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No comment on restaurant surcharges

"I wasn't told when I came in and I wasn't told when I ordered."

Yum — but Fiesta Cantina's menu prices just jumped a few percentage points
Yum — but Fiesta Cantina's menu prices just jumped a few percentage points

Kevin Vasquez dines out a lot. He expects to pay tax and feels good about tipping. But the 6.9 percent surcharge a local restaurant added to his bill after January 1, well, that was hard to stomach.

"Nothing was ever said about it. Nowhere was there notice I was going to be charged," Vasquez said. "I wasn't told when I came in and I wasn't told when I ordered. To me, that's fraud."

Fiesta Cantina in Hillcrest isn't alone — many restaurants have added surcharges, usually around 3 percent, saying they need to offset the costs of minimum-wage increases that went into effect the first of the year. (Calls to Fiesta Cantina to confirm the surcharge resulted in the manager refusing to answer and hanging up on this reporter.)

The Cohn Restaurant Group and Sammy's Woodfired Pizza restaurants have added a 3 percent surcharge. Calls to find out if San Diego Restaurant Week (January 15–21) diners should expect to see the surcharge went without response.

On January 1, San Diego's minimum wage rose to $11.50 per hour — a dollar higher than the state minimum wage set at $10.50. The California Restaurant Association was one of the most outspoken and active opponents of the wage increase; the group is based in San Francisco, where the minimum wage is at $13 until July 2017, when it jumps to $14.

Antitrust lawyer Daniel Sterrett wants to know is if the association guided the move to surcharges.

"If one restaurant decides to surcharge, that's not antitrust," Sterrett said. "If a bunch of restaurants come together and levy very similar surcharges at the same time, that bears looking into because it could be colluding to set prices and that's an antitrust matter.... You can't legally have a bunch of businesses getting together and deciding it's time for a price increase."

The restaurant association sought an opinion from the state Board of Equalization on whether the surcharge could be taxed in December, according to state documents posted on the group's website on December 29. Board of Equalization employees confirmed that the restaurant association sought the information.

But association spokeswoman Sharokina Shams said the group is guided by its membership and not vice versa

"Where we come in is we help them speak to each other," she said. "We help them connect." Shams pointed out that the average profit for restaurants is around 5 percent — so achieving a $50,000 profit requires $1 million in gross revenues. And, she said, wages and employee costs are as much as 95 percent of a restaurant's expenses.

Calls to the local restaurant association were not returned Tuesday and Wednesday (January 3 and 4). Both the Cohn group and officials from the Ladeki Restaurant Group (which owns Sammy's) declined to comment.

Patrons of restaurants in the Sammy's chain (as of January 4) can expect to see a 3 percent surcharge at San Diego restaurants and a 2 percent surcharge at restaurants outside of the San Diego city limits, an employee said.

Sources say that the local chapter of the restaurant association — which Shams described as one of the most active in the state — consulted with the Golden Gate Restaurant Association on how to implement the surcharge. The San Francisco group instituted surcharges in 2015 when Obamacare policies triggered extra costs for small-business employers, including restaurants. Calls to that association went without response as well.

Attorney Sterrett is suing some Los Angeles restaurants over those 2015 surcharges, claiming the add-ons violate antitrust law. His suit recently withstood attempts to dismiss it — winning a judge's ruling that the conduct in question is a per se violation of antitrust law — a ruling that nearly wins the case for him.

For Fiesta Cantina diner Vasquez, the surcharge was offensive primarily because it was a surprise, but it also cast a bad light on the restaurant. "I feel bad for the servers who have to explain to customers it's so they can have a decent wage, This makes people mad at the servers," he said. "And I don't like being nickeled and dimed — they should just raise prices 25 cents."

Vasquez's reaction to the surcharge lines up with what University of California San Diego professor On Amir has observed. Amir is a professor at the Rady School of Management who studies consumer behavior.

"There are right ways and wrong ways to raise prices," Amir said. The surcharge "doesn't create the image of fairness for diners who think 'you're underpaying your people and now I have to pay more because of your unfair labor practices."

Consumers evaluate pricing for what they are used to paying and for their expectations of what things should cost, as well as fairness, he said.

"Restaurants would be much better off incorporating the surcharge into the food prices and saying, 'It is January 2017 and our prices are up.' Explicitly surcharging for labor creates the image of unfairness."

But if restaurants do plan to surcharge, the surcharge should be thoroughly disclosed from the moment people enter the restaurant, Sterrett said.

"To not tell customers and then add it at the end of the meal could be construed as fraud," the lawyer said.

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“We decided to do everything with caution.”
Yum — but Fiesta Cantina's menu prices just jumped a few percentage points
Yum — but Fiesta Cantina's menu prices just jumped a few percentage points

Kevin Vasquez dines out a lot. He expects to pay tax and feels good about tipping. But the 6.9 percent surcharge a local restaurant added to his bill after January 1, well, that was hard to stomach.

"Nothing was ever said about it. Nowhere was there notice I was going to be charged," Vasquez said. "I wasn't told when I came in and I wasn't told when I ordered. To me, that's fraud."

Fiesta Cantina in Hillcrest isn't alone — many restaurants have added surcharges, usually around 3 percent, saying they need to offset the costs of minimum-wage increases that went into effect the first of the year. (Calls to Fiesta Cantina to confirm the surcharge resulted in the manager refusing to answer and hanging up on this reporter.)

The Cohn Restaurant Group and Sammy's Woodfired Pizza restaurants have added a 3 percent surcharge. Calls to find out if San Diego Restaurant Week (January 15–21) diners should expect to see the surcharge went without response.

