Service Charge Truth

By DANFES

Unlike tips, not all of it goes to staff. It’s also partly a ploy of majority of the urban food-joints to keep menu prices down. Is all-inclusive pricing an answer to our tipping problems?

In a country as divided as ours, another faultline is almost par for the course. But what has surprised many is the sharpness of rhetoric over the department of consumer affairs’ announcement that paying service charge is optional. Temperatures are up to degrees unacceptable in any sous vide-chic kitchen! Social media is often where much of this heated debate plays out. An upcoming chef in the Capital who had reveled in hitherto taking apart bacon from the carbonara sounded the battle cry: Consumers don’t appreciate our hard work, he raged, let there be a bandh. A nationwide call to strike! Diners struck back: If service is crap, why shouldn’t we scrap? And when the mighty National Restaurant Association of India, in an unusually charged statement, offered consumers the freedom to go “somewhere else“, some decided to bite the bullet. “I can be perfectly fine without restaurants but they won’t exist without me… so take down this arrogance,“ said a cutting rejoinder from an Ericsson general manager.

This battle of the forks may be entertaining, but eating out is more so. Food retail, after all, is India’s largest form of entertainment at par with cinema and cricket. Restaurants need to be viable and profitable businesses. Equally, they need to be cognizant of their consumers. The present faultline is therefore as silly as perhaps the notification that caused it.

Not a tip, not a bakshish

The problem lies with a failure to understand what really is “service charge” in the Indian restaurant scenario. The world over, the practice of adding 5-10 percent to bills as “gratuity” is well established. But within Indian restaurants, service charge works a little differently. It is not merely the “extra” tip you pay as a thank you to servers for the efficient delivery of penne arrabiata. It is certainly not a feudal-style bakshish you are doling out.

At most restaurants, only a portion of the service charge goes towards incentivising staff. Unlike cash tips that go to only frontliners, the percentage of service charge that is going to the staff is divided amongst all, according to a grade system. So the bottle washer has a share as also in some cases the accountant. Different percentages of the service charge earnings also account for overheads like breakages, staff welfare schemes etc depending on individual restaurant policies.

The wage bill, overheads and so on, all make up the actual cost of food and services. Service charge may be part of the restaurant’s legit earnings and is taxed as such, but the right question to ask is why are restaurants so reluctant to not charge customers a single amount that reflects this true cost of product and services?

Other countries have done this successfully. Even in the US, where tipping is so much a part of the mainstream dining culture that you dare not walk away without leaving a “respectable“ amount (which could be as much as 20 percent of the bill), there has been a movement to do away with the so-called “extra” and pay staff a proper wage.

In the last two years, we’ve seen anti-tipping activism from some of the biggest players of the New York dining scene, including restaurateur Danny Meyer and chef David Chang, who argued that it was the duty of the employer to provide adequate compensation to staff. In the US, tips make up a substantial part of the service staff’s earnings, many of who are young, part-time students. But that is a culture that has typically rewarded hard work by the young.

In India, bakshish worked quite differently historically. Instead of being a marker of appreciation, it was charity by the better-endowed, completely dependent on their whims and fancies. This cultural mindset is at odds with modern, businesses in a service economy . Restaurant service staff in India should not be expected to depend on the whimsies of our diners.

Mumbai eatery shows the way

What the department of consumer affairs has done is equate service charge with tipping. The truth is that restaurants treat this differently -as part of their legitimate earnings. Last year, The Table in Mumbai became one of the first high-profile restaurants to take service charge off their menu. To offset the loss in revenue, they increased the prices of the dishes and explained this to their customers in various communications, in an effort at transparency. Customers can still tip.

Keeping the price nice

I asked several restaurateurs why they couldn’t do the same. Have a consolidated pricing to reflect the true cost? The answers were reflective of the tough business environ for restaurants in India. Service charge works as an incentive to the staff, sort of as a variable pay (restaurants would have higher fixed wage bills in its absence). But without it, restaurants already working on thin margins will be forced to raise prices, something those in the mid-market segment can ill afford because competition is stiff, and price-sensitive customers walk away to the next newer, cheaper place.

Splitting up the bill under various heads functions in the same psychological way as extra pricing for pizza toppings, or “introductory“ pricings, or even that Rs 599 offer, where the customer thinks he is paying less than he actually is. In many global dining capitals, pricing menus has been elevated to a carefully calibrated science. Prices of main courses, for in stances, are kept low, even when those of appetisers keep going up to reflect true costs, because it is deemed that diners judge how expensive a restau rant is by looking at main course prices. In India, we all know about papads, naans and dals offsetting prices of more expensive dishes on the menu, because food costs need to be balanced without frightening potential customers. However, these are business strategies used across industries. And pricing is at the discretion of the seller as long as it is clearly mentioned. Should the government interfere in how the strategy is being used by restaurants?

Service charge may be a misnomer in the Indian context but making it discretionary will cause more heartburn. Sensible restaurateurs who don’t want to fight pitched battles every day seem to be gearing up to revise prices on their menus. Get set to pay more -or, well, the same!