Shake Shack will shutter six underperforming California locations — the latest fast food chain to close restaurants after the state enacted its controversial $20 minimum wage.
The burger chain, which will close nine Shake Shacks overall, said the move was a result of a periodic evaluation of its portfolio of company-operated units, according to a filing with the Securities and Exchange Commission on Tuesday.
“These Shacks are not projected to provide acceptable returns in the foreseeable future,” the filing said.
Five of the doomed locations are in the Los Angeles area and another is in Oakland — where wages for fast-food workers shot up to $20 an hour on April 1.
It’s the first time the chain will close restaurants for purposes that were not construction-related, a spokesperson told trade publication Restaurant Business, which first reported the news.
Shake Shack did not immediately respond to requests for comment.
The other closures include two in Texas and one in Ohio.
Shake Shack said it expects all nine locations to close their doors by Sept. 25.
Employees at those restaurants can be rehired at other Shake Shack locations. If employees do not want to transfer locations, they will be eligible for 60 days of pay.
The company — which has 330 locations in the US and more than 180 abroad — said its closures will maximize growth and will not impact plans to open stores in those areas in the future, according to the filing.
California’s $20 minimum wage hike has forced several major chains – including McDonald’s, Burger King, and even low-cost favorite In-N-Out Burger – to jack up prices to offset the higher wages.
Many had to cut employee hours, and some have fast-tracked a move toward automation.
Rubio’s California Grill closed 48 of its nearly 134 locations at the end of May, citing the “rising cost of doing business” in the state for the closures and filed for bankruptcy in June.
Earlier this month, recently hired CEO Rob Lynch said he didn’t want Shake Shack to appeal to “only the highest-income burger eaters.”
Instead, he said he wants the brand to become “a Friday night staple for the family.”
He argued the company needed more drive-thru locations to tweak its perception as an urban, walk-in restaurant.
Lynch took the helm in May after stints at Papa John’s, Arby’s and Taco Bell.
Same-store sales rose 4% in the second quarter – mostly due to higher price points. Traffic dropped less than 1% during the same period.
The chain’s shares are up 43% so far this year.
Shake Shack has a market capitalization of $4.45 billion.
[Notigroup Newsroom in collaboration with other media outlets, with information from the following sources]
