To surcharge or not to surcharge? That is the question.

When first arriving in New Zealand I was quite taken back by the idea of charging a surcharge on public holidays, however when I took up my position and was faced with having to look at the situation again…I found myself in somewhat of a dilemma.

Being very market focused, it was obvious that it will never be a popular decision to surcharge; however as someone that also has responsibility over the finances of the business it just doesn’t add up, not to.

At one of our outlets, we work on a 32% staffing cost. We don’t have enough staff to only have members of staff that don’t usually work that day, work (Especially when Christmas fell on the weekend!) We want to continue providing a high level of service, so I will not under staff our restaurant, hence we have no real option but to pay the time and half plus a day-in-lieu. Suddenly our staffing cost becomes 80%, leaving no room for our food/beverage cost or our overheads (of which we have many!)

When discussing our stance on this highly controversial issue with my management team, I had a mixed response…some said ‘let’s close,’ others said that we should spread the costs over the year whilst others suggested putting a 20% surcharge in place.

Rather than helping, I felt that this discussion had raised even more problems rather than solutions! As with most other regions, here in Dunedin we have those that choose to surcharge and others that decide not to. I can understand outlets with low staff costs and an increase in business on these day’s choosing not to surcharge, but for us neither is a reality.

Closing is not an option, we are a hotel and must be open for our residents – so why not be open to external guests, providing a service to our regulars and other visitors to the city.

To spread the costs across the year seems most logical, however with eleven public holidays and a number of other dates that are observed adding to the bill…it are a large expense to spread. You also have to ask yourself, is it really fair to add this cost onto the bills of everyone else throughout the year?

With most restaurants and cafés choosing to surcharge, most consumers presume there will be a surcharge. If we made a decision not to surcharge, it then bodes the question how do you let guests know? To those businesses with a high foot traffic simply putting a sign up would probably suffice, but what for the rest of us?  Perhaps I could follow in the footsteps of those who choose to advertise the proud fact that they don’t surcharge. To me this seems even barmier as this then adds to your cost of public holidays yet more!

I feel that the decision we made was a fair one, we charge a 15% surcharge on public holidays – not opting to follow the 20% trend of other contemporary dining restaurants. We ensure that any guest that reserves a table is aware of the surcharge from the outset, we display clear signs on our external doors and have a footnote on our menus throughout the year.

This way we are remaining open when many are not, ensuring we fulfill our responsibility to our regulars, residents and tourists. We communicate this to our guests clearly and thus leave it at the discretion of our patrons as to whether they choose to dine.

One year in, yes, we still get those who are unhappy with our stance, however these days tick over nicely and best of all – I have now come to peace with the decision we made to surcharge.

7 Comments

  1. John Owens December 28, 2010 at 4:27 pm #

    To financially punish people who come to your business on a public holiday is not a very effective way of saying, “Welcome, thank you for coming!”

    Surcharging on public holidays is a very bad habit that has emerged in New Zealand over recent years.

    It is a practice that should cease immediately!

    Even those who do it know that they should not be doing so. They know they have made a bad decision and, like many of us when we are trying to excuse a bad decision, come up with all sorts of implausible excuses.

    Some will resort to dubious mathematics so try show that public holiday staffing costs are a ruinous burden that will drive them out of business. Such mathematics can turn 32% staff costs to 80% staff costs!!

    In standard mathematics 32 x 1.5 = 48. “But what about the day off in lieu that the staff member may take at some later date?” What about it?

    Surcharging customers on a public holiday for the day off in lieu that may be taken at some future date is about as valid as surcharging customers on any day that a member of staff is taking a holiday.

    Why not surcharge customers who come to your business on the day you pay your rates, or your insurance premiums or your directors dividends?

    In the hospitality and accommodation sector many employees do not get paid for public holidays because they do not normally work on the day on which the holiday falls. How many “Surchargers” will reduce their tariffs to take account of this?

    Even the very hard nosed business person, when driven by quality and customer service, will not surcharge. Rather, they will build any extra costs into their overheads and recoup them throughout the year.

