A fast-food favorite in California will shut six underperforming locations this month.
Shake Shack is the latest fast-food chain to close its doors after the state implemented the $20 minimum wage for employees at companies with more than 64 locations.
Shake Shack Is Downsizing
The burger chain will close nine locations in total.
The company said that the move is a result of constant evaluation of the performance of the company’s portfolio, according to the documents filed with the Securities and Exchange Commission on Tuesday.”
The $20 Minimum Wage Bill in California
On April 1, 2024, California Governor Gavin Newsom signed a bill into law that forced all fast-food eateries with more than 64 locations to pay their employees a minimum of $20 an hour.
The law was passed to ensure that employees of these establishments were making enough to live. In some expensive places in the state, many people cannot afford to live anywhere near their workplace, causing a rift in companies ability to keep loyal workers in difficult locations.
Many Restaurants Unable To Turn a Profit
Despite rising food costs blamed on inflation and super high CEO wages, many restaurants in the state have found difficulty turning a profit with the increased cost of employee wages.
“These Shacks are not projected to provide acceptable returns in the foreseeable future,” the filing said.
Locations To Shut Down
Five of the locations closing are in Los Angeles, and one more is in Oakland.
There will now only be 37 locations across the state.The company blamed “changed in the trade area” according to the filing.
The Company Has Been Performing Well
Up until now, the only other reason Shake Shack has been forced to close any of its locations is construction-related issues.
Now, two other locations will close as well, one in Texas and one in Ohio for the same reason of non-performing.
Options for Employees
Shake Shack said they expect all nine locations to shut for good on September 25th.
Employees who work at the affected locations will be eligible to be hired at other locations. However, if they do not want to be transferred, they will be eligible for 60 days of pay per their contract.
Shake Shack Is Still Looking Towards Growth
The company will still be operating 330 locations across the US and more than 180 aboard.
A spokesperson for the company said that the store closures will help ensure that the company is maximizing its growth, and there are still plans in the future to open higher-profiting stores in alternative locations in the future.
Other Companies Have Shuttered Due to the Same Issue
Rubio’s California Grill closed 48 of its 134 locations at the end of May, citing the “rising cost of doing business” in California before it filed for bankruptcy in June.
The company lost almost a third of its business due to an inability to keep up with rising costs of goods, insurance, and employee wages in the state.
Newsom Says Fast Food Jobs Are Increasing
Despite the concerns that employee wages have stifled the fast-food industry, the Bureau of Labor Statistics says that the industry in California has added more jobs every month this year.
“What’s good for workers is good for business, and as California’s fast food industry continues booming every single month our workers are finally getting the pay they deserve,” Gov. Gavin Newsom said in a statement. “Despite those who pedaled lies about how this would doom the industry, California’s economy and workers are again proving them wrong.”
Shake Shack Will Expand in the Country
CEO Rob Lunch said he didn’t want the company to appeal to “only the highest-income burger eaters” in the country.
Instead, the newly appointed head of the company said he wants Shake Shack to be a “Friday night staple for the family” as part of a way to change its current perception as an urban walk-in restaurant.
Sales Are Up Overall
Despite the recent closures, same-store sales were up 4% in the second quarter of 2024, helped by increased price points.
The chain’s shares are also up 43% this year.
