way to a goal of a $15 minimum wage by 2018. Next year, San Francisco’s minimum wage will rise to $13, followed by $14 in 2017 before hitting the $15 per hour goal by 2018.
Other cities like Los Angeles and Seattle also plan to boost their minimum wages.
According to a 2014 Heritage Foundation issue brief written by Sherk, the average fast food restaurant will have to raise its prices by 38 percent while watching profits fall by 77 percent under the $15 minimum wage.
This would mean that the McDonald’s $7.49 Big Mac would cost consumers $10.33, Taco Bell’s $2.99 Crunchwrap Supreme would cost $4.13, and a $5.85 Chick-fil-A Chicken Sandwich would jump to $8.07.
Passing on the prices to the consumer hurts the same people who are supposed to benefit from the increased minimum wage.
“The workers who get the new minimum wage benefit, but workers who lose their job get hurt—as do the low- and middle-income families who shop at those restaurants,” Sherk said.
