Carl’s Jr. operator is selling 49 California stores over $20 minimum wage hike

A major Carl's Jr. franchise operator is looking to sell many of its California locations as part of a bankruptcy protection. Franchise operator Sun Gir Inc., part of Friendly Franchisees Corporation, has filed for Chapter 11 bankruptcy protection. As part of the restructuring process, the company plans to sell 49 Carl’s Jr. restaurants across California.

Hard times force drastic measures

The argument is that rising labor costs and other factors have made it increasingly difficult to stay afloat. According to court filings and company statements, the operator points to several challenges, including higher labor costs, ongoing operating expenses, rent obligations, franchise royalties, marketing challenges, and slower product innovation from the franchisor.

But one factor stands out above the rest: California's fast-food minimum wage increase. 

The $20 minimum wage blowback

After the minimum wage for many fast-food workers in the state was raised to $20 per hour in April 2024, the law was celebrated by worker advocates as a major win for employees in one of the state's largest industries. Restaurant operators, however, warned that the higher wage floor would significantly increase operating costs.

Friendly Franchisees CEO Harshad Dharod said the wage increase "materially increased operating expenses" and contributed to the company's financial difficulties. According to the company, those higher costs became harder to absorb as other business challenges piled up.

Labor is already one of the biggest costs for restaurants. When wages increase across an entire workforce, operators either need higher sales, higher prices, improved efficiency, or some combination of all three to offset the added expense. For some businesses, that adjustment appears to have been difficult.

What happens to the restaurants now?

For now, the locations remain open while the bankruptcy process moves forward.

Sun Gir says it plans to continue paying approximately 1,000 employees and meeting obligations such as rent, insurance, and franchise agreements during the proceedings.

The goal is to sell the restaurants as part of the restructuring effort. This means you, as a customer, probably will not notice immediate changes, but ownership of many locations could eventually change hands.

Source: New York Post