(The Center Square) – The owner of fast-casual food chains Tender Greens and Tocaya filed for bankruptcy, citing California’s $20 per hour fast food minimum wage, inflation, and the state’s empty office districts as contributing factors. The bankruptcy effort is aimed at restructuring and keeping stores open and employees at work.
One Table Restaurant Brands owns Tender Greens and Tocaya, companies both founded in Los Angeles and with 37 of their 39 restaurants in California, and a total of 1,147 employees. Both brands had annual average restaurant sales of $3.4 million in 2019, but were decimated by the “catastrophic” COVID-19 pandemic, with average restaurant sales dropping to $2.3 million in 2020 and are still struggling to recover.
One Table CEO Harald Herrmann in part blamed California’s new $20 per hour fast food minimum wage law for raising the chains’ costs out of control, echoing other business owners. Many owners say that while the wage does not directly apply to their stores, it still puts upward pressure on their wages, as they must compete with fast food operators for the same pool of entry-level minimum wage workers.
“In 2023, AB 1228 (the “FAST Act”) was signed into law in California which, among other things, increased the minimum wage for fast-food workers to $20 an hour,” wrote Herrmann in a declaration in support of the company’s bankruptcy. “While the FAST Act only applies to fast food chains with more than sixty locations, the implementation of the FAST Act has put additional pressure on the restaurant industry and labor costs.”
According to the Senate Joint Economic Committee’s State Inflation Tracker, California prices as of June 2024 have increased 19.8% since January 2021.
Despite these cost increases, Herrmann says his customers can’t afford more price increases, meaning his business must simply absorb the difference.
“This has significantly increased the Debtors’ cost of doing business and the Debtors cannot simply price their way out of this dynamic without taking the risk of losing even more traffic in an already difficult sales environment” wrote Herrmann.
Prices grew 3% from June 2023 to June 2024 while business sales increased 2.3%, suggesting most businesses aren’t able to pass on higher prices to consumers.
Hermann also noted California’s vacant offices leave his restaurants without their most reliable customers, especially in Los Angeles where 27 of the company’s restaurants are concentrated. According to office access security firm Kastle Systems July 23 occupancy report, offices in Los Angeles metro averaged 50.8% occupancy compared to the pre-pandemic era, leaving many businesses serving office workers struggling to stay open.
“The pandemic reduced one of the Debtors’ most frequent user bases – office workers. Most of the Debtors’ locations were selected (pre-pandemic) at least in part due to their proximity to nearby office districts, but now, post-pandemic, many workers work outside traditional office settings and office hours,” wrote Herrmann.
With an interim order allowing One Table to keep paying employees and secure new financing, Tender Greens’ and Tocaya’s profitable locations may be able to remain open, but weak economic conditions in California could still stall One Table’s comeback plans.