Monday, January 9, 2017

Service Charge - Indian restaurateurs experiments with the truth

As a regular restaurant goer you must be all het up with the newest controversy. Our nanny government has jumped in, once more, into private matters. Our nanny has Diktated that the service charge levied by restaurants should be optional and not mandatory.

They say that you should never start a discussion and reveal your position at the start. Well, my position is that the restaurateurs are hiding something and as the cliché goes – Daal mein kuch kaala hai”.

This is my 10% on the raging service charge controversy.

First, a few submissions, assumption, clichés and ground rules.

1.     All staff, managers, waiters, chefs, dishwashers and sweepers have to get a decent wage.

2.      Everything costs money, whether it is sliced onions with your Tandoori Chicken, Limbu, Chutney, straws, ice, paper napkins, staff uniforms and the kitchen sink. Someone has to pay for it, and that someone is you, the punter.

3.     Breakages and pilfering, both by punters and staff, of food, silverware, glass, alcohol, you name it, is part and parcel of the restaurant business. As I said, someone has to pay for this.

4.      Complementary or freebie food and drink also costs someone money.

5.     How are you, the punter, to be charged to pay for all this is up to the restaurateurs. There are many ways to skin a cat.

Second, a few “tipping” models from around our wide and wonderful world.

1.            In Japan there is no tipping. You tip no one, not the room service guys, not a waiter not the guy from the Bell Desk fetching your suitcase. Everything is included in the price. And what is the most common complaint you have from people who visit Japan – “everything is so expensive.”

2.            In the USA, especially New York, tipping is not only mandatory but almost extortionist. Wait staff are paid poorly and rely wholly on tips to make a living. The result is that they will hound you to fork out a tip. This position is diametrically opposite of the Japanese treatment of tipping.

3.            The UK has, what is in my view the most fair, subject to a caveat. You get a bill, the bill includes a service charge separately shown with a statement stating it is discretionary, and if you believe you have had exceptional service, you can add a further top up tip in cash. The caveat being, you have to ask if the service charge is shared by the staff or is being partly used to subsidise staff salary. If it is used for other purposes, many punters ask that the service charge be removed and instead hand over the amount in cash to the staff member.

4.            In Europe, especially Western Europe the position is slightly different. Normally, the waiter will come up to you with the bill. You then tell him how much you will pay, i.e. the amount you owe plus any "rounding up" -- for example, the bill may be say "€7.60;"  you hand him a €10 note and say "9 Euros." You will get €1 in change and a big thank you. However, in most places service is included.

Thirdly, the point is what does service, gratuity and tipping really mean in general sense.

1.            Service charge is a component that is normally distributed among the staff. How deep the sharing goes and how the sharing is scaled is a different matter. However, generally speaking the entire service charge is shared by staff. I imagine that ordinarily, when you do not have a service charge on the bill, the money you give to your waiter would be regarded as a tip, and if in the USA the term used would be gratuity.

2.            What happens to the tip or gratuity is something that is dealt with differently. In some places the tip belongs to the wait staff who may, if he has a private arrangement, share it with his helpers/team. In other cases the wait staff may keep it for himself. In yet other cases there is a tip box where all tips are collected and then portioned much like service charge.

3.            Thus, as is commonly understood, service charge, tips and gratuity are all one and the same thing given to staff.

4.            I know for a fact that restaurants like Lings Pavilion do not levy a service charge. They pay their staff a decent wage. Nini Ling tells us that despite this, the volume of tips received ranges between a measly 3 % and 5 %. Is this not really shameful. You have a long standing restaurant with probably 80% of its clientele being repeat customers, still they do not tip. The Table an upscale and good restaurant was the pioneer. It removed service charges and increased prices several months ago. At Toto’s you do not even get a bill, so there is no question of a service charge. Waiters have been there for years and are on the rolls. Tips belong to the waiter, except at the bar where the bar staff shares the tips. At the ITC which we also go to regularly, there is no service charge. Tips go into a tip box. At the Irish House you have a 10% service charge and tips over and above go into a box.  So there are many variations.

Fourthly, what does service charge mean to our brilliant Indian restaurateurs?

1.            The Indian restaurateurs position is the service charge they levy is not optional but mandatory. They further say that if the Government is to make service charges optional they will take the matter to court. Furthermore, the restaurateurs say that since the charge is not optional, if you don’t want to pay the charge, simply do not eat in their restaurants.

2.            From what I have been hearing on television and reading in newspapers our brilliant restaurateurs have tried to establish at least two beachheads to justify their position.

3.            The first position that they have taken is that in the Indian context, service charge is necessary to (i) offset the Indian punters meager and inconsequential tips (ii) offset staff salaries and (iii) pay for supplementary like staff uniforms and so on.

4.            The second position that they have taken is that no, this service charge is not really in lieu of tips but is a service charge or convenience charge that they seek to levy. The restaurateurs equate this with the service charge or convenience fee that Low Cost Airlines and sites like BookMyShow levy on online bookings. They argue that there should be a level playing field, and if other service industries can levy a service charge that this not optional, then similarly the service charge levied by restaurateurs should also be mandatory.

5.            In other words, our brilliant restaurateurs have a totally different interpretation of service charge. To them this is a simply a charge to offset their costs.

So what is all the fuss about?

To me the solution appears simple. Remove the service charge, increase prices of the food and drink with the amount of all expenses that comprise service charge and get on with life. Surely, as a restaurateur you know how much your expenses are. Yes, I realize that if the price goes up I would have to pay taxes on the increase. This would mean that a punter would have to pay 20% VAT on the 10% increase, a small amount. This would be much like the European or Japanese model. I doubt anyone would have a problem with that.

However, for reasons that I am unable to fathom, our brilliant restaurateurs are resisting this. Is this because this service charge is merely a guaranteed 10% margin for restaurateurs to take home. Seeing the way restaurants in Mumbai open and shut I would not rule out the possibility that along with this 10% service charge, the restaurateurs also skim the entire VAT and Krishi & Swatch Bharat Taxes. You know how difficult it is to get a registration. So when restaurants open, are we as punters assured that the restaurants have VAT registration? And, are we sure that the VAT collected is being deposited with the Government before the restaurant folds up? I am not so sure.

I believe, the resistance of restaurateurs to increase prices and remove service charge indicates “daal mein kaala”.

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