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Fixing The Misconception of Adding Surcharge

ekka day surcharge

 

August means Ekka for Brisbane, which also means public holiday loading on wages for most hospitality businesses. Like many other store owners, you might feel compelled to open on public holidays, to serve your customers who are often more inclined to dine out or meet up for coffee as they take advantage of the day off.

Now, the challenge for our industry is, opening on a public holiday can be costly as we’re obligated to pay up to double & a half the normal labour rates. Now, have you stopped to consider what this means for your business?

Let’s consider a café which normally averages 25% labour costs – paying double & a half time for the Ekka holiday will mean, all things being equal, their labour rate will jump to 62.5% for the day! On top of this, the café will still have all its normal operating costs such as Cost of Sale expenses (~30%) and general expenses (e.g. rent, electricity, equipment maintenance, etc.). Plus, it gets worse if your average labour cost is higher than 25%. It’s very easy to see that your expenses could exceed 100%, which essentially means you are paying your customers for the privilege of serving them on their day off!

“FEAR” COULD BE THE REASON

Profit cannot be a dirty word for you – you need to make a profit in order to continue serving your customers and providing the great service you so desperately want to offer your community. So why don’t more hospitality businesses look to somewhat “insulate” themselves from these costs by charging a surcharge, so they can try to remain profitable for these days?

I think the answer for many is ‘fear’ – fear that my competition won’t do the same, hence my customers may frequent their businesses instead. The problem with this thinking is that it exacerbates the problem, creating a domino effect, because your competitor may want to charge a surcharge but cite the fact you don’t as their reason to not do so. If you’re reading this blog and feeling this way – I’d implore you to boldly be the trendsetter (and if you feel a little uneasy about being so bold, perhaps print this blog for each of your competitors and slide it under their door. Better yet, hit the share or tweet buttons below this article).

TIME TO RETHINK

If you’ve been in the industry for a while, you may remember a number of years ago the ACCC (Australian Competition and Consumer Commission) brought in regulations surrounding ‘Component Pricing’, which made it more complicated for cafes & restaurants to charge a surcharge – however this is NO longer the case. Hence, if you’ve been holding on to this reason as your excuse (i.e. “it’s too hard” or “it’s against the law”) – STOP, this isn’t the case. The current regulation states the menu must include the words: “a surcharge of [percentage] applies on [the specified day or days]” and these words must be displayed at least as prominently as the most prominent price on the menu.” So – you just need to have this simple wording detailed on your menu!

Knowing how much it costs you to open and how easy it is to now charge a surcharge, will you do it this EKKA public holiday?

 

I’ll never forget a customer complaint I heard a couple of years ago – the gentleman was complaining to the cashier who was serving him about the surcharge and the cashier replied “it’s because I’m earning a fortune today – my boss has to pay me double & a half time!” The gentleman paused for a moment, obviously taken aback, then suggested “well if that’s the case for everyone working today, how can your boss afford for this surcharge to be so small?” If you’re still ‘nervous’ about charging a surcharge, clue up your staff as to why and have them openly tell customers who ask – you’ll find customers’ generally understanding and happy to pay that small premium to enjoy their day off dining in your business.

AN APPEAL TO OWNERS

As a final comment and plea, if you’re still not bold enough to charge a surcharge to avoid losing money – don’t brag about losing money. I was walking up a popular beachside esplanade on Boxing Day last year and was horrified to see one of the hospitality businesses with their big A-frame blackboard displaying “No Surcharge Applies Today”. This isn’t a value proposition, it is bad for our industry and undermines those who recognise the need for our industry to remain profitable for our collective sustainability.

Be profitable this EKKA holiday and happy trading!

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