Restaurants are taking a cue from the cable industry: Rather than raise menu prices to cover the higher cost of paying wages, some eateries are tacking on “labor surcharges.”
The Wall Street Journal reports that some restaurants in states where the minimum wage has recently increases have chosen to pass on the rising cost of labor to customers by way of 3% to 4% surcharges on their bills.
So far the surcharges have turned up at chains and local restaurants in California, Arizona, Colorado, and New York, the WSJ reports, with reps for the California Restaurant Association calling the added fees the “new norm” for the industry.
Supporters of the surcharge contend that the surcharge makes better business sense than higher menu prices.
That’s because, when a customer sees the prices on menus increase they’re more likely to pick a non-expensive item, such as choosing a sandwich rather than an entrée.
“We want people to understand there is a cost,” David Cohn, the owner of 15 restaurants in San Diego, tells the WSJ of adding the surcharge rather than increasing prices. “How do we stay in business with margins shrinking and competition increasing?”
Restaurants using surcharges to raise prices because of economic changes is not exactly new. In 2012, we told you about the Denny’s franchisee who wanted to add a 5% “Obamacare surcharge.” Long before that, we brought you the story of the Texas restaurant that tacked on a 7.5% “inflation surcharge.”
A rep for the Golden Gate Restaurant Association tells the WSJ that the charges have helped employees as customers tip off the total bill, not just the cost of food.
But the surcharges aren’t always welcomed by customers. The WSJ reports that customers in San Diego filed formal complaints to the San Diego City Attorney’s Office earlier this year after restaurants failed to inform customers of the surcharge.