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Service charges help defraud the public

A week ago when the government issued a circular restating what I thought we already knew --

that service charges at restaurants were optional --- I retweeted my old Rude Food on the subjects of tipping and service charges.


To my surprise, the retweet provoked a fresh storm on Twitter as public anger with the restaurant industry came tumbling out. Few topics, I have now discovered, get restaurant-goers as agitated as service charges. And as the furore continued, I began to realise why people were so upset.


   First of all, I was wrong to believe that service charges were ever optional. I had always imagined that if you went to a restaurant and the service was really bad, you could complain to the management. And once the restaurant had noted your complaint, it would have the decency to remove the service charge from your bill. After all, if you weren’t getting any service, then why should you be expected to pay an extra charge for the (non-existent) service?


   Turns out I was mistaken. Totally mistaken, in fact. The National Restaurant Association of India (NRAI), an umbrella body of restaurant owners, takes the line that you bloody well pay for service, whether you like it or not.


   After the circular was announced, the NRAI declared that if a service charge was listed, it had to be paid. If you didn’t like the idea of first getting bad service and then being charged for it, well, tough luck. You could simply, the NRAI said, take your business elsewhere. But if you went to a restaurant with a service charge, then you damn well pay it.


   Further, said the NRAI, it was so determined to oppose the government’s clarification on optional service charges that it was now going to court to oppose it.


   But why? Does it make any sense for a restaurant, which is in the business of providing good service, to force people who have had bad service to pay an extra charge?


   Judging by the anger on social media, it doesn’t. The decent thing to do, in such cases, would be to waive the service charge, which is what the government requires restaurants to do as per the new circular. But no matter how strongly customers feel about this, the industry takes the opposite view.


   I imagine some of the industry’s reasons are historical. The truth is that till a decade or two ago, the restaurant industry did not have a very honourable record of treating its serving staff. Many of the great restaurants of Calcutta’s Park Street, Delhi’s Connaught Place and Mumbai’s Churchgate Street would pay their waiters a bare minimum. The servers would be expected to make a living by subsisting on tips.


   Restaurateurs justified this ethically dubious practice by arguing that customers were better served by a tipping regime. After all, they said, if a server made his living on the basis of tips, then wouldn’t he be incentivised to provide better service? It was customers who gained, they declared, (chuckling all the way to the bank, no doubt!).


   You can use this kind of argument to justify practically anything from performing monkeys to dancing bears. And there's the obvious logical objection: if the only way a restaurant can guarantee good service is for you to pay the waiter yourself, then what about the food? Shouldn’t it follow that because customers weren’t also paying the cooks, the restaurant could not guarantee the quality of the cuisine?


   The tipping regime has given way, in many establishments, to the service charge model. Now, you are not expected to tip (though in most places, your waiter behaves as though a tip is due, anyway) but an extra charge (say ten or twelve per cent) is added to the bill. You are told that this is a service charge and will be divided among the staff.


   Restaurateurs justify this charge by arguing that tips favour the serving staff at the expense of the kitchen. The service charge, they say, will be divided among all the employees so that cooks and dishwashers also get a share. But if it goes to cooks and vegetable-peelers as well, then why is it called a “service charge”? Ah well, they say, that is just the traditional name. But it is not actually about the service. It is meant for everyone.


   It is a measure of how isolated the average restaurateur is from reality that few restaurant proprietors realise that this charge is a fairly unusual concept. When you get service at a shop, you pay for the product you buy and nothing else. No shop tags on an extra ten per cent to the bill and says that it is for the shop assistant because the price of the product does not include the service you got from the sales staff. No airline expects you to slip a hundred rupee note into the palm of one of the cabin crew at the end of your flight. They don’t say, "Well, a tip to the hostess ensures that you get good service during the journey."


"Indian restaurateurs will tell you, off the record, that they would have to raise the menu prices if they didn’t impose a service charge." 

   Only in the hospitality sector does the idea that you have to pay extra for service hold sway. Restaurateurs simply don’t get this. They don’t realise that what they are doing is almost without precedent in any other industry. Push them about the practice and they will first lie. They will claim that service charges are like transaction charges at banks or like the fee a booking site charges you for tickets. When you explain that these are bogus parallels, they stare uncomprehendingly.


