Shake Shack has announced plans to close six underperforming locations in California, making it the latest fast-food chain to downsize following the state’s controversial $20 minimum wage hike. The burger chain, which operates more than 500 locations worldwide, will close nine stores in total, including five in the Los Angeles area and one in Oakland. This decision will reduce the number of Shake Shacks in California to 37.
According to a filing with the Securities and Exchange Commission, the closures are part of a regular review of the company’s portfolio of locations. The company noted that these specific restaurants were not expected to generate acceptable returns in the near future. The decision was also influenced by “changes in the trade area,” although Shake Shack declined to comment further on the impact of California’s new minimum wage law.
The closures mark the first time Shake Shack has shut down locations for reasons unrelated to construction, as confirmed by a spokesperson to the trade publication Restaurant Business. The other three closures will take place in Texas and Ohio, with all nine locations expected to close by September 25.
Employees at the affected locations will be offered the opportunity to transfer to other Shake Shack restaurants. Those who choose not to relocate will receive 60 days of pay.
Despite these closures, Shake Shack, which currently has 330 locations in the U.S. and over 180 internationally, emphasized that this move is intended to optimize growth and will not affect future plans to open new locations in California.
California’s $20 minimum wage hike, which took effect on April 1, has had significant repercussions for the fast-food industry. Major chains like McDonald’s, Burger King, and In-N-Out Burger have raised prices to offset the increased labor costs, with some also cutting employee hours and accelerating automation efforts.
Rubio’s California Grill, another fast-food chain, recently closed 48 of its 134 locations, citing the rising cost of doing business in the state. The company subsequently filed for bankruptcy in June.
Governor Gavin Newsom, however, has defended the wage increase, stating, “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.” Despite the challenges, California’s fast-food sector has added jobs each month this year, according to the Bureau of Labor Statistics.
Shake Shack’s newly appointed CEO, Rob Lynch, who took the helm in May after leading Papa John’s, Arby’s, and Taco Bell, has expressed his vision to make the brand more accessible to families. Lynch emphasized the need for more drive-thru locations to shift the brand’s image from an urban, walk-in restaurant to a family-friendly destination. In the second quarter, Shake Shack saw a 4% increase in same-store sales, driven primarily by higher prices, while traffic dipped slightly by less than 1%.
As Shake Shack navigates these changes, the company remains focused on maximizing growth and adapting to the evolving market conditions in California and beyond.
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