Restaurant surcharges and hotel resort fees – disingenuity in action

[Your author Robert here… I was pondering whether this was more soft topics for my tech blog, or travel. I’ll crosspost, since I think it applies to both. And it sat around in my draft folder for about six months, but it’s still valid today.]

I recently dined with my honey at a local chain steakhouse. I’ve been going there as often as weekly for over a decade. We’ve gone less frequently in the last couple of years thanks to Nom Burger, but still once a month give or take.

Their prices have been sneaking up over the years. The dinner for two combo they have has gone from under $40 to $65 as I recall, although coupons still bring it down. Some of the choices have become added-cost items, so if you want a wedge salad, that’s an extra buck, and if you’re lucky it won’t be smaller than it was last month.

But the thing that annoyed me was the 3% “minimum wage surcharge” that was stickered onto the menu and was slapped on the bill.

Slapping customers with your cost of doing business?

The surcharge was annoying. The Chocolate-Orange Layer Cake was pretty good.

When I see a “minimum wage surcharge” or a “health insurance surcharge” on a restaurant bill, it rubs me the wrong way in a big way. It tells me the restaurant would really rather not pay a reasonable (legal) wage, or would rather not provide health insurance (maybe they’d rather have sick employees serving and cooking for customers?).

And a separate item could lead to lower tips as well. If you look at the subtotal to calculate the bill, 3% of that amount which is actually part of the cost of business is not included, so you may not think to tip for it. I didn’t think to look at whether the surcharge was taxed… is tax avoidance part of the consideration as well?

It wouldn’t be too hard to add 3% to the menu items themselves. If you were able to reprint the menus for the 5-10% price hike on certain items, you could easily add the 3% in rather than adding a sticker.

You’d also see a bit more money going to the employees you are hesitant to pay fairly or insure too. Sure, 20% of 3% isn’t a lot per cover, but over time it adds up.

It can’t just be surcharges bugging you…

As I pondered this particular sticker, I thought about parallels with fuel surcharges (for shipping and airline tickets) and resort fees (for hotels and, well, resorts).

The fuel surcharges seem similar; given the dynamic nature of pricing for airline tickets, it should be easy to adjust in a close-to-realtime fashion based on actual costs of fuel (or even to buy fuel more than a gallon at a time to absorb market shifts, which I think they do anyway). Shipping costs could be more complicated due to contracts with shippers and agencies.

Resort fees make them all look friendly and nice, of course; $30+/night for wifi and printing boarding passes is a bargain if you’re printing a thousand boarding passes, but more often it’s a great way to fleece customers and get away with false advertising. (Read some thoughts from The Points Guy and KillResortFees.com here.)

If you travel a lot, especially to Las Vegas, you’re accustomed to the resort fees, which as TPG above notes can be more than the room rate itself at cheaper hotels. But first-time travelers, especially those not on company expense accounts, may be disappointed and/or inconvenienced when their $30/night hotel room turns out to be $65+tax. Make it $100 if you have to park a car.

If you as a hotel operator believe that the resort fees reflect anything of actual value, why not either include them in the room rate, or make them optional? Surely all the people who find those services valuable will be happy to pay for them. Myself, I haven’t needed a notary or fax receiving at a Las Vegas hotel, well, ever… and based on Amex Fine Hotels & Resorts credits at several hotels, I know the wifi is worth $5 a day, and I’d pay that happily.

There’s a good read at the Federal Trade Commission’s website on their investigation into resort fees. The tl;dr summary (emphasis added):

 The analysis in the paper finds that separating mandatory resort fees from posted room rates without first disclosing the total price is likely to harm consumers by increasing the search costs and cognitive costs of finding and choosing hotel accommodations. The analysis finds that separating resort fees from the room rate without first disclosing the total price is unlikely to result in benefits that offset the likely harm to consumers.

However, to date not much has been done to address this, and resort fees continue to go up.

There are ways to get around some resort fees, of course. Caesars Entertainment does not automatically charge resort fees for Diamond and Seven Stars Total Rewards members, for example, and if you’re a high roller/have a host at other resorts and chains in Las Vegas, you might be able to get special treatment. But most visitors to Las Vegas will get slapped with a resort fee (and parking fees too!) that they get little or no benefit out of and no option to decline.

How do you feel about surcharges and fees? Do they affect your choice of destination? Or do you just consider them “part and parcel” of traveling and dining out? Share your feedback in the comments.

 

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4 thoughts on “Restaurant surcharges and hotel resort fees – disingenuity in action

  1. Pingback: Restaurant surcharges and hotel resort fees – disingenuity in action (via #rsts11travel) @rsts11travel | rsts11 – Robert Novak on system administration

  2. HJB

    The restaurant surcharges actually serve a useful purpose. Cities (often at the request of the local citizens) are imposing all sorts of cost of doing business charges on food service- health care, PTO, higher wages, perhaps others. If your menu price just went up, the costs would fly under the radar of many (most?) folks (or attributed to greedy owners). By having the (alleged) increase as a line item, the owner makes it very clear what they think the cost of the mandated change is to them. (Note that I am not placing value judgements on if the PTO, increased hourly rate, etc. changes are good or bad.)

    The folks pushing for the increase generally seem to say the cost of the change is minimal (or can be taken from the profits of the restaurant with no price change) and won’t cause any harm. What I’ve never seen from the owner side is a breakdown of costs (food, labor, rent, profit, etc.). I really wish someone would post these numbers as it would drive home (or undercut) the claims of the two sides.

    Imagine an owner being willing to show “this law will increase my labor costs by $x, which is greater than my profits- I’ll either have to close or raise prices by $y% to have the same profit”. A year later they could then show how the price increase impacted the business’s cash flow…

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    1. Fair enough. I think if the businesses in question offered that transparency, I’d probably see it differently. But a lot of that data is considered competitive advantage, from what I’ve heard.

      You can get rough ideas of the numbers from Jon Taffer and Gordon Ramsay on their reality shows. I’d be surprised if you get transparency from actual non-compensated business owners.

      I’d also be curious about the tax treatment of the surcharges, as well as the impact on tips, as mentioned in the post. If those surcharges aren’t taxable, it’s eating into funds available in local communities… not that local communities always do the best with their tax revenues of course.

      If a restaurant were to say “we’ve increased our prices by 3% because of these laws” I’d be okay with that, and it would probably be better for the hospitality workers.

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      1. HJB

        I was always taught to tip based upon the bottom line (i.e., post tax) and I can only think of one exception to that in the pool of folks I have eaten out with over the years (that out of state manager also didn’t realize that his state’s tax rate was lower than the local one, and thus really under tipped as he figured tips as a multiple of the sales tax). I’d assume that for my sample, there would be minimal changes to the tipping rate.

        Taxwise, well, I don’t know anyone in that side of the business, but I’d assume that taxes would be assessed on the surcharge too (contrast this with the “large party 18% gratuity ” line item that I’ve seen from time to time which is supposed to be the staff’s tip and is not taxed). If they didn’t tax it and it wasn’t counted as a tip, I think the taxing authority (state, local, etc.) would be talking to them very quickly unless it was somehow categorized as something not subject to sales taxes.

        Restaurant owners are rarely overtly political on this sort of thing, so I’d expect few to publically weigh in. The rare ones will be obvious. The majority will adjust prices, staffing, hours, or reduce food quality (or close).

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