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Chipotle CEO says California minimum wage fight ‘a real shame’

Yahoo Finance Live anchors reflect on Chipotle CEO Brian Niccol’s remarks on the minimum wage fight in California.

Video Transcript

JULIE HYMAN: California Governor Gavin Newsom has proposed raising the minimum wage in the state to over $20 per hour. Some businesses have come out in protest to the proposal, arguing that the higher cost would cause them to increase prices for customers. The CEO of Chipotle, Brian Niccol, spoke to Brian Sozzi about this issue yesterday, as well as our Brooke DiPalma. And Sozz, that's where we find your take today.

BRIAN SOZZI: A lot of Bs in there. Well done there--

JULIE HYMAN: There were a lot of Brians yesterday.

BRIAN SOZZI: Well done, Julie Hyman. But yes, this really focuses on the Fast Recovery Act signed by Newsom in-- I believe it was on Labor Day, to establish a standards for the state's 550,000 fast food workers. Now, if this goes into effect, you could see the minimum wage in the state for fast food workers eventually reach $22 an hour.

Now, Chipotle has 15% of its restaurants in California. It's one of their biggest and most important markets. I asked CEO Brian Niccol about this and what that wage at $22 an hour would mean to the company.

BRIAN NICCOL: We'll probably have to raise prices. And it's unfortunate because it also impacts the economic model that could impact how many restaurants we even open in the future in a state like California, which is a real shame because our brand is loved in California. Our employees love working at Chipotle in California. And I know the customers love getting our food.

So hopefully the legislation doesn't get in the way of great economics that result in great opportunities for employees and customers. But if it does, we'll deal with it accordingly. But it'd be a real shame.

BRIAN SOZZI: And I think Brian really is plugged into all things California outside of Chipotle. And he recently-- I believe it was over a year ago, he actually moved their headquarters to Newport Beach. So he's plugged in there. He spent a lot of time working in fast food throughout his career, of course, at Yum Brands, but also very specifically in that California market.

But here's my take. At least as it comes to or as it pertains to Chipotle stock for right now, it's still going to be driven by their sales growth trends. And by all accounts, they continue to be best in class stacked up to its peers. That's why you're seeing Chipotle stock having done so well over the past 2 plus years under Niccol.

But again, this is a longer term, what could be a major profit headwind to a Chipotle if this does reach $22 an hour because to his point, they'll probably have to raise prices pretty significantly.

JULIE HYMAN: How much do people in California get paid now?

BRIAN SOZZI: $15 an hour is the minimum wage.

JULIE HYMAN: At Chipotle specifically?

BRIAN SOZZI: He said they pay over $15 an hour at Chipotle--

BRAD SMITH: They pay that?

BRIAN SOZZI: --in California.

BRAD SMITH: Got it.

BRIAN SOZZI: Correct.

BRAD SMITH: Got it. OK, so I mean, for the sales growth side of that equation, too, it's, how they're continuing to engage with the digital customer. But in California specifically, that customer would then have to pay even more and then have more frequent visits on top of whatever wages that Chipotle would be able to move forward.

BRIAN SOZZI: I guess we're looking at, what, a $15 burrito in California?

BRAD SMITH: Well, we know that your salad bowls are [INAUDIBLE]

JULIE HYMAN: Aren't burritos already $15? But that's-- by the same token, like, what do they think people can live on? Like, people cannot live on $15, full stop. You can't live on $15 an hour.

BRIAN SOZZI: I think it comes out to $26,000 a year, I think that's what it comes out to.

JULIE HYMAN: You can't live on that. It's--

BRAD SMITH: Especially not in California.

JULIE HYMAN: --shameful how low minimum wage is in this country.

BRIAN SOZZI: Yeah. Well, you look at McDonald's. I mean, Chipotle is not alone here. I mean, McDonald's is one of the worst culprits. I'm sure you see signs up in your local neighborhood. They're offering $15 an hour, but most locations are still paying the federal minimum wage, which is just-- it's absolutely mind boggling.

BRAD SMITH: Which is crazy that it's actually the businesses that have had to actually take the precautionary or preemptive step to say, yeah, we'll raise our minimum wage. And of course, that causes competition among some of the largest ones that actually can pay. But again, it's them doing this because the government hasn't done it so far, so.

JULIE HYMAN: Right, yeah.