Monday, March 12, 2007

5% service charge topic of big restaurant meeting

Restaurateurs around the city are seriously considering adding a 5% service charge to cover minimum wage increases, I reported in Friday's Business Times (free link).

Dozens of owners, along with the head of the Golden Gate Restaurant Association, are expected to meet this Thursday at Tres Agaves to talk about the issue and possibly coordinate a strategy. Either that or just drink some delicious margaritas at three in the afternoon, but far be it from anyone in the industry to consume alcohol during working hours.

This service charge idea is not new in San Francisco. It surfaced (free link) back in 2004, when the city's higher minimum wage first went into effect, but it turned out to be a false alarm.

But allegedly it's for real this time. Since going into effect in 2004, the minimum wage has since increased three times.

Meanwhile, restaurant owners said they can't hike menu prices any higher -- diners have started ordering cheaper items, cutting back how often they eat out and, horror of horrors, taken to drinking less.

So the restaurateurs have taken up what some of them concede is a bit of psychological trickery: a bill surcharge that could range from 3-18%, depending on the restaurant, but would probably end up being around 5% most of the time.

Technically this can be deducted from the tip. But Mark Pastore at Incanto, who imposed a 5 percent service charge back in 2004, told me that "people rarely do" deduct it from the
tip, even though his menu description of the fee as a "partial service charge" is designed to imply they may do so.

Someone asked me on email this weekend whether this could amount to collusion. In short, the restaurants don't think so. When I asked Kevin Westlye of the restaurant association about this in the course of reporting my story, he said the association attorney believes the meetings are fine because restaurants are not setting prices per se but instead discussing a percentage surcharge. In other words, they are not talking about setting the price of a steak or certain kind of wine, things that would continue to vary widely, but about a percentage on top of these prices.

Full story: 'Service charge' on the boil at S.F. restaurants (free link)

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