California’s restaurant scene is bracing for another financial hit this summer when a new law is set to shake up menu prices.
Fox Business reports that following the recent increase in the state’s minimum wage to $20, fast-food chains have already adjusted their pricing. Now, with a new law targeting “junk fees” slated to take effect on July 1, further price hikes are on the horizon.
Signed by Gov. Gavin Newsom, the new law aims to eradicate surcharges and fees levied by restaurants. Historically, these types of surcharges often have been used by restaurant owners to fund employee benefits like healthcare.
While some establishments transparently display these charges on menus, others leave it to the customer’s discretion.
However, the impending ban on such fees is forcing restaurant owners to rethink their pricing strategies. With surcharges and fees becoming illegal, the only recourse for many establishments is to increase menu prices so they can cover the costs previously offset by additional charges.
California’s attorney general recently told the San Francisco Chronicle that the prohibition on restaurant surcharges and fees will indeed be enforced, dealing a significant blow to the industry.
Laurie Thomas, director of the Golden Gate Restaurant Association, expressed concerns over the law’s impact, suggesting that restaurants will be faced with a difficult choice: either reduce wages for employees or risk alienating customers with higher prices.
“So, now, do you take their rate down and do you go to an old-fashioned tip model and say to your servers, ‘You have to tip the whole house, but that drops everybody’s salaries’ or do you raise your prices 20%, 25%?” Thomas told CBS News Bay Area. “It might make a lot of customers happier. They might say, ‘We understand why prices went up.’ Let’s hope that happens. But I don’t know if our industry can hope that’s what happens. They’re still struggling. It’s been a tough year.”
As the summer deadline for the new law approaches, California’s restaurant owners are bracing themselves for tough decisions ahead, with the potential for further disruptions to an already struggling industry.
Industry experts agree that consumers are set to see higher prices.
“I see restaurants easily raising prices 5%, 15%. It’s going to be tricky,” food writer Marcia Gagliardo also told the CBS New Bay Area. “We’re going to be seeing even higher prices based on this unfortunate interpretation. But not all is lost. … Things could change.”
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This article, “California Law Banning “Junk Fees” Will Drive Restaurant Prices Even Higher” was first published on Small Business Trends