Even before California’s FAST Recovery Act went into effect, pizza chains sprang into action. With minimum wage at fast-food chains set to rise from $16 to $20 April 1, Pizza Hut franchisees, for example, laid off their delivery drivers en masse. That announcement was made in late December and went into effect in February—about 1,200 drivers lost their jobs.
In April, MOD Pizza raised some eyebrows when it closed five stores in California, though the chain told PMQ those store closures were not directly related to the new law. The five store closures were part of a series of larger moves by MOD Pizza, which has closed over 25 locations around the country in the past couple of months. Still, a raise in minimum wage was part of the formula for evaluating those California-based stores, Beth Scott, MOD Pizza’s CEO, said.
“While rising wages in California and other states certainly were a factor in the underperformance of the five locations we closed, the timing of California’s minimum wage hike taking effect and our closings in the state was coincidental,” Scott said.
Related: Why Did Pizza Hut Just Lay Off Over 1,200 Delivery Drivers?
So why, then, did Shahpour Nejad, founder, owner and CEO of Pizza Guys in Sacramento, California, tell PMQ he was loving the new law? The 90-unit Pizza Guys is a DELCO franchise that strives to run a top-notch first-party delivery program. When Nejad and his team heard of mass layoffs from larger chains, all they saw was an opportunity to recruit those workers to the Pizza Guys brand.
When Nejad spoke to PMQ in late April, he mentioned news had just broken that Pizza Hut was laying off more delivery drivers, as was Round Table Pizza. “There were a lot of quality people [involved in those layoffs],” Nejad said. “So we are definitely trying to recruit them because we are primarily a delivery and takeout business.”
Nejad said that Pizza Guys looks at the investment in its first-party delivery channels differently than other brands. Paying drivers a few more dollars an hour was well worth it to him, especially when compared to relying upon third-party delivery channels that take a percentage of each sale. In other words, Pizza Guys sees the new law as an opportunity to make its delivery program better and to hopefully outsource fewer deliveries to third-party companies.
Related: Register to Hear Shahpour Nejad Speak at the Pizza Power Forum in Atlanta
“I don’t want to bash [third-party delivery drivers],” Nejad said. “But you know what I’m talking about: The quality of people is not there with third party. Our people are fully trained…and we try to make [our delivery program] better every day. We support and invest in our drivers 100 percent.”
There are implications for independent pizzerias in California, too. While chains with under 60 locations are not directly impacted by the law, the new law is “indirectly affecting them because now their current employees are more likely to quit and make a lateral change…for a higher wage per hour,” wrote Rene Carlos, an enrolled agent in the tax and business coaching industry, for QSR magazine.
In other words, the battle for talent in California just got ramped up a notch. Indie operators would be wise to take a page out of Nejad’s book by investing in workers and offering competitive wages rather than taking advantage of the fact that chains now must pay a higher minimum wage.
“We have a business, and the only reason it is surviving or doing good is because of all of these employees,” Nejad said. “And if these employees are happy and they’re working in an environment where they’re appreciated and…they get paid well, you’re going to [be in a better position].”
