Restaurants add extra fees to fight inflation. Why this is a recipe for disaster

As inflation continues to hit 40-year highs month after month, you might be tempted to pass on your cost increases to your customers in the form of fees. Walk lightly.

While adding a surcharge to your customers’ bills can keep you in the dark, it can also irritate some people, especially if the charge is unexpected.

Fees can appear to be just about anything from “non-monetary adjustments” to “fuel surcharges” or something as vague as “kitchen appreciation” and are a way for companies to combat increasing food prices without increasing menu prices, such as The Wall Street Journal reports.

Total restaurant food costs as a percentage of sales are higher than they were before the initial Covid outbreak in 2020, says Hudson Riehle, senior vice president of research at the National Restaurant Association, an association restaurant industry professional. Wholesale food prices have risen nearly 18% in the past 12 months, the largest annual increase in nearly five decades. However, menu prices rose only 7.2%, according to the association’s data.

Rising food prices are not the only problem for restaurants. They also face higher labor costs, which rose 13.2% 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.

It is therefore not surprising, then, that restaurants, which typically operate on tight margins of around 3 to 5 percent before taxes, Riehle says, have to get creative to stay in business.

“The typical restaurant business model is not designed to deal with this sustained and accelerating cost of food and labor, which places extraordinary pressure on operators, and it appears to be will continue,” he said.

However, adding random fees will likely discourage consumers, especially regulars who are sensitive to menu price changes. If a consumer’s latest experience doesn’t meet their expectations, they’re likely to vote with their feet. Most customers want to be presented with a price and, from there, determine if it’s fair, notes Ted Rossman, senior industry analyst at CreditCards.com.

“They don’t want to be nickel and dime on everything from air conditioning to cleaning supplies to health insurance for their employees,” Rossman says.

A little transparency, however, can go a long way. Customers can appreciate the honesty and clarification of the origin of the additional charges, even if they are aware of the inflation, says Zachary Weiner, CEO and Founder of Finance Hire, an outsourced financial controller for small business owners. Being explicit about how much your additional costs are and how the charges are broken down can help customers understand them. Asking a server to let customers know about the price increase before handing them the check, or including a little note on the menu can go a long way, Weiner says.