As inflation continues to break 40-year records month after month, you may be tempted to pass on your cost increases to customers in the form of fees. Tread lightly.
While tacking an upcharge to your customers’ bills can keep you in the black, doing so can rub some people the wrong way–particularly if those fees are unexpected.
The fees can show up as just about anything, from “noncash adjustments,” “fuel surcharges,” or something as vague as “kitchen appreciation” and are a way for the businesses to combat increased food prices without raising menu prices, as The Wall Street Journal reports.
Restaurants’ total food costs as a percentage of sales are higher than they were prior to the initial Covid outbreak in 2020, says Hudson Riehle, senior vice president of research at the National Restaurant Association, a restaurant industry business association. Wholesale food prices have gone up nearly 18 percent in the last 12 months, the largest yearly increase in nearly five decades. Though, menu prices have only risen 7.2 percent, according to data from the association.
Rising food costs aren’t the only struggle for restaurants. They’re also facing higher labor costs, which rose 13.2 percent in 2021, according to the Bureau of Labor Statistics. On top of that, credit card companies like MasterCard and Visa raised transaction fees for many merchants in April, according to The WSJ.
So it’s little wonder, then, that restaurants, which typically run on tight margins of around 3 to 5 percent pre-tax, says Riehle, need to get creative to stay in business.
“The typical restaurant business model is not set up to deal with this sustained and accelerated cost of food and labor which is putting extraordinary pressure on operators, and indications are these will continue,” he says.
Though adding random fees will likely throw consumers off, especially regulars who are sensitive to menu price changes. If a consumer’s last experience doesn’t meet their expectations, they are likely to vote with their feet. Most customers want to be presented with one price and from there determine whether or not it’s fair, notes Ted Rossman, a senior industry analyst, CreditCards.com.
“They don’t want to be nickel and dimed for everything from the air conditioning to the cleaning supplies to their employees’ health insurance,” said Rossman.
A little transparency, however, can go a long way. Customers may appreciate the honesty and clarification of where extra fees are coming from, even if they’re aware of inflation, says Zachary Weiner, CEO and founder of Finance Hire, an outsourced financial controller for small business owners. Being explicit as to how much your extra costs are and where the fees are being allocated can help customers understand them. Having a waiter tell customers about the price increase ahead of handing them the check, or including a small note on the menu can go a long way, said Weiner.
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