In-N-Out’s CEO is moving her family to Tennessee. The world’s largest mozzarella cheese maker just closed a California plant that had been running for 115 years. Anheuser-Busch shuts its Fairfield brewery tomorrow, cutting 238 jobs. Rubio’s Coastal Grill closed 48 California locations last year before filing bankruptcy for the second time in five years.
These aren’t isolated stories. 196 companies have relocated out of California since 2020, according to Buildremote’s corporate migration tracker. More than half went to Texas. California has ranked dead last on the U-Haul Growth Index for six consecutive years, with the largest net loss of one-way moving customers of any state in the country.
I broker restaurant and food service deals in Southern California every day. The exodus is real. But what it actually means for the market is more complicated than the headlines suggest.
The Cost Stack
The reason companies leave isn’t a mystery. It’s math.
California’s minimum wage hit $16.90/hour on January 1. Fast-food workers at chains with 60+ locations have been at $20/hour since April 2024. There’s no tip credit in California, which means every employee gets the full minimum before tips. Workers’ comp premiums keep climbing. Commercial insurance is in a structural crisis, with surplus lines growing from 6% to 20% of the commercial market as traditional insurers retreat. And the corporate tax rate runs around 9%.
Compare that to where businesses are going:
Texas: no state income tax, no corporate income tax (just a gross receipts tax), lighter regulatory framework. It’s the #1 destination for California corporate relocations by a wide margin.
Nevada: no corporate income tax, fifth-fastest-growing state for new business formations as of January 2026.
Tennessee: no individual income tax, 6.5% corporate rate. That’s where In-N-Out’s CEO is headed. Lynsi Snyder said it plainly: “There’s a lot of really great things about California, but raising a family is not easy here. Doing business is not easy here.”
For a restaurant running $2 million in annual revenue with a 30% labor cost, the difference between California’s regulatory environment and Texas is not trivial. It’s tens of thousands of dollars a year in direct savings, before you even factor in rent differentials and insurance.
What the Numbers Actually Show in SoCal
Here’s where it gets interesting. San Diego saw 70+ bar and restaurant closures in 2025. That sounds alarming until you look at the other side: nearly 100 new concepts are planned for 2026. Orange County retail vacancy is at 3.2%, near historic lows.
This isn’t market death. It’s market churn.
The operators closing are a specific profile: undercapitalized independents who couldn’t absorb rising costs, legacy concepts that stopped evolving, and struggling franchise locations carrying too much debt. Las Cuatro Milpas in Barrio Logan, open for 92 years, closed because the building sold out from under them due to tax liens. Fred’s Mexican Cafe in Old Town shut after 25 years of rising costs and declining tourism. Little Miss Brewing went from nine locations to zero as the craft beer market tightened.
The operators opening are a different profile: well-capitalized groups with experienced management, modern concepts with efficient labor models, and brands expanding from other markets into SoCal because the consumer base is strong enough to justify the higher operating costs.
What a Broker Actually Sees
When I walk through a restaurant that’s closing, I’m not just seeing a failed business. I’m seeing a second-generation space with a commercial kitchen, a grease trap, a hood system, a bar build-out, and potentially a Type 47 liquor license worth $50,000+ as a transferable asset.
That infrastructure has real value to the next operator. And in a market where retail vacancy is below 4%, the next operator is usually already in line.
The exodus creates three types of deal flow that I see regularly:
Distressed sales. Operators who waited too long to sell, watched their margins compress, and now need to exit quickly. These deals happen at lower multiples, but they’re real transactions. Rubio’s, which closed 48 California locations citing rising costs, created immediate opportunities for independent operators to pick up turnkey spaces in high-traffic locations.
Strategic relocations. Operators who aren’t leaving the industry, just leaving the state. Leprino Foods didn’t stop making mozzarella. They moved production to Lubbock, Texas, where they’re processing 8 million pounds of milk daily and expanding staff. The California plant’s 368 jobs became Texas jobs. The product still flows to every Domino’s, Papa John’s, and Pizza Hut in the country.
Upgrade acquisitions. Stronger operators buying weaker ones at a discount. This is the least visible but most significant pattern. When a tired concept closes in North Park or downtown Santa Ana, a better-funded group steps in with a new concept, a fresh lease negotiation, and a build-out budget. The space doesn’t stay empty.
The Valuation Reality
For sellers, the exodus narrative cuts both ways.
On one hand, rising costs compress seller’s discretionary earnings. When your labor, insurance, and food costs eat more of every dollar, there’s less left over, and your business is worth less at sale. California operators are carrying the highest payroll percentage in the nation at 28% of revenue.
On the other hand, if you’ve built a business that thrives despite California’s cost environment, that’s a powerful signal to buyers. An operator who maintains healthy margins at $16.90+/hour minimum wage, with California insurance rates and California rent, has proven they can run a tight operation. That resilience commands a premium.
The buyers I work with aren’t scared of California. They’re selective. They want clean financial documentation, transferable leases with favorable terms, and evidence that the business model works at current cost levels. A restaurant with a 2.5x SDE multiple in Texas might trade at 2x in California because of the cost risk, but the absolute dollars can be higher because California revenue tends to be higher.
What to Do With This Information
If you’re a restaurant owner watching businesses leave California and wondering whether you should follow them or sell yours, here’s what I’d tell you.
First, get honest about your numbers. Pull your last twelve months of P&L and calculate your actual food cost percentage and labor percentage. If prime costs (food + labor) are above 65% of revenue, you’re in the danger zone regardless of what state you’re in.
Second, if you’re thinking about selling, the worst time to start planning is when you’ve already decided to close. The best valuations go to owners who prepare while the business is still performing. Document your financials, clean up your books, and understand what your business is actually worth before you need to know.
Third, don’t confuse the headline with the market. Yes, companies are leaving California. But SoCal’s food and beverage scene isn’t shrinking. It’s turning over. The operators who can handle the cost environment are staying, growing, and acquiring the spaces left behind by those who can’t.
California is hard. It’s always been hard. The operators who figure it out own some of the most valuable restaurant businesses in the country.
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