   The true parallel would be if a bank deducted ten per cent from each withdrawal on the grounds that the teller at the counter had provided a service and should be paid separately for it. And in any case, bank charges are reversed if transactions go bad. Not so with restaurants. Here the service charge is levied, no matter how disastrous the meal experience.


   When this nonsensical approach fails, restaurateurs look for precedents from within their industry, but from abroad.


   In this limited sense, they are right. The concept of paying separately (or extra) for service is a global hospitality practice dating back to the medieval era when you bought a jar of ale in a tavern and then tipped the serving girl. In some places (much of Europe, for example), tipping is no longer the norm but that component of the bill has been codified into a service charge. In other parts of the world ---America, most notoriously --- tipping has become a racket. In US cities, tips of 20 per cent or more are the norm. And rather like the old Connaught Place or Churchgate Street restaurants, staff salaries are kept low on the grounds that servers will get tips.


   Research has demonstrated that there is no connection between quality of service and quantum of tipping in the US. White servers get larger tips than black servers. Attractive waitresses get tipped more than unattractive ones. And often diners are intimidated into leaving huge tips. Frequently the tip does not reflect the value of the service. If you order a $200 bottle of wine, then you are expected to add at least $ 40 to your bill as a tip even though the server may not even have opened the bottle. (Sommeliers who handle the wine service rarely get tips. The waiters take it all.)


   Some US restaurateurs are trying to abolish the practice. The great New York restaurateur Danny Meyer abolished tips at his The Modern and though, it's been a year now, it has made no difference to his turnover or to the quality of the service at the restaurant. In November, Meyer extended the no-tipping policy to the Gramercy Tavern, another of his restaurants and it will become the norm this year at his Union Square Cafe.


   Why don’t other restaurateurs follow suit? Well because service charges help defraud the public. When you see a dish on a restaurant menu and it costs $ 20 or Rs 200, you imagine that this is all you will pay. You don’t usually calculate that by the time the final bill comes, that amount will have increased by anywhere from 20 to 40 per cent once taxes and service charges (or tips) have been added.


   Indian restaurateurs will tell you, off the record, that they would have to raise the menu prices if they didn’t impose a service charge. When you explain that they should just be upfront, and print the real price on the menu, and do what other industries do -- levy a single price for each product after having calculated all costs -- they worry that this approach would scare away customers.


   But would it, really? Meyer faced the same situation when he took the plunge and raised prices on his menus. It made no difference to sales because guests worked out that the final bill remained the same, regardless of whether the real price of each dish was broken up into two categories (menu price plus tip) or just stated upfront. Indian restaurateurs are not as daring as Meyer. Besides, at least some of them are frequently accused of not passing on the full service charge to the staff and of pocketing a part or all of it.


   Judging by the anger on social media, however, they will have to rethink their attitudes. Tips and service charges are a hangover of an earlier era when we liked giving baksheesh or were thrilled when waiters sucked up to us in the hope of getting tips.


   But the new generation doesn’t like all that. They prefer an Uberized world where you pay one all-inclusive charge and don’t worry about how obsequious the service is.


   Take one example. In the US and the UK, it was customary to tip taxi drivers. Uber, however, is a tipless service and as it has caught on in popularity, young people have forgotten that drivers used to expect tips. These days, even London’s taxi drivers, who run the world’s most expensive taxis have been under so much pressure from Uber (less than half the price) that they no longer regard tips as their due and are insanely grateful (as distinct from their old nonchalance) for any tips they receive.


   As we move into a cashless world of digital wallets and mobile Apps, the new generation will be bewildered by the idea of having their restaurant bills divided in to two (regular bill plus service charge or tip) and will want a single charge. That will kill off the service charge eventually.


   The NRAI can go to Court and treat customers who protest at having to pay for bad service with disdain. But, in the end, this a doomed effort.


   In the technology-savvy 21st Century nobody will have any time for medieval and ethically dodgy concepts like tips or service charges.




  • Sandip Roy 16 Jan 2017

    Once again, Sir, thank you for siding with people on the street. We desperately don't need service charge. Thank you for being our "loudspeaker".

  • shweta 15 Jan 2017

    well said. not just archaic it's immoral. it's like saying we should give bribe to get service from government servants since they are paid less... just giving a simile. ...

Posted On: 14 Jan 2017 04:46 PM
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