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How long will tips and service charges last in a cashless world?

In an increasingly cashless world, tips and service charges may not last long

brunch Updated: Jan 14, 2017 19:36 IST
Tips and service charge,National Restaurant Association of India,Connaught Place
(Getty Images)

A week ago when the government issued a circular restating what I thought we already knew − that service charges at restaurants were optional − I retweeted my old Rude Food columns on the subjects of tipping and service charges.

To my surprise, the retweet provoked a fresh storm on Twitter as public anger with the restaurant industry came tumbling out. Few subjects, I have now discovered, get restaurant-goers as agitated as service charges. And as the furore continued, I began to realise why people were so upset.

First of all, I was wrong to believe that service charges were ever optional. I had always imagined that if you went to a restaurant and the service was really bad, you could complain to the management. And once the restaurant had noted your complaint, it would have the decency to remove the service charge from your bill. After all, if you weren’t getting any service, then why should you be expected to pay an extra charge for the (non-existent) service?

Turns out I was mistaken. Totally mistaken, in fact. The National Restaurant Association of India (NRAI), an umbrella body of restaurant owners, declared that you bloody well pay for service, whether you like it or not.

Further, said the NRAI, it was so determined to oppose the government’s clarification on optional service charges that it was going to court.

But why? Does it make any sense for a restaurant, which is in the business of providing good service, to force people who have had bad service to pay an extra charge?

Judging by the anger on social media, it doesn’t. The decent thing to do, in such cases, would be to waive the service charge, which is what the government requires restaurants to do as per the new circular. But no matter how strongly customers feel about this, the industry takes the opposite view.

I imagine some of the industry’s reasons are historical. The truth is, that till a decade or two ago, the restaurant industry did not have a very honourable record of treating its serving staff. Many of the great restaurants of Kolkata’s Park Street, Delhi’s Connaught Place and Mumbai’s Churchgate street would pay their waiters a bare minimum. The servers would be expected to make a living by subsisting on tips.

At many old Connaught Place restaurants, staff salaries are kept low on the grounds that servers will get tips ( Gurinder Osan/HT PHOTO )

Restaurateurs justified this ethically dubious practice by arguing that customers were better served by a tipping regime. After all, they said, if a server made his living on the basis of tips, then wouldn’t he be incentivised to provide better service?

You can use this kind of argument to justify practically anything from performing monkeys to dancing bears. And there’s the obvious logical objection: if the only way a restaurant can guarantee good service is to ask you to pay the waiter yourself, then what about the food? Shouldn’t it follow that because customers weren’t directly paying the cooks, the restaurant could not guarantee the quality of the cuisine?

The tipping regime has given way, in many establishments, to the service charge model. Now, you are not expected to tip (though in most places, your waiter behaves as though a tip is due, anyway) but an extra charge (say 10 or 12 per cent) is added to the bill. You are told that this is a service charge and will be divided among the staff.

It is a measure of how isolated the average restaurateur is from reality that few restaurant proprietors realise that this charge is a fairly unusual concept. When you get service at a shop, you pay for the product you buy and nothing else. No shop tags on an extra 10 per cent to the bill and says that it is for the shop assistant because the price of the product does not include the service you got from the sales staff. No airline expects you to slip a 100 rupee note into the palm of one of the cabin crew at the end of your flight. They don’t say, “Well, a tip to the hostess ensures that you get good service during the journey.”

Only in the hospitality sector does the idea that you have to pay extra for service hold sway. Restaurateurs simply don’t get this. They don’t realise that what they are doing is almost without precedent in any other industry.

Push them about the practice and they will first lie. They will claim that service charges are like transaction charges at banks or like the fee a booking site charges you for tickets. When you explain that these are bogus parallels, they stare uncomprehendingly.

An accurate parallel would only be if a bank deducted 10 per cent from each withdrawal on the grounds that the teller at the counter had provided a service and should be paid separately for it. And in any case, bank charges are reversed if transactions go bad. Not so with restaurants. Here the service charge is levied, no matter how disastrous the meal experience.

When this nonsensical approach fails, restaurateurs look for precedents from within their industry, but from abroad.

In this limited sense, they are right. The concept of paying separately (or extra) for service is a global hospitality practice dating back to the medieval era when you bought a jar of ale in a tavern and then tipped the serving girl. In some places (much of Europe, for example), tipping is no longer the norm but that component of the bill has been codified into a service charge. In other parts of the world − America, most notoriously − tipping has become a racket. In US cities, tips of 20 per cent or more are the norm. And rather like the old Connaught Place or Churchgate street restaurants, staff salaries are kept low on the grounds that servers will get tips.

Some US restaurants are trying to abolish the practice. The great New York restaurateur Danny Meyer abolished tips at his The Modern and though, it’s been a year now, it has made no difference to his turnover or to the quality of the service at the restaurant. In November, Meyer extended the no-tipping policy to the Gramercy Tavern, another of his restaurants and it will become the norm this year at his Union Square Cafe.

Restaurateur Danny Meyer has abolished tips at his New York restaurants, The Modern, and Gramercy Tavern ( Getty Images )

Why don’t other restaurateurs follow suit? Well because service charges help mislead the public. When you see a dish on a restaurant menu priced at $20 or ~200, you imagine that this is all you will pay. You don’t usually calculate that by the time the final bill comes, that amount will have increased by anywhere from 20 to 40 per cent once taxes and service charges (or tips) have been added.

Indian restaurateurs will tell you, off the record, that they would have to raise the menu prices if they didn’t impose a service charge. When you explain that they should just be upfront, and print the real price on the menu, and do what other industries do − levy a single price for each product after having calculated all costs − they worry that this approach would scare away customers.

But would it, really? Meyer faced the same situation when he took the plunge and raised prices on his menus. It made no difference to sales because guests worked out that the final bill remained the same, regardless of whether the real price of each dish was broken up into two categories (menu price plus tip) or just stated upfront. Indian restaurateurs are not as daring as Meyer. Besides, at least some of them are frequently accused of not passing on the full service charge to the staff and of pocketing a part or all of it.

Judging by the anger on social media, however, they will have to rethink their attitudes. Tips and service charges are a hangover of an earlier era when we liked giving baksheesh or were thrilled when waiters sucked up to us in the hope of getting tips.

But the new generation doesn’t like all that. They prefer an Uberised world where you pay one all-inclusive charge and don’t worry about how obsequious the service is.

These days, even London’s taxi drivers no longer regard tips as their due ( Getty Images )

Take one example. In the US and the UK, it was customary to tip taxi drivers. Uber, however, is a tipless service and as it has caught on, young people have forgotten that drivers used to expect tips. These days, even London’s taxi drivers, who run the world’s most expensive taxis, have been under so much pressure from Uber that they no longer regard tips as their due and are insanely grateful for any they do receive.

As we move into a cashless world of digital wallets and mobile apps, the new generation will be bewildered by the idea of having their restaurant bills divided into two (regular bill plus service charge or tip) parts and will want a single charge.

That will kill off the service charge eventually. The NRAI is welcome to go to court and continue to diss customers who protest at having to pay for bad service.

But, in the end, this is a doomed effort. In the technology-savvy 21st century, nobody will have any time for medieval and ethically dodgy concepts like tips or service charges.

From HT Brunch, January 15, 2017

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First Published: Jan 14, 2017 19:36 IST