California restaurants and delivery services will no longer be allowed to collect service fees from customers beginning this July. This news struck a nerve for business owners, and famed entrepreneur Jon Taffer spoke out against the new law.
California’s Recent Wage Changes
After the announcement recently that many California fast food workers would soon be earning a minimum wage of $20 per hour, controversy rippled across the country.
An Abundance of Controversy
Opponents decried the wage hike, claiming that it would bring about inevitable menu price increases that would ultimately hurt businesses.
Support for Living Wages
Those in support of the bump in minimum wage worry that fast food workers otherwise do not earn a living wage and cannot sustain themselves and their families on anything less in California.
A New Law on the Horizon
Before the dust has settled on that law, which goes into effect in April, legislators have announced another change for businesses in the food industry.
As of July of this year, so-called “junