Is Adding a Menu Surcharge Really a Solution to Minimum Wage Increases?

By Brian Murphy, Foodable Industry Expert

The industry has been preparing for 2017, especially when it comes to the increases in minimum wage and the associated rising costs of doing business. Particularly healthcare and minimum wage — you know, the things that are supposed to increase the quality of life for our employees.

The quality of life issue is seen as a one-way street for many hospitality industry business owners, and steps have been taken to revise business plans in anticipation of the higher costs of doing business. Some have done nothing and continue to complain about the decreases in profits and how difficult the business already is, while others strategically adjust. Those adjustments run the gamut of management styles, from changing the style of the restaurant or increasing menu prices, to cutting hours or adding a surcharge as a form of protest.

But is adding a surcharge the way to go?

The Surcharge

Adding a small percentage surcharge is an increasingly popular tactic to “make up for” government-mandated expenses. This is one potential solution to an issue that is not going away, so finding long-term solutions is the best frame of mind to approach the issue. Adding a surcharge to the menu is perhaps the least invasive for businesses, and could be implemented in a day by adding some signage or a footnote on the menu and programming it into the POS system. Once done, businesses hope for the best and occasionally deal with the fallout, and when called out, they point fingers.

A menu surcharge is something that shouldn’t be implemented because of frustration. Guests will feel that and won’t see the charge as legitimate or “their problem.” To them, there are many other dining options out there. The same goes for the addition of a 3 to 4 percent charge added in protest. Again, not the guest’s problem. Consider all the ramifications of implementing a surcharge. Be knowledgeable about how to deliver the message to guests. Simply adding it to the bill is not a legal way to go about this, and restaurants in San Diego felt that early in the year when the city attorney began investigating restaurants that listed the charge as “government mandated” or didn’t notify guests in advance.

Business practices like these are protected under the false advertising provisions in the California Code. Don’t make your guests leave with a bitter taste in their mouth just because you are bitter. Springing a surprise on your guests at the end of a positive experience can send them leaving quietly forever. Some may speak up, and the conversation will be less pleasant than it would had they known in advance that there would be a surcharge added to the meal. Signage at the entry, on the tables, or on the menu are important. Present the info to guests in a gentle yet understanding way. Remember that adding the surcharge to the menu is your choice, not the government’s, so don’t insult guests by misleading them.

As understanding as the most empathetic guest can be, the increases in wages and insurance expenses are largely viewed as “the cost of doing business.” Even knowing there will be a surcharge upfront for something the restaurant is “supposed to be doing” may cause guests to skip a second round of drinks or an appetizer. It is important to figure out the long-term return on implementing a surcharge like this, because there is a significant risk in business dropping more than a few percentage points over time. Think long-term.

Long-Term Solutions

Explore different business practices, but thoroughly review the options. When you have a good handle on the pros and cons of several options, consult with some of your leaders in the establishment. Head servers and bartenders, for instance, can help work on solutions and will be able to bring the collective thoughts of the staff to the table.

Consider your managers. How thoroughly are they doing their jobs? What can be tightened and can it be enough to save money so that you won’t have to severely cut shifts, dramatically raise menu prices, or charge a surcharge at all? Probably. Think that there is always room for improvement.

The solution does not have to be one and done. There are many places to adjust to make up for the pinched profit margin in the industry, so managing the business closely has never been more important. Policies, procedures, and day-to-day application of these practices need to be examined to find weak spots that can save significantly more than a few percentage points. In many cases, there could be a few ruffled feathers due to a few hours being cut and a little backlash from guests if prices increase, but a few instances are manageable. Many fear change, but you can’t afford to fall into that way of thinking.