Shake Shack is set to close six locations across California, including five in the Los Angeles area and one in Oakland, following the state’s new $20 minimum wage law. This move highlights the broader effects of California’s wage increase on the fast-food industry and the company’s strategic adjustments.
California’s $20 Minimum Wage and Its Impact
The $20 minimum wage, which took effect on April 1, 2024, has significantly impacted many fast-food chains, including Shake Shack. This wage hike has led to a wave of closures and operational shifts among major restaurant brands. Shake Shack’s decision to close nine underperforming locations, including six in California, reflects a broader trend within the industry.
Shake Shack’s Strategic Closure Decision
According to a filing with the Securities and Exchange Commission, Shake Shack’s decision to shut down these locations is part of a periodic evaluation of its portfolio. The chain’s statement indicated that these locations are not expected to provide acceptable returns in the foreseeable future. This is the first instance where Shake Shack has closed restaurants for non-construction-related reasons.
Locations Affected and Employee Impact
The closures will reduce Shake Shack’s presence in California to 37 locations. In addition to the six California closures, Shake Shack will also close two locations in Texas and one in Ohio. All nine locations are expected to shut down by September 25, 2024.
Shake Shack has committed to supporting its affected employees. Those who are employed at the closing locations will be offered the opportunity to transfer to other Shake Shack sites. Employees who do not wish to relocate will receive 60 days of pay.
Industry-Wide Reactions to Wage Increases
California’s $20 minimum wage has prompted several fast-food chains to adjust their operations. Major brands like McDonald’s, Burger King, and In-N-Out Burger have responded by increasing prices, cutting employee hours, and accelerating the adoption of automation technologies. Rubio’s California Grill, for example, closed 48 of its nearly 134 locations and filed for bankruptcy in June, citing the rising cost of doing business.
Shake Shack’s Future Plans
Despite the closures, Shake Shack remains optimistic about its future. CEO Rob Lynch, who took over in May 2024, is focused on transforming Shake Shack into a “Friday night staple for the family.” He envisions expanding the chain’s drive-thru locations to appeal to a broader customer base beyond its current urban, walk-in model.
Under Lynch’s leadership, the company has seen a 4% increase in same-store sales in the second quarter of 2024, largely driven by higher price points. Although store traffic has dropped slightly, the chain’s shares have surged 43% this year, and Shake Shack’s market capitalization stands at $4.45 billion.
Conclusion
Shake Shack’s decision to close six California locations underscores the significant impact of the state’s $20 minimum wage on the fast-food industry. As the company navigates these challenges, it remains committed to evolving its business strategy and expanding its footprint in other areas. For consumers and employees alike, these changes highlight the broader economic adjustments within the fast-food sector and the ongoing debate over wage policies.
