Prices Rise At Starbucks And Chipotle As Workers Get Raises

Many consumers have spoken in favor of wage increases. Their support will be tested as companies respond by raising the price of food.

Calls for higher pay for fast food workers have gained plenty of support across the country, but as wages rise, that support is about to face a practical challenge. With pay increases kicking in at some fast food restaurants this summer, menu prices are going up too.

Starbucks raised the price of certain beverages around the country last week by 5 cents to 20 cents, depending on market and the drink. The price of tall- and venti-size brewed coffee went up by 10 cents in most stores (the cost of grande-size coffee, Frappuccinos, iced coffee, iced teas, food, and bagged coffee remained unchanged).

Last fall, the coffee company announced that in 2015 it would boost starting pay for new employees, and give raises to baristas and shift supervisors who were already there. It also introduced employee perks both like paid tuition for online degrees and a free food item per shift.

These "partner investments" will cost approximately $140 million in fiscal 2015, Starbucks told investors in April. The cafe chain said in an emailed statement that it must "balance the need to run our business profitably" with costs, and pointed to a variety of operating and occupancy expenses that included labor as well as marketing, equipment, materials, distribution, and commodities.

At Chipotle, San Francisco's wage laws are pushing prices up fast. The city's minimum wage rose to $12.25 an hour in May as part of a planned series of hikes that will bring it to $15 an hour by July 2018. Chipotle's prices in San Francisco rose by more than 10% in response, according to research by analysts at William Blair.

"The 10% price increase in San Francisco, and 7% in the East Bay, was done in part to offset higher labor costs," Chipotle spokesman Chris Arnold confirmed in an email to BuzzFeed News.

Chipotle's occupancy costs in San Francisco are "about double the Chipotle average as a percentage of sales," he said, but menu prices are about the same as in other markets. As a result, "increases to wages can have a greater impact than they might elsewhere."

But as recent price hikes show, efforts that put extra dollars in the pockets of some workers could also put pressure on many of America's poorest and most price-sensitive diners, who make up a major part of the fast food demographic. Rising menu prices will need to be deftly managed by the union and activist groups pushing for higher pay across the country.

Fast food workers have become the face of a high-profile political debate on whether to raise the minimum wage, and while increasing the federal minimum is unlikely in a Republican-controlled Congress, advocates have notched up a number of wins at the local level. Los Angeles, San Francisco and Seattle have all approved or implemented significant minimum wages rises this year.

And next week, a New York state government panel will announce the findings of its inquiry into wages in the fast food industry. Activists are cautiously optimistic that the panel will call for a minimum wage rise for the state's fast food workers, and labor leaders have said they plan to use the New York ruling to push for similar inquiries across the country.

Amid such growing pressure, the restaurant industry is paying close attention to labor costs, which generally make up about 30% to 35% of a fast food chain's revenues. And it's not just politics that has the companies considering boosting wages.

Such companies are also trying to improve employee pay and benefits and make their jobs more appealing, as the unemployment rate declines and chains plan to open more locations. Chipotle, for instance, plans to open about 200 stores this year, and Starbucks wants to have 3,500 more stores across the Americas region over the next five years. For such companies, paying bottom-of-the-barrel wages does not pair well with growing fast and maintaining a reputation for quality.