While relations between the Indian restaurant industry and its customers have generally been cordial, there is one issue on which the two sides never agree: service charges.
Both sides have become angry after the dispute flared up again for a few weeks. The Central Consumer Protection Authority had decided on July 4 that the service charge would not be mandatory. If a consumer feels that he has received good service at a restaurant, he can request that the service charge be waived.
It was hailed as the final word on the matter until the National Restaurant Association of India (NRAI), an umbrella body representing restaurant-owners, responded on social media saying that only the Consumer Protection Authority can issue guidelines. They were not mandatory. And as far as NRAI was concerned, its members could still levy compulsory service charges. This led to more consumer anger and the cycle of complaints and reactions started all over again.
Within the restaurant industry, service charges are so high that restaurateurs don’t understand why they should be so outraged over it. In fact, the idea of charging extra for service is not a common practice in businesses and the restaurant industry is one of the few sectors that insists on it. If you go to a store, try on some clothes and you get very helpful service before your purchase, you don’t think it’s necessary to reward the helpful shop assistant. The shopkeeper will not add service charge and the assistant will be surprised if you offer to tip him.
Even within the hospitality industry, the idea of paying extra for good service is not universal. For example, in a hotel you may tip waiters and bellboys, but it is very unusual to tip housekeepers who are the backbone of the hotel business. Nor do you tip the managers – in many top restaurants, servers may take more money than managers because they keep away from tips.
To be fair, anomalies in this practice are not limited to India. In most of the world, it is customary to tip your waiter. In New York restaurants, a tip of 18 percent of the total bill is not uncommon: many guests pay more. If you don’t leave a tip, don’t be surprised if the server chases you down the street asking what happened to the tip. In many European countries, a service charge will automatically be added to the bill.
Once you accept that paying extra for a service is normal, service charges make a certain amount of sense. When you leave a tip, it usually goes to your server. But many others have contributed to the experience, so why should the server be the only one rewarded? The rationale behind the service charge is that it is shared by all (non-managerial) employees of the restaurant so that servers are not disproportionately rewarded.
When you explain all this to customers, they often have a lot of questions. The most basic thing is this: if you call it service charge and I get bad service, why should I pay extra service charge?
In many countries, if you complain about how bad the service is, there may be some upset but usually restaurants agree to waive the service charge. On the other hand, in India, NRAI takes the line that service charge is mandatory, not a special award. When the menu says that a service charge will be charged and the customer orders the food anyway, then he has made an intentional transaction. You can’t refuse to pay for butter chicken if you don’t like it. So it is with service charge.
Why, consumers also ask, can’t restaurants go back to the old system of tipping, where guests had a choice? The restaurant industry responds, with some justification, that this is unfair because it rewards a server only for an experience contributed by multiple people. Even restaurants say Indians make bad tippers. Given a choice, most customers will not leave a tip.
So, if it’s all too complicated, guests ask, why not just raise the prices to include the money restaurants usually add as a service charge. Once restaurants have extra money, they can use it to pay their employees more. Why do customers insist on paying a separate fee? Why not just reflect this fee in the prices on the menu?
This is difficult to answer. The basic reason may be that high restaurant prices can scare away customers. I’m not sure if this is valid. If all restaurants add service charge to their bills, then all prices will create a level playing field. Once customers realize that eating out is expensive, they will have a one-time grudge rather than a persistent feeling that they are being taken advantage of.
Another reason has to do with accounting practice. Service charges are not added to the restaurant’s profit and often not to its revenue. It is argued that this is a separate fee paid by the consumer to the employee. Presumably this has some tax implications but it also makes a big difference in restaurants where the rent (or part of it) is based on a profit share (or percentage of turnover) with the landlord. If the service charge is included in the restaurant’s revenue, a portion of it goes to the host who has no role in creating the service experience.
As you can see, the issue is not as black and white as either side seems to think: there are many shades of gray. While I have become a supporter of the Indian restaurant industry, I do not dispute that, over the years, restaurateurs have played their cards badly, never bothering to explain their position to customers.
Their whole attitude has been one of bickering and confrontation and they’ve turned it into a restaurant-versus-guest battle, which is certainly a crazy position for anyone in the hospitality industry to be in.
Despite my support for the industry, I find it hard to have much respect for the NRAI which, I believe, has contributed to the current climate where guests have no sympathy for the restaurant industry. Often the NRAI seems to treat guests who are appalled by the extra charges as enemies.
I can give you a personal example. After I wrote an article here, when the controversy erupted a few years ago, sections of the NRAI leadership threatened to boycott EazyDiner, a reservation service in which I have a small stake. Although I pointed out that there was no connection between my journalistic views (which, by definition, reflect the interests of my readers and not those of fat-cat restaurant owners) and EazyDiner’s activities, they seemed determined to punish EasyDiner for my journalism.
I told them that nothing they did to EazyDiner made much difference to me, but the threats continued. I didn’t change my position (as you can see here!) and eventually the boycott melted away.
I’m not a hater but this episode seems to provide an insight into how the NRAI has approached this issue: with threats and intimidation to anyone who expresses an honest opinion. Is it any wonder that the industry has lost public support on this issue?
Fortunately, the current head of NRAI, Kabir Suri, is a decent and considerate person who tries to persuade without intimidation and makes a strong case for service charges. However, it is difficult to overcome the legacy of the bullying of its predecessors.
NRAI’s current strategy seems to rely on legalism: if you order from a menu that mentions a service charge, you’ve entered into a binding contract etc. It may be valid but it is not the battle that will ultimately be decided. Courts. If customers feel they have been cheated, eventually public opinion will force politicians to pass laws outlawing service charges.
All because the industry forgot the meaning of hospitality and chose to fight when all it had to do was explain!
The opinions expressed by the columnist are personal
From HT Brunch, July 16, 2022
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