As costs soar, some restaurants tack on fees instead of increasing menu prices
Apr. 23—In the second half of 2020, as the pandemic's grip on the global economy tightened, Via Vecchia instituted a 3% "kitchen wellness" surcharge on all guest checks to defray rising labor costs at the Old Port restaurant.
Via Vecchia owner Josh Miranda said the added fee helped retain employees during an exceptionally difficult period and offset additional labor expenses incurred in 2022 from raising base pay for kitchen staff from $20 to $25.
But at the start of this year, faced with a vocal minority of customers who grew irate when confronted with the added 3% fee, all seven managers at Via Vecchia voted unanimously to eliminate the charge.
"Most customers had no problem with it at all," Via Vecchia Manager Ashley Belanger said. "The majority didn't bat an eye. It was not a complaint we received often, but when we did, it was very bad."
Whether they're listed as fees for "kitchen wellness," "appreciation" or even denoted as covering inflated food or energy costs, 3% or 4% surcharges are becoming more commonplace nationwide and have been instituted at many higher-end, full-service restaurants in the area, including Bar Futo, Eventide, Evo, Goodfire Brewing Co., The Honey Paw, Jing Yan, Local 188, Regards and Twelve, though all of those restaurants either declined or didn't respond to requests to be interviewed about the surcharges.
Although some customers view fees tacked onto the final bill as an underhanded way of charging more without the sticker shock of menu-price increases, the restaurant owners who were willing to talk about the surcharges contend that they actually allow for more transparency — by showing why checks are increasing and where the money is going — and will be easier to adjust or even eliminate as economic circumstances change.
"We wanted to avoid souring someone's experience," Belanger said about why Via Vecchia management did away with the fee. "We would have guests who had a wonderful time, with excellent service and food. And then they saw the charge at the end of their meal, and they felt like they were being taken advantage of. We didn't want that to be the end note for their experience here."
But the question remains whether customers would be more accepting of higher menu prices necessitated by soaring costs in practically every facet of the industry: labor, rent, food, utilities. Even credit card swipe charges — sometimes the third- or fourth-biggest expense for restaurant operators — rose by 20% last year alone, according to the National Restaurant Association.
"If I increase pricing, I get negative reviews. Either way, you can't win," shrugged Miranda, who said Via Vecchia may in fact reinstitute their surcharge for the coming season. "But a lot more restaurants are doing (similar surcharges) now."
SOARING COSTS, SHRINKING MARGINS
"There's a rainbow of surcharge flavors out there," said David Turin, chef-owner of David's in Portland and David's 388 in South Portland. "They're all really for the same thing: The margins have become so squeezed in our industry that without bringing in more money, we would all close up shop.
"It's a hot-button topic, and it shouldn't be," he added.
In the National Restaurant Association's 2023 report on the state of the industry, it said a recent survey of restaurateurs across the country indicated 15% have instituted such fees. Restaurant owners say the added charges are meant as a temporary, stop-gap measure that they'll eliminate as soon as their fiscal struggles lessen, though most don't foresee that happening in 2023.
"Three and a half years after the pandemic started, the industry is in a new normal," said Hudson Riehle, senior vice president of research for the National Restaurant Association. "Of all the industries in the United States, the restaurant industry is the one most substantially impacted in terms of employment and sales declines."
Riehle said menu price inflation is at 8.5% this year so far compared with the first quarter of 2022, the highest jump since 1981. And wholesale food costs, which went up 14.7% from 2021 to 2022, are the most they've increased year over year since the mid-1970s. "It's a situation that is pretty exceptional when you look at the history of the restaurant industry over the past half-century," he said.
"Restaurants aren't like other small businesses that can easily absorb or pass on price increases," National Restaurant Association spokesperson Vanessa Sink said. "The typical local restaurant runs on a 3-5% pre-tax margin, but for many that has fallen to closer to 1% as costs have soared. Broad-based cost increases are having a significant impact on profitability for most restaurants."
