Restaurants and hotels can raise prices but cannot levy service charges without the customer’s explicit consent,
Union commerce minister Piyush Goyal said on 3 June 2022
The striking off of service charge, which hotels and restaurants normally charge their customers to give their staff an extra hand of coins for making the customer's experience more memorable, had shaken the hospitality industry. This may be sad news for businesses that balance their operational cost with this amount and could make a marginal profit.
WHAT ACTUAL SERVICE CHARGE IS?
- A service charge is a 10 percent surcharge on the food bill that is not the same as a service tax. A service charge is essentially a tip given to the restaurant for providing its services. It is similar to paying delivery fees to food delivery apps or paying convenience fees to various service providers. It is actually up to the customer to decide whether to give a tip or not based on how he likes the service and how he would like to show gratitude, whether by giving a monetary tip or not.
WHAT DID IT MEAN FOR THE HOSPITALITY INDUSTRY?
Over the last few years, there has been a spike in hospitality businesses.
To scale their businesses, they began investing in a plethora of services like royal serving styles, upskilling waiters and cleaning staff, investing in staff’s attire, musical and instrumental nights, hygiene, and a lot more things. This began costing them high and so a tip-giving system is transformed into a service charge system that has been made explicit in bills and invoices. This has invariably made a compulsion to the customers to pay this service charge or the surcharge. This service charge has been included in their menu card as well as today’s special board with asterisk T&C applied at the bottom.
This has become the bone of contention in which higher authorities are involved.
In this article, we shall discuss the new guideline by the Central Consumer Protection Authority, its impacts on the hospitality industry and how to overcome the potential losses, how to sink out the profit by managing operational costs.
NEW RULES AS PER GUIDELINES -
Hotels and restaurants shall not add service charges automatically or by default to the food bill.
Businesses shall not compel customers to pay a service charge and shall inform customers that it is voluntary, optional, and at the consumer’s discretion.
No restriction on entry based on the provision of service charge
The service charge shall not be collected by adding it along to a food bill and levying GST on the bill.
In detail, CCPA mentioned restaurateurs are free to decide the price of the items on the menu card at their will if they want to pay their staff a good salary. Nobody’s stopping them. They are free to make their margins. They mentioned that restaurateurs include all the incumbent charges including service in the price listed in their menu card itself.
RESPONSE OF INDUSTRIALISTS -
“ Service charge was not mandatory anyway and it is waived off when customers do not want to pay it. It is like a reward system for the staff who can make 50% - 60% more of their salaries. In this new system, if any customer pays a tip, it would be cornered by managers and would not reach to staff which includes waiters to the personnel working in the kitchen ”, remarked the CEO of a hospitality company. The very concern of the restaurateurs is that they are being singled out of the market. Rest all the industries freely charge the amount including cinema, aviation, amusements even IRCTC, etc. They claimed that nothing is illegal in the cost of service charge. They also remarked ultimately it will drain the people’s pockets if prices were increased on the menu list.
IMPACTS ON THE HOSPITALITY INDUSTRY -
Primarily, it's a tough time for the staff who are only at loss. This was the small perk that kept the staff’s spirits high to give their best service. In turn, this will depreciate the wage of the employees.
Next, this may result in increasing the price of the individual item in the menu card of restaurants to optimize their cost.
The F & B industry is one of the job-creating industries in the market which employs millions of workers, skilled as well as unskilled, professionals, managers, and a lot. Unskilled workers will have to bear the cost because of less wages. Skilled workers may switch the business in search of new opportunities.
This will shun the sector in the dark. Since tourism is the demand of the times and a growing sector and so are the associated businesses. The F&B has shown a surge in growth and imposing restrictions will hinder business and the economy substantially.
Ultimately this will reduce innovation and will become difficult for hotels and restaurants to make out a profit.
All this might leave you worrying, but hey wait, every problem has got some solutions, and businesses never fear to try anything new. It's more or less a game of operating costs!
Yes, You can save by cutting your operational costs so you can pay your staff a decent salary. Let me discuss first, WHAT IS OPERATIONAL COST?
Operational costs are the set of all the costs associated with the management of the business daily. This includes labor expenses, vendor costs, procurement and supply cost, marketing costs, utility expenses, repair costs, etc. These are the administrative costs that can be fixed or variable. And it’s a whole lot of tactics and a smart play to make a profit by cutting your operational costs. Here are some tips about,
how restaurateurs can cut their operational costs off-
Optimizing staff - businesses should focus on training or cross-training the staff from the bottom line to get the best out of them. Staff could be paid on an hourly basis. Make sure you’re not overstaffed.
Associate with food suppliers - ordering in bulk from vendors will cost you much and pile the waste because food material is tormenting in nature. You can associate with food supply chains and even automate the process.
Inventory management - managing inventory is a tough task, automate the process with various software. They’ll tell you what you need and in what quantity you need and when you need it. This will prevent extra ordering and food spoilage. Using these platforms to contact suppliers is the better option.
Vendor management - Stop searching for the perfect set of plates or spoons or kitchen equipment vendor to vendor compromising either quality or price. There are ways you may automate the procurement and supplies process. Get all accessories whether it be packaging material or dine-in material or kitchen equipment in one platform at HORECASTOP an e-procurement site where you can manage.
Avoid food waste - wastage of food must be avoided to tap the operational cost. Leftover veggies can be used in innovative ways to serve or decorate the trays or dinings which will add value to your product.
Food aggregate application - cater online food ordering services via zomato or swiggy to boom your sales
Cut on utility bills - switch to electricity-efficient devices such as LEDs which will substantially reduce your electricity cost. Manually turning off the appliances can save units. Microwaves and refrigerators must be renovated once in a while to save on bills. Use thermostats to automatically maintain the temperature.
Moreover, you can invest in marketing, prominently social media marketing to make your outlet reach a large number of people with less investment. Induce the feeds with good quality graphics and consumer reviews or some engaging or questioning sessions over media profile. This will create a huge customer base. Though in the long run but for the long run.
Further, if you’re looking for any assistance with online vendor management, procurement, and supply management, you can seek HORECASTOP - a one-stop solution for inventory management and vendor management and get a long catalog of products of your choice. We assure you the best quality product at the most affordable prices with an unending variety. Overall businesses must keep in mind they can make only substantial profits that too sharing with the staff associated with them and cannot compel the customers to give service charges which may be charged on the whims of managers.