Dutch Bros’ California prices could rise sharply with $20 minimum wage, analyst says

Published 10:33 am Friday, September 15, 2023

California lawmakers are set to raise the minimum wage for fast-food workers in the state to $20 an hour, far above the state’s overall minimum of $15.50 an hour.

A new analyst report suggests the higher minimum wage could result in higher prices at several prominent companies, including the Oregon-based drive-thru chain Dutch Bros. The price hikes would apply only within California but could affect the company’s national growth strategy.

California’s new wage for fast-food workers results from an agreement between the Service Employees International Union and large restaurant chains. The companies cut a deal to fend off additional legislation that could have bound them legally to the conduct of their franchisees.

A report by William Blair analyst Sharon Zackfia examined how the higher minimum wage will affect Dutch Bros and eight prominent chains, including Starbucks, Chipotle and Shake Shack.

Dutch Bros had the lowest California wage of that group, according to Zackfia’s estimates, at $16 an hour. She estimated California’s minimum wage could trigger a 7% price hike, though it would apply only in that state.

Dutch Bros has already been raising prices in response to inflation and changes in its operations. Last quarter, it said prices had gone up 4% annually across the company. It expects prices will go up further, in part because it’s charging more when clients customize their drink orders.

Zackfia estimated Starbucks’ and Shake Shack’s California wages as $19 an hour, and Chipotle at $18.50 an hour. She forecasts price hikes of just 2% at those chains.

Dutch Bros, based in Grants Pass, didn’t respond to a request for comment on California’s pending legislation. But it has indicated that prices can vary by location.

The company has won a devoted fan base of customers who enjoy its cold, caffeinated beverages — and an occasional coffee. Dutch Bros has 754 shops across 14 states, including 155 in Oregon and another 140 in California, and aspires to have 4,000 shops nationwide within 15 years.

In her report, Zackfia forecast that some fast-food chains will automate ordering and other functions in their shops to reduce labor costs. That might be hard for Dutch Bros to do because its brand is so closely tied to the friendly “Broistas” that greet customers when they drive up to order their drinks.

But higher wages could affect Dutch Bros in other ways. It is expanding rapidly in the South and Southeast, with 131 shops in Texas and plans to move into Kentucky and Alabama this fall.

So even though California is the nation’s most populous state, Dutch Bros might choose to invest in new markets with lower costs and higher profits — at least for the time being, while the company is targeting many other growing markets.