    Surcharging is not about economics, well not good economics. It is more about our sense of values. It is about how much we value our customers and our reputation as a generous spirited people.

  2. James Hacon December 28, 2010 at 4:51 pm #

    In essence John, it is a simple matter of supply and demand. Most hotels around the world will put their room rates up when the supply is higher. Many restaurants increase their pricing during high seasons. All airlines increase their pricing when the demand is there.

    You wouldn’t expect a manufacturer or retailer to sell their product at a loss, so why should restaurateurs. Just because our product is intangible I completely disagree that we should lose out.

    Surcharging is not a case of making an additional profit, in reality it is lessening the loss!

    Whilst many have the great opportunity of being able to close for these days, we choose the stay open. As I said in the first place, people have a choice to dine with us as they would have a choice to fly with an airline charging a surcharge on fuel.

    We work hard to ensure that the product and service we offer is of a high standard. Those guests wanting to enjoy our high standards will pay the extra 15% happily,as many have. Perhaps more deplorable are the number of businesses that choose to close not only for the public holidays but for weeks over the Christmas and New Year period. I wonder how many people would whine about these businesses – oh, but I forget they are the lucky ones’s not there to hear it.

    It is the businesses like us, that remain open 365 days a year should be commended, not grumbled at for trying to make our businesses profitable.

  3. Michelle Ackers December 28, 2010 at 6:27 pm #

    As a consumer it really annoys me to pay a surcharge and so I avoid dining out on these dates. As a business I can see the rationale to reduce losses but perhaps we should be discussing the need to address the laws around paying such high public holiday rates to employees as the root cause of this issue?

  4. James Hacon December 28, 2010 at 7:21 pm #

    I agree Michelle. In the other countries I have worked it has been within the law for hospitality outlets, who work 365 days, to build into their contracts the ability not to pay extra.

    I looked at this here, but at present – it does not seem possible. I consider working on these days as being a requirement of the industry I chose to work in.

    Here in Dunedin the issue is probably confounded more than other places due to the local trend of going to Central Otago for long weekends and public holidays – hence reducing business level’s anyway, without the additional burden of having to pay staff at much higher rates.

  5. Gareth Marshall December 29, 2010 at 1:28 am #

    On principle I choose not to pay a surge charge for public
    holidays, and also avoid these places during the year when no surge
    charge applies. Our employment laws whether we agree or disagree
    apply to all industries including retail. Imagine the uproar if
    retail stores or petrol stations started charging a surge charge on
    public holidays. All workplaces must pay there staff even if they
    choose to close and therefore have no income for the day. It is
    part of the total cost of employing staff. As you mention opening
    is part of the industry you choose to be in. As I tell my staff
    when they want Christmas Eve off or to finish early, find a job
    that isn’t in retail. I agree with John, it is just a bad excuse to
    raise prices on particular days, or incredibly bad business
    planning by not building the full wage cost of an employee
    throughout the year.

  6. James Hacon December 29, 2010 at 9:52 am #

    Thanks for your comments Gareth. To compare restaurants with retail or petrol stations is not comparing like for like. Retail outlets and petrol stations have a lot higher profit margin in there goods, a much lesser staffing cost and at this time of year retail has the additional foot traffic to incur this cost. All factors that most restaurants don’t enjoy.

    When out shopping in the past few days it was interesting to note that many of the smaller retail stores were still closed on the 27th and 28th. Perhaps these smaller stores can’t afford to incur the costs of opening either. With this being the case, I think Michelle is right – we should be looking at the law regarding public holidays and pay rates.

    Interestingly I just got a message from a friend of mine who is involved in tourism in Sydney, she told me that many restaurant’s shut on these days there too. With the remaining restaurants choosing to surcharge also. Its good to see that this issue is not just confined to New Zealand’s borders. If anything, you would think that a city like Sydney, with such a large population would have enough additional business to sustain these costs.

    I thought it would be interesting to add in that I have just spoken to my supervisory staff who worked in our restaurant over these days – great to hear that we have had no complaints & we still sustained a similar level of business to normal. If our consumers felt that strongly about not paying the surcharge, you would imagine they would not have come!

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