“Oh no wait, that’s a Sunday, there’ll be a 20 per cent surcharge,” I say to my husband as we’re discussing whether or not to have a meal out to celebrate my birthday. We end up getting takeaway instead.
Surcharging has been on the rise in hospitality venues in recent years. At one point it felt like a 10 per cent surcharge on a Sunday was fairly common and to be expected. Public holidays too.
But in the same way long summer days progressively blur into dark winter nights in the blink of an eye, surcharges have crept up to as high as 20 per cent, sometimes extending to Saturdays, and in some cases, even Friday nights.
Unsurprisingly, there’s a sour taste in a lot of diners’ mouths, and it’s not from a dodgy eggs benny.
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Here’s the thing. I understand the maths behind surcharging. Really, I do.
The food and beverage industry in Australia cops tight margins, high rents, long hours and a competitive landscape.
On top of all that, penalty rates inflate the cost of labour on weekends and public holidays.
I sympathise with cafe and restaurant owners who are trying to make ends meet – particularly off the back of long shutdowns during COVID-19 lockdowns.
But why are higher weekend wages not a cost of doing business in the same way the toilet paper in the bathroom is?
Where’s the line between a surcharge when wages are higher, and handing me an itemised list of add-ons like the fork I dropped on the floor and the salt I threw over my left shoulder thanks to the irritating superstition I inherited from my mother?
The cost of running a hospitality business has increased – there’s no doubt about that.
But while it may seem rational to add on a percentage increase to each bill in order to cover that cost, it’s a reductive approach.
In fact, it ignores the very idea of customer value perception.
Surcharges put a sour taste in customers’ mouths
Choosing to eat in a restaurant is an inherently irrational purchase decision for customers.
It’s a hedonic endeavour, not a mathematical one. People will quite literally line up around the block to pay upward of $20 for bacon and eggs that they could’ve cooked at home for less than half the cost.
Why? Because they see the value in what they’re paying for.
They’re paying for the convenience.
They’re paying for luxury.
They’re paying for the bacon cooked crispy.
They’re paying to not have to wash up.
They’re paying for the order to be taken, for the lights to be on.
And they do it because the perceived value is there. The experience-to-cost ratio is balanced.
This is exactly why surcharging frustrates customers. The value just isn’t there.
All a customer sees is the fact they’re paying a higher price than they would be on any other day, and this actually makes them more likely to scrutinise the cost and value of other aspects of their experience.
Most critically, surcharging risks customers deciding not to dine at all – and if the customers aren’t coming, the surcharge isn’t even doing its job.
How can businesses avoid surcharging? Expert’s take
Dr Sandy Fitzgerald, Senior Lecturer at RMIT’s School of Economics, Finance and Marketing agrees.
“Businesses need to be mindful of the negative consumer sentiment towards surcharges,” she said.
“Food and beverage businesses are dependent on consumers’ discretionary income.
“With all these surcharges, eating out is getting expensive, rising inflation and a weak local economy, consumers will start [to] limit how much they spend/eat out and therefore, passing on these surcharges will not benefit the hospitality sector ultimately.”
Instead, Fitzgerald said greater operational efficiencies are the key to ditching the need to surcharge.
“Restauranteurs need to understand their internal resources, capabilities and processes well, and identify areas where they can streamline workflow and operations to achieve economies of scale,” she said.
“Promoting high-margin dishes and removing less profitable ones [can help] achieve cost and operational efficiency.”
She suggested the concept of a “service blueprint” to get a clear picture of how the business runs and what happens at each stage.
Skip the surcharge and cover costs in more creative ways
There are more ways to optimise profits than just increasing the price of what you already do.
I’d love to see hospitality businesses get creative with the way they make up for higher costs rather than surcharging.
During COVID-19 lockdowns, we saw so many creative ideas being used to reach customers. Now, it feels like we’ve fallen back into the status quo.
Fitzgerald suggested creative use of “dynamic pricing”, like early bird specials, happy hour pricing, in order to maximise opportunities during quieter periods.
It’s worth noting that these specials don’t have to be as simple as slashing the prices of dishes – something that can be tough in a tight margin environment.
Instead, dynamic opportunities can come back to customer value.
What will make customers want to choose to spend with you?
An example might be a special cocktail that’s only available during Wimbledon, a ‘bagel world cup’ competition during the world cup, or a ‘rose and fries’ deal when there’s an Instagrammable sunset.
Or more simply, a Sunday special menu with extras bundled into a set price that use high margin items to add perceived value.
When customers get what they want, or they feel they’re getting a good deal, price matters less.
A good deal doesn’t have to mean a cheap price that forces hospitality owners into shutdown.
Value is all about perception – and you can create more of it.
Standing out will get more people choosing to spend with you, buying the things you want them to buy for operational efficiency, and reduce the need for surcharging.
Reality check for surcharge ‘rip-off’ whinge
Worryingly, there does exist a pocket of anti-surcharge commentary that comes from customers with little to no knowledge of running a business.
These people often wrongly assume that any business owner is making a fortune and ripping off its customers in the process.
Ultimately, this isn’t the case.
Small businesses are the lifeblood of Australian food and beverage culture, and customers should want it to stay that way.
Customers do need to understand that if the cost to run a food and beverage outlet has increased, prices will increase, and in order to maintain the experience of dining there, those prices need to be paid.
But where it’s the customers responsibility to pay what a business is charging if they want to dine there, it’s the business’ responsibility to make it worth their while.