There’s no question that, for restaurants, the cost of doing business has increased amid the coronavirus pandemic.
Rising food prices, increased costs for to-go packaging, third-party delivery fees, protective gear for employees and more have all cut into already-dwindling margins.
What’s less clear, though, is how to make up for those increased costs.
Raise menu prices? Cut staff? A number of restaurants are instead instituting COVID-19 surcharges on each check.
Chicago-based multi-concept operator Lettuce Entertain You Enterprises, for example, recently added a 4% surcharge to delivery and carryout orders at all of its restaurants. The fee can be refunded, however, for any customer who requests it, LEYE President R.J. Melman said in a statement.
“The fees are a necessary step during a time when unanticipated costs have jeopardized the survival of our business,” Melman said. “Our industry has been dramatically impacted as a result of the COVID-19 pandemic forced closures. In addition to the extreme restrictions that have been placed on our dining rooms, we are also facing additional costs of doing business—added expenses for carryout and delivery, providing PPE to employees, executing enhanced sanitation practices and absorbing the greatest increase in food pricing since 1974.”
Operators may want to look at other ways of boosting revenue outside of a surcharge, which can draw consumer backlash and lead to a drop in traffic, said Rich Shank, vice president of Research and Insights at Restaurant Business sister company Technomic.
“It’s always a risk to advertise raising prices and that’s what a surcharge does,” Shank said. “A restaurant will be better served by doing their homework on what current items are undervalued on their menu from a consumer perception standpoint and targeting those items for increases and running a trade-off analysis that assumes you will force some percentage of customers to trade-down to cheaper products in order to make sure that the register rings up in their favor at the end of the day.”
Just 31% of consumers surveyed by Technomic said they “find it acceptable” that restaurants would tack on a coronavirus surcharge, while 38% said it is reasonable for restaurants to raise their menu prices for added COVID-19-associated costs. Meanwhile, 32% of those surveyed said they would visit a different restaurant rather than pay a COVID-19 surcharge.
Earlier this month, Kiko Japanese Steakhouse & Sushi Lounge in West Plains, Mo., added a surcharge to compensate for rising meat costs. It received a great deal of consumer backlash and quickly removed the surcharge, opting instead to increase menu prices.
“Recently our employees been getting harassed,” the restaurant wrote on Facebook. “Please understand we are not doing this to take advantage of you guys! We are doing this hoping we can adjust the surcharge weekly rather than just raise all of our prices on our menu due to increased prices from our supplier … Therefore we will take the surcharge off from our system & we truly apologize, we have to raise all of our prices!”
Chicago-based Harold’s Chicken faced so much criticism of its coronavirus surcharge on social media that it ended the charge on the same day it was announced.
“We have listened to our customers and apologize for any discomfort we have caused anyone,” Harold’s Chicken on Broadway wrote on Facebook. “Harold’s Chicken on Broadway will remove any COVID-19 surcharges immediately. We are in this together and will survive together.”