On January 1, San Diego's minimum wage rose to $11.50 per hour — a dollar higher than the state minimum wage set at $10.50. The California Restaurant Association was one of the most outspoken and active opponents of the wage increase; the group is based in San Francisco, where the minimum wage is at $13 until July 2017, when it jumps to $14.

Antitrust lawyer Daniel Sterrett wants to know is if the association guided the move to surcharges.

"If one restaurant decides to surcharge, that's not antitrust," Sterrett said. "If a bunch of restaurants come together and levy very similar surcharges at the same time, that bears looking into because it could be colluding to set prices and that's an antitrust matter.... You can't legally have a bunch of businesses getting together and deciding it's time for a price increase."

The restaurant association sought an opinion from the state Board of Equalization on whether the surcharge could be taxed in December, according to state documents posted on the group's website on December 29. Board of Equalization employees confirmed that the restaurant association sought the information.

But association spokeswoman Sharokina Shams said the group is guided by its membership and not vice versa

"Where we come in is we help them speak to each other," she said. "We help them connect." Shams pointed out that the average profit for restaurants is around 5 percent — so achieving a $50,000 profit requires $1 million in gross revenues. And, she said, wages and employee costs are as much as 95 percent of a restaurant's expenses.

Calls to the local restaurant association were not returned Tuesday and Wednesday (January 3 and 4). Both the Cohn group and officials from the Ladeki Restaurant Group (which owns Sammy's) declined to comment.

Patrons of restaurants in the Sammy's chain (as of January 4) can expect to see a 3 percent surcharge at San Diego restaurants and a 2 percent surcharge at restaurants outside of the San Diego city limits, an employee said.

Sources say that the local chapter of the restaurant association — which Shams described as one of the most active in the state — consulted with the Golden Gate Restaurant Association on how to implement the surcharge. The San Francisco group instituted surcharges in 2015 when Obamacare policies triggered extra costs for small-business employers, including restaurants. Calls to that association went without response as well.

Attorney Sterrett is suing some Los Angeles restaurants over those 2015 surcharges, claiming the add-ons violate antitrust law. His suit recently withstood attempts to dismiss it — winning a judge's ruling that the conduct in question is a per se violation of antitrust law — a ruling that nearly wins the case for him.

For Fiesta Cantina diner Vasquez, the surcharge was offensive primarily because it was a surprise, but it also cast a bad light on the restaurant. "I feel bad for the servers who have to explain to customers it's so they can have a decent wage, This makes people mad at the servers," he said. "And I don't like being nickeled and dimed — they should just raise prices 25 cents."

Vasquez's reaction to the surcharge lines up with what University of California San Diego professor On Amir has observed. Amir is a professor at the Rady School of Management who studies consumer behavior.

"There are right ways and wrong ways to raise prices," Amir said. The surcharge "doesn't create the image of fairness for diners who think 'you're underpaying your people and now I have to pay more because of your unfair labor practices."

Consumers evaluate pricing for what they are used to paying and for their expectations of what things should cost, as well as fairness, he said.

"Restaurants would be much better off incorporating the surcharge into the food prices and saying, 'It is January 2017 and our prices are up.' Explicitly surcharging for labor creates the image of unfairness."

But if restaurants do plan to surcharge, the surcharge should be thoroughly disclosed from the moment people enter the restaurant, Sterrett said.

"To not tell customers and then add it at the end of the meal could be construed as fraud," the lawyer said.

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Comments
4

Until the eateries adjust their menu prices, expect to see those surcharges. 'Way back a long time ago, 1973 to be exact, the effect of price controls finally hit the restaurant industry in the form of higher food prices and the unavailability of beef for several weeks. Many restaurants put on a surcharge at that time to offset, it was claimed, the higher cost of food. I don't really recall whether those came off, or if they stayed until the prices were raised.

We need to remember that one of the reasons for generous tipping was that wait staff didn't get paid much in light of the work and the demands on them. So we generous diners gradually went from tipping about 10% in the 1950's to a "recommended" 20% by the 1990's. With the staff now being paid better, maybe it's time to take a good hard look at the notion of giving out tips in the 20% range for everyday, unexceptional service. I'm going to be tipping less generously from here on out, and especially when the service is indifferent or negative.

That claim that "wages and employee costs are as much as 95 percent of a restaurant's expenses" is ludicrous. Even where the chef serves ordinary, basic and cheap food and gets a too-high price for it, the place still has to buy the food! Then there's the matter of rent, utilities and maintenance that probably eat up close to 40% of the total costs of operation. It is a tough business, and has a low profit margin in most cases. But it is also possible to do very well if the owner or manager is willing to work hard, show some pride in the stuff coming out of the kitchen, and be creative while remembering that they don't sell food exactly. What they sell is satisfaction. Pissing off the public is just plain dumb, and if you want your surcharge, tell the diner about it as he/she sits down to order.

Jan. 4, 2017

Most everyone commenting is missing the point of the surcharge. The restaurant wants you to know they feel a living wage for their employee should not be mandated. So, the surcharge, rather than a price increase on an item, is the way to tell each customer in blatant terms we want you to know we disagree with the mandate. Raising prices by $0.45 on a $15.00 item who cares, but add a 3% surcharge instead and you get attention and outrage! And, by going the surcharge route, now everyone is upset with the servers instead of the restaurant. Keep in mind many of the upscale restaurants share tips with the back room employees and most restaurants are not high end with servers getting much in the way of tips.

Jan. 7, 2017

I am raising my auto repair rates $7.00 per hour. Deal with it.

Jan. 9, 2017

Almost certainly not fraud. That's a serious crime. This is just crappy business practice.

Feb. 5, 2017

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