“Business is tough,” says the owner of a California fast food franchise.

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It’s been more than a year since California increased the minimum wage for fast food employees from $16 an hour to $20.

With all measurements, large franchises such as McDonald’s, Metro, Chipotle and Burger King have raised menu prices to protect revenue. At the same time, competing data points blur the impact on employment.

The trade group says the law, Congressional Bill 1228, led to widespread unemployment. California Gov. Gavin Newsom’s office claims it is not the case.

KTLA recently owns Mike Keene (one of the city of LA, four of Palmdale and two of Lancaster), whose family owns seven McDonald’s restaurants in Los Angeles County, and learned how AB 1228 has impacted his business and staff. Below is a transcription of the conversation.

Question: Mike, as the owner of McDonald’s franchise, what has changed since AB 1228 was signed into law?

Keung: It definitely had a huge impact on our work. Of course, the last thing we wanted to do was raise the price. To be honest, we had to take some steps before April (2024), but since then I have been very hesitant to take those actions.

The biggest impact lies in our workforce. Since April, we have reduced our restaurant hours by 16%, but the size of our roster has decreased. 12 months before April, seven restaurants had around 413 employees. Well, I’ve reached 384 in the past year. This reduces the number of employees across the organization by about 10%. Thankfully, I didn’t need to layoffs. That was one of the first things I wanted to clarify to my employees. This means that there is no massive layoffs to compensate for the 25% wage rise. But to be fair, our employment has declined. Before April last year, we hired 317 people. Since last April, I have hired 140, so my employment has dropped by more than 50% compared to the previous year.

Question: So are these cuts worn out?

Keung: Yes. But my retention was great. Employees continue to provide significant benefits, and wages help to compensate for it. Before April, I had an turnover rate of 85%, but last year it fell to around 40% sales. So the employees we have are staying. I want to continue investing in my employees, but bringing in new people has been extremely difficult. When we have time available, I want to invest in people who already have. That’s part of why our employment has led to such a huge shift compared to the previous year.

Question: When you acquired the opening applicants, did you find them more experienced or more mature? Are you getting a candidate for a different caliber?

Keung: That’s definitely something we were interested in seeing. Previously, there were around 35 applicants per day throughout the organization. It jumped to around 50 applicants per day, which means an application has increased by 40% compared to the previous year.

Different people from different backgrounds are coming now. Recently, I’ve been hiring a teacher looking for a second job. He also hires people from the packaging industry, such as FedEx and UPS, looking for a second job on weekends and after school. These types of employees are a great benefit to our organization as they provide maturity.

We love working with teachers. It sponsors teacher events almost quarterly, each May and organizes school classes and raises funds for those classes. Along with restaurant teachers, they exhibit the same type of work ethic and mentality, and act as a great role model for younger employees.

How much has the fast prices of food in California changed since the minimum wage hike?

Question: How about business?

Keung: Business is tough. Looking at total sales and customer visits compared to last year, I have fallen by about 16%. There are no customers in it. I think in April (2024), many media outlets showed that they need to prepare for potential price increases. Many of our partners did not raise prices, but we still see the impact on our customers. Many people don’t want to come to restaurants, so it’s fair to consider the feedback we’re looking at. The decline in business has been maintained since last year. Anecdotes, when I talk to customers and drivers, it seems a lot of people just aren’t out. They don’t want to leave the house and we definitely see it in the restaurant.

Question: Did any of the new Value Meal promotions work?

Keung: I think they were effective. It’s not just MacDonald’s. Everyone sees trying to offer some sort of fixed dollar meal. It definitely brings additional customers. But when it comes to profitability, that’s not fair. We are trying to bring customers and keep our purchases in place, but it is not enough to balance the changes that come with AB 1228.

Question: Do you think that if you lower the price, you can move the needle as a volume play?

Keung: That’s what these value menu items and deals did. A $5 meal agreement at McDonald’s has reduced the average check by about 10% compared to last year. If so many customers come in and there’s no average checkdrop, it will affect our top line. It was definitely a challenge. McDonald’s is about to bring in new items this year, but there are plenty of excitement that we still can’t talk about in the next two weeks. We are trying to provide more products that more customers can enjoy.

Question: Is there anything else you would like to share?

Keung: Another important impact of AB 1228 is its ability to continue supporting the community. In the past, we have always held fundraising events for local policemen, sheriffs and teachers. But one of the biggest challenges this year is supporting more local charities and fundraisers when it comes to financial contributions. That’s something we had to back down.

I would also like to talk about what the McDonald’s franchises are doing and what they are. There is a misconception that McDonald’s in Southern California is a large company. But what people aren’t seeing is that these are family business. Southern California has 635 franchise restaurants, run by organizations run by 90 individual owners, all owned by families and run for generations. My family has been here since they first started their restaurant in 2004, but in Southern California we have a multi-generational family that invests in the community and is an incredible partner. With last year’s changes, it’s more difficult to support the community.