Living in a culture seemingly hell-bent on finding new reasons to be enraged isn’t easy when you’re the type of person who prefers a laid-back, chilled-out kind of lifestyle. That’s me. So imagine my dismay to learn of the latest source of consumer rage: restaurants adding a fee to patron bills for the purposes of covering staff benefits.
This is no joke. A small number of restaurants have started adding the fee to diner checks. It seems to be a growing trend. But here’s the reality: all they are actually doing is making the fee visible to customers. Those customers have always paid for staff benefits. The only difference is that escalating costs are being tacked on as additional fees rather than rolled into higher menu prices.
A Sign of Consumer Ignorance
Diners outraged by staff benefit fees are only demonstrating their ignorance of all things business. StarMed Benefits (insurance penalty calculator), a Las Vegas-based third-party administrator of self-funded health plans, recently published an excellent blog post explaining it all. It is a good read.
As StarMed explains, restaurants are no different than any other business in that they set their prices high enough to cover their costs and make a profit. Staff benefits are a cost of doing business. It doesn’t matter whether a restaurant chooses a fully insured health plan or a less expensive self-funded plan. The cost of the plan needs to be covered by their revenues.
Who provides those revenues? Diners. When diners pay for a meal, they pay for more than just the food itself. They also pay for everything that goes into the dining experience: wait service, utilities, rent/mortgage payments, insurance, office supplies, linens, and so on.
That’s Why Prices Go Up
What seems to escape the perpetually offended is the fact that prices go up commensurate with the cost of doing business. If it costs a restaurant more to keep waitstaff on the payroll, the extra amount is rolled into higher prices. Likewise for higher utility costs, higher food costs, etc.
I am mystified as to why this escapes so many people. I’m also interested to know how those enraged by this new trend (which is a bad one, by the way) think their own employers cover benefit costs. Higher health plan costs mean three things: higher contributions from employers, higher contributions from employees, and higher prices passed on to customers.
This is the way business works. Companies do not conduct business to lose money. They are not willing to accept lower margins just so they don’t have to raise their prices. That’s another key thing that so many people don’t understand. Margins are important.
Business Has To Be Worth It
A company’s margin is expressed as a percentage of total revenue that constitutes profit. It can be illustrated with simple math. Let’s say you sell a product at $100. Your total cost to furnish that product is $75. That means your profit is $25. As a percentage of total revenue, your margin is 25%. In other words, 25% of what you made is profit.
Businesses establish margins as a way of determining whether doing something is worth the effort. No company is going to stay in business with a margin of 1%. Even 10% is right on the edge. If margins are not high enough, there is no point in continuing because the owners of that business cannot actually make a living.
All of this is economics 101. Unfortunately, it seems beyond the grasp of the perpetually enraged. Restaurants choosing to list staff benefit fees on diner checks are finding out the hard way.