Restaurants Imposing Labor Surcharges

What’s a restaurant to do when $15 minimum wages force them to raise prices beyond the willingness of most customers to pay? Many it seems are adding a labor surcharge instead.

A recent article in The Wall Street Journal says this tactic is gaining favor in restaurants in big cities such as San Diego and San Francisco that recently have imposed steep increases in minimum wages, including several that are expected to rise to $15 an hour or higher.

“It’s the new emerging norm,” said Sharokina Shams, spokeswoman for the California Restaurant Association, of the 3%-4% surcharges that restaurants are charging in states such as Arizona, California, Colorado and New York. An exception is New York City, which bans the practice, but restaurant lobbyists are working to change that, the article said. While it’s difficult to gauge the impact that surcharges could have on linen suppliers, to the extent that they enable restaurants to survive financially, they also could benefit suppliers to such establishments.

Restaurateurs say they have little choice but to impose the surcharges because raising food prices too high will simply drive away customers. The higher costs could put a damper on sales, but at least it forces consumers to face the reality of what labor costs mean in terms of making it more difficult for restaurants to turn even a modest profit. “We want people to understand there’s a cost,” said David Cohn, who owns 15 restaurants in San Diego and recently imposed a 3% surcharge on diners. “How do we stay in business with margins shrinking and competition increasing?” Click here for details.