McDonald's CEO warns California minimum wage hike will hurt franchisees

McDonald’s is warning that California’s new minimum wage law will hurt franchisees in the state and could raise prices for consumers when it takes effect next year.

Last month, California Gov. Gavin Newsom signed into law a minimum wage hike for fast food workers at restaurants with at least 60 locations nationwide – although the law contains an exception for restaurants that sell their own bread. It increases the minimum wage for covered fast food workers to $20 per hour effective on April 1, 2024.

McDonald’s CEO Chris Kempczinski said on an earnings call Monday that the law is going to have "a wage impact for our California franchisees" and that "I don’t think at this point, we can’t say exactly how much of that is going to work its way through pricing."

"Certainly, there’s going to be some element of that that does need to be worked through with higher pricing," he explained. "There’s also going to be things that I know the franchisees and our teams there are going to be looking at around productivity. How all of that plays out, there will certainly be a hit in the short-term to franchisee cash flow in California, tough to know exactly what that hit will be because of some of the mitigation efforts."

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Kempczinski added, "Longer term, what we’ve been talking about with our franchisees is this is an opportunity for us to gain share because this is an impact that’s going to hit all of our competitors… We believe we’re in a better position than our competitors to weather this."

The current minimum wage in the state of California is $15.50 an hour, an amount that is the highest in the nation which is set to tick up to $16 an hour in January for all jobs in the state.

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"This is a big deal," Newsom said at an event in Los Angeles where he signed the fast food minimum wage bill into law in late September. 

Newsom also dismissed the view that fast food jobs are meant for teenagers just entering the workforce and looking to gain experience.

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"That’s a romanticized version of a world that doesn’t exist," Newsom said at the event. "We have the opportunity to reward that contribution, reward that sacrifice and stabilize an industry."

FOX Business’ Louis Casiano contributed to this report.