A popular Mexican fast food chain is closing 40 locations in California, citing “higher costs of doing business” in the state, just two months after Governor Gavin Newsom raised the minimum wage to $20.
Rubio’s Coastal Grill, known for its fish tacos, closed 48 underperforming locations in California as of May 31, but kept 86 locations open in California, Arizona and Nevada, the privately held chain said in a statement.
“The closures are due to rising costs of doing business in California,” a spokesperson for the restaurant chain told The Washington Post on Tuesday.
“The decision to close a store is never easy, and while painful, closing stores is a necessary step in our strategic, long-term plan to position Rubio’s for success for many years to come.”
Business leaders say the state’s $20 hourly minimum wage at fast-food restaurants, which took effect on April 1, is putting significant new pressure on companies doing business there.
The wage hikes led to the loss of 9,500 jobs by the end of April, a 1.3% decline since September 2023. In addition to layoffs, fast-food chains have also been increasing automation and raising prices to offset rising labor costs.
Because fast food is such a large and visible sector in hiring minimum wage workers, small businesses say they also face pressure to raise wages to compete for those same minimum wage workers.
“We need to call out the state more often for its role in contributing to underperforming fast-food restaurants being closed by their parent companies,” John Kabatek, president of the California chapter of the National Federation of Independent Business, said at Center Square.
“Right now, we have a plethora of minimum wage laws, it’s impossible to hire with confidence that sales will cover expenses, paid leave offers are making it harder to retain employees, and unemployment insurance taxes are rising. These are all circumstances that make giving up seem more appealing than trying to stay in business.”
Companies including McDonald’s and Chipotle have warned that higher labor costs will be passed on to consumers through higher menu prices.
Rubio’s, which began as a small taco stand founded by Ralph Rubio in San Diego in 1983, has faced significant economic headwinds in recent years.
The company’s market share has dwindled due to fierce competition in the fast-casual industry from companies like Chipotle.
The pandemic has also hit the company hard, forcing it to cut its more than 200 stores to 134.
The company filed for bankruptcy protection and reorganized in fall 2020, with Rubio blaming rising operating costs, including minimum wage increases, for the restructuring.
