May 17, 2008
Dear Economist: What can I do about service charges at restaurants?
Dear Economist,
I have been trying to discourage the practice of “service” being added to restaurant bills. Where it’s added I ask for its removal and don’t leave a tip, and where it isn’t I tip a fair amount plus the saved service charges from other restaurants.What else can I do?
Patrick Gillett
Dear Patrick,
Discard any question of whether the service charge is aimed at the staff or at the restaurant managers. It makes no difference. Because staff are not stupid, lower tips must mean higher wages, otherwise the waiters will find somewhere else to work.
Similarly, higher service charges will have to mean lower up-front prices, or commercial disaster will surely follow.
That noted, it seems to me that optional tips are an attractive way of doing business. By leaving the customers some discretion, the restaurant manager creates a way of charging less to stingy customers and more to fat-walleted ones. Huge marketing databases are interrogated to achieve the same effect; the tip system is easy by contrast. The American reputation for excellent service may also owe something to a culture of high and variable tipping.
In short, I have no idea why restaurants are abandoning this most excellent, business-friendly custom. If you wish to stamp out the practice, perhaps management consultancy would be an influential place to start?
Questions to economist@ft.com
[…] response to my criticism of the poor economics of the practice of automatic service charges, a loyal reader comments: The system of “optional” service charges being added to […]
Posted by: FT.com | The Undercover Economist | More on service charges | May 20th, 2008 at 6:27 am | Report this commentGiven that waiting is nearly always a minimum wage job, the effective market price for waiters must be below minimum wage.
Given *that* it would seem that any attempt to take tips would be an attempt by restaurants to pay below minimum wage for their staff.
This works because it often isn’t so easy to find another minimum wage job. The hardest job I’ve ever tried to get was a minimum wage job - regular well paid jobs are actually a cakewalk to get by comparison.
If you think about it, this does make some sense, when you implement price controls (which is what minimum wages are, effectively), scarcity goes up.
Posted by: Colm O'Connor | May 27th, 2008 at 10:22 am | Report this commentI feel restaurants using the “optional” added service charge should display this policy openly so that it is explained to the customers where this money is going.
Posted by: Steve Harness | June 17th, 2008 at 5:48 pm | Report this commentdear patrick - attempts to show the management they are wrong by underpaying or complaining will only affect (and will hurt) one person - whoever is serving your food. restaurants, especially if they are large and corporate enough, rarely change anything from below, and it will take years for this to go through while you are cutting others out of a tip. i think your strategy is likely to be ineffective, unless you can somehow get to a large regional managerial meeting…until then, you will leave a trail of impotent managers and frustrated servers behind you.
Posted by: stephanie l | June 17th, 2008 at 10:19 pm | Report this comment