Turin enacted a 4% "energy surcharge" at his restaurants in the fall, notifying customers with a note on the menu: "We currently charge 4% on our dining bills to compensate for rising utility bills. Our purpose is to free up cash flow to more fairly compensate our dedicated staff."
Turin said the January 2019 electric bill for David's was $1,300. But the bill has steadily and steeply increased since then — this January, it came to $5,800, for instance — although he'd converted all his lights to LED and updated to more efficient refrigeration and HVAC units, and his usage had increased no more than 5%.
"Putting that surcharge on was one of the most troubling decisions I've ever made in the restaurant world," Turin said. "Our hope is to go back, eliminate the surcharge when the utility costs shrink back down." Turin said he has joined the Pulk solar farm project in Sabattus, and expects it will offset his electric costs in the second half of 2023.
"In the restaurant business, we only have so many levers to pull. You have to either cut costs or raise revenue, and our margins are very thin."
TRANSPARENT OR CONFUSING?
Since adding the surcharge, Turin estimates his restaurants have welcomed about 40,000 guests, and of those, he can recall only four customers complaining about the fee. "Literally no one with the exception of four people has made a fuss about it, which surprises me in a big way. I really expected to face a storm," he said.
"I think part of the reason we put the surcharge on there is that we wanted people to know, rather than silently raising our prices by 4%," Turin added.
Helm Oyster Bar & Bistro owner Elizabeth Legere agreed that transparency was a chief concern for their 3% "kitchen fair wage" fee, briefly explained on their menus and noted on their guest checks since the restaurant opened in early 2021.
"I wanted to put it on our check rather than integrating it into our menu prices because ... I thought it was very important to be transparent both with the staff and also with the guests, that the fee is going directly to those staff members. None of that money goes to the restaurant, it goes directly to hourly staff," Legere said.
"Certainly, we've had people that question it and are confused by it," she said, "but generally speaking, people understand what (the charge is) and where it's going." Legere said the money is distributed to hourly back-of-house employees, specifically denoted on their checks, and has helped Helm keep its staff during an ongoing labor shortage.
"To attract employees is very difficult, but I think (the kitchen fair wage fee) is very beneficial to retain them," she said. "It's not a foolproof method, and as an industry, we hope to figure out the best solution. But I think this is going in the right direction, at least."
Logan Abbey, owner of the food truck George's North Shore, added a 10% surcharge last season to offset his rising food and labor costs, notifying customers with a sign on the truck window. He said he adopted the surcharge over menu price hikes in part so that he wouldn't need to amend the permanent, painted menu on the side of the truck.
"I have to keep my employees and keep them happy," Abbey said. "I think a lot of people who don't work in this industry don't really understand. The cost of everything has gone up in this economy, therefore, for us to survive, we have to raise our prices."
Abbey said his customers haven't been bothered at all by the surcharge, which amounts to roughly an extra dollar on most orders. Still, when he opens his brick-and-mortar restaurant George + Leon's Famous Roast Beef this summer in Westbrook, he said he won't impose a surcharge, but will rather build the price increases into the menu.
FEAR AND FRUSTRATION
"I think we're talking about fear, essentially," said hospitality veteran Kerry Altiero, chef-owner of the former Cafe Miranda in Rockland and a vocal observer of the industry. "We have always been afraid to raise our prices to cover the craft, expertise, passion and experience, and we should have. But we've been afraid of raising our prices because we don't want to alienate a customer and lose their business."
Turin agreed that fear is a major factor. "I know a lot of restaurateurs. Everybody is absolutely terrified to raise (menu) prices," he said.
Yet the surcharges alienate some customers as well. "It feels sort of like an upcharge," said John Hatcher of Portland, a frequent diner who regularly tips 20% or more, noting that he'd rather see higher menu prices if it's needed for the restaurant to stay afloat.
"And sometimes (the surcharge) is ambiguously worded, so we don't know as consumers if it's really going into the owner's pocket or the employee's," Hatcher said. "To me, it's just under the radar. And if I'm not sure where it's going, I might just decrease my tip."
"Those fees seem like hidden costs, even if they're announced on the menu," said Robert Gurry of Scarborough, who also dines out often. "I'd really rather they were more straightforward and just raised the menu prices."
Altiero said he understands the consumer frustration with surcharges.
"This is bait-and-switch crap," he said. "What has every other kind of business done with these circumstances? They raise their prices, and the consumers accept it or not. Less places will be in business, and some of us will close because of it. And that's what every other kind of business deals with. Raise the prices to where they need to be, and the consumer will decide."
But whether restaurants add percentage-based surcharges or raise their menu prices, Altiero and others noted that the bottom line remains the same: People will need to pay more to dine out in a shifting, post-pandemic economy.
"Restaurateurs do have options, but I think that with the rapidly increasing and changing food costs, applying a percentage fee may be easier than constantly needing to change a printed menu to reflect rising — or falling, we hope — food costs in the menu pricing," said Becky Jacobson, interim executive director for Hospitality Maine.
"I believe the dining public is well-aware that the restaurant industry, like everyone else, has struggled to be fully staffed," Jacobson said. "Minimum wages have gone up, operating costs have gone up, inflation has greatly affected food costs. Everyone is trying to produce the best product — a great restaurant experience — with less resources. The best thing the dining public can do for restaurants is to continue to eat out, and please be patient with the staff and kitchen as it's more difficult than ever to operate a restaurant."
While surcharges may be vexing to some restaurant customers, the Maine Attorney General's Office said it hasn't received any complaints about the fees in the last two years, and the charges don't run afoul of the law, according to the Maine Department of Revenue.
"There are no prohibitions in the tax statutes against restaurants imposing 'fees' or upcharges for various costs," Maine Department of Revenue spokesperson Sharon Huntley said. "They are essentially itemizing their overhead on the customer invoice."
Still, Huntley said Maine Revenue Services would caution restaurants against "characterizing the charges as a 'tax,' as that implies a compulsory contribution to the state's, city's or another jurisdiction's revenue, and suggests it is levied by a government entity."
KNOWING THEIR WORTH
Evan Richardson, chef-owner of Cafe Louis in South Portland, said while he's careful not to judge the business models or practices of his colleagues in the area, he doesn't feel the need for surcharges at his restaurant.
"I'm a bigger fan of just working it into your overall costs rather than additional fees. I personally don't want to lay that onto the customer," said Richardson, whose operational costs have also risen steeply. He said his overall weekly food expenses are up 35% to 40% above normal; his fryer oil alone is three times as pricey as it was in 2019.
"Maybe call us old-school," said Richardson, noting that his rent is rising and his profit margin is currently as low as it's been since he opened in the summer of 2021. "We'd just prefer to build it into the bill, and hopefully we can chase volume in that way."
Still, Richardson understands that surcharges earmarked for additional back-of-house employee wages are a powerful enticement tool for prospective staff. "It can be used as a selling point to potential employees, knowing their take-home pay can be higher than just their hourly wage," he said. "The 3% eliminates the ceiling of what you can make, but we just pay (our staff) more money."
"If you're charging $30 for a steak, make sure it's worth $30, and that should cover the labor going into it," Richardson added. "Pay people enough to live and treat your product like gold, because it's only increasing in value, and the rest is just money management."
Altiero said restaurants are overdue for a business model reckoning in which menu prices are adjusted upward to realistically reflect costs and to help pay staff the higher wages they deserve.
"If we keep doing what we're doing, we're going to continue to struggle," he said. "We have to understand that charging the right money for what we're doing and being smart in the back of the house, investing in human capital for longer-term reward — those are the things we have to do to make it work.
"Let's get over the fear and be confident in your product," Altiero said. "We have to do something different and make the stand. Increase your margin, pay your people more. Pay yourself more. I'm asking for my colleagues to stand up and say, 'This is what I'm worth.'"