The restaurant industry is closely watching the impact of California’s minimum wage law on fast-food workers, and data is now putting the whole issue into focus.

While there was a spike in QSR closures after the law was passed—71 percent in California compared to 25 percent nationwide—that trend has stabilized. Closures are now occurring at the same pace as nationally and in comparable states and are due to economic factors rather than the law, according to an in-depth analysis, “Assessing the Impact of California’s QSR Minimum Wage Law: What the Data Reveals,” by Dataplor, an organization that provides global location intelligence.

“We were interested in this topic because we had heard reports that the new minimum wage law would lead to an increase in restaurant closures,” Geoff Michener, CEO and founder of dataplor, told Modern Restaurant Management (MRM) magazine. “Because we are able to analyze location data for different types of businesses around the world, we wanted to see how the data compares to public perceptions of closures. Our findings after examining data on restaurant closures in California and comparable states demonstrate the importance of considering national macroeconomic factors – not just local-level policy impacts – when preparing business plans.”

When the Dataplor team initially looked at closure rates of hospitality points of interest (POIs) in California, they found a sharp increase in April 2024 (an 80 percent increase between March and April, compared to the previous year when they declined by 80 percent) and assumed this was clearly related to the new law that goes into effect that month. However, when they then checked closure data for states with similar economic sizes (e.g. Florida and New York, which both had minimum wage law increases on January 1, 2024), they were surprised to find that these reflected this increase, suggesting that broader national economic conditions played a significant role in these closures.

When used correctly, data can be like a superpower for business owners, helping them make more informed and strategic decisions.

“While it’s important for every franchise operator to understand local markets – and how they differ – our findings show that it’s also important to keep an eye on the national macroeconomic environment and prepare for how it may impact business in other regions,” Michener said. “Based on our findings, the most successful restaurant operators will likely be those who keep both national and local trends in mind when making business decisions – the greatest impact of the wage law existed even before it was passed and it seemed like a difficult challenge, but ultimately the macroeconomic environment had the greatest impact on the health of the California market.”

Michener said while the data shows that macroeconomic factors have a significant impact on restaurant closure rates, it is difficult to predict which direction the trend will go.

“Potential changes such as lower interest rates or policy shifts as a result of the upcoming election could cause significant fluctuations in closure rates, but are difficult to predict,” he said. “However, our data shows that closure rates, particularly at the state level, can fluctuate quite a bit within a year. That’s why it’s important to make business decisions with the bigger picture in mind.”

To become more efficient and profitable, it will be crucial for restaurant operators to pay attention to key data indicators in the future, Michener noted.

“When used correctly, data can be a superpower for business owners, helping them make more informed and strategic decisions. It’s important to maintain both highly accurate data and a good variety of data types to get the most comprehensive picture possible. For example, in addition to location data (which can help you get a sense of where your competitors are or what complementary businesses there are in a particular area), it can also be helpful to collect information on consumer sentiment, general economic performance data, and demographic trends that can help you make good business decisions.”