McDonald's CEO Chris Kempczinski said Tuesday that the company expects wage inflation to impact restaurants nationwide, which he largely attributed to the higher minimum wage legislation recently implemented in California.
"There is certainly labor inflation. Much of that is coming out of what happened in California," Kempczinski told analysts on the company's earnings call.
Nationally,"we're expecting high single digit labor inflation. Again, much of that [is] from the bleed over of what California introduced," he said. However, Kempczinski added that paper and food inflation is back at "historical levels."
The company increased prices by a roughly mid- to high-single-digit percentage due to a rise in costs of eggs and other raw items over the past year, Reuters reported.
CALIFORNIA FOOD CHAINS LAYING OFF WORKERS AHEAD OF NEW MINIMUM WAGE LAW
The bill, AB 1228, took effect on April 1 and requires all restaurants that have at least 60 locations nationwide, except those that make and sell their own bread, to pay fast food employees at least $20 per hour. This equates to an annual salary of $41,600.
It also establishes a "Fast Food Council," including representatives for both workers and employers, that can approve further pay increases and set standards for working conditions. Newsom, who signed the bill in September, said the state is "one step closer to fairer wages, safer and healthier working conditions, and better training by giving hardworking fast-food workers a stronger voice and seat at the table."
CALIFORNIA FAST FOOD FRANCHISEE SLAMS NEWS MINIMUM WAGE, INVESTS IN NEVADA OVER SIX-FIGURE LOSS
In response, several eateries in the state closed some locations and many others raised prices in an effort to get ahead of the possible financial repercussions. Several major chains, including Restaurant Brands International's Burger King, Hart House and some In-N-Out locations, Chipotle, McDonald's and Chick-fil-A, raised prices, according to reports.
McDonald's USA previously told Fox News Digital in a statement that "while pricing is set by individual franchisees and varies by restaurant, McDonald's is competitive when it comes to affordability across the state."
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This comes as "consumers continue to be even more discriminating with every dollar that they spend as they face elevated prices in their day to day spending, which is putting pressure on the QSR [quick service restaurant] industry, according to Kempczinski. This is happening at all income levels.
Industry traffic was flat to declining in the U.S. during the first quarter, according to Kempczinski.
"Across almost all major markets. Industry traffic is slowing in the context of a difficult macro environment for the industry. We know our customers are looking for a reliable, everyday value now more than ever," he said.
As a result, sales at U.S. stores open for at least a year grew 2.5% in the first quarter, down from 12.6% growth reported a year earlier.
Shares of McDonald's are little changed this year compared to a 7% rise for the S&P 500.
