This month, the Dallas restaurant group behind Rye restaurant and neighboring Apothecary bar on Lower Greenville Avenue began adding a 3% charge to all checks to help fund employee benefits.
The decision sparked controversy among diners. One restaurant-goer called the group’s change “a noble idea that they’re pursuing through ignoble tactics” in a 1-star Google review. A 5-star review, on the other hand, called it “just one more reason to choose Rye and Apothecary for evenings out.”
This controversy begs a number of questions. What factors affect customers’ reactions to surcharges, and how do tips factor in? And how can restaurants strike a balance between supporting their employees and satisfying their customers?
To tip or not to tip
When restaurant-goers decide whether and how much to tip, there are several factors at work, according to Raj Raghunathan. He is a professor at the University of Texas at Austin’s McCombs School of Business, where he studies happiness and consumer well-being.
Societal norms play a big role, Raghunathan said. For example, tips are more modest in Europe compared to the United States, because most restaurant servers in Europe make at least minimum wage. Servers in the U.S. are often paid $2.13 an hour — the federal minimum wage for tipped workers — and that means they rely heavily on tips.
Personal tipping habits and restaurant type — sit-down vs. grab-and-go — also come into play.
When it comes to surcharges, Raghunathan said customers generally tend to dislike convenience fees tacked onto their bills, but an explanation of the fee can add transparency.
“[As a customer], I’d be less happy paying the fee than not paying anything at all,” he said. “But I’d be not as opposed to paying the fee as I would be if I did not know where it was going.”
Some customers, Raghunathan said, may feel the need to tip less if there is a surcharge on their bill.
One 1-star Google review for Rye reads: “I used to tip 20%. With your move for the customer to pay for your employees benefits, I will now tip 15%.”
The 3% surcharge at Rye and Apothecary is listed on the menu, which contains a QR code leading to a webpage outlining the benefits full-time employees receive, including paid time off and FMLA-compliant family leave.
It is also posted at the host stand and listed as a line item separate from gratuity at the bottom of every check. Tanner Agar, the owner of Rye and Apothecary, told The Dallas Morning News in an interview Jan. 9 that customers can opt out from the surcharge.
It’s important for restaurants to be upfront with customers, said Charles Haseman, a professor at the University of Texas at Dallas. There he teaches marketing and retail management.
Customers aren’t happy if they’re hit with a fee after finishing their meal, Haseman said, especially if they don’t know what it’s for.
“I think the success of any of these organizations is going to be a very simple word called communication,” he said.
Tipping tensions
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We’re going through “a very strange time” when it comes to tips and surcharges, Haseman said.
The pandemic challenged restaurants to attract customers without indoor dining, and inflation has caused food and labor costs to skyrocket. At the same time, Haseman said, there has been a shift, particularly in younger generations, to ensure that employees are being paid fairly.
“I think there’s a real drive now … to want to take care of the employee,” Haseman said.
To provide services like employer-backed health care, Raghunathan said, restaurants could raise menu prices instead of adding a surcharge. But their prices still have to be reasonable enough to get new customers in the door.
“If you don’t even attract customers in the first place, then forget about anything else, because you’ve not even generated a sale to begin with,” he said. “On the other hand, if you do that and then add a fee, then customers are pissed off. So what do you do?”
Restaurants like Rye and Apothecary face a bind, walking a tricky line between providing for their employees and attracting customers. There’s no easy answer — and it all comes to a head on the bill.
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January 13, 2023 at 06:01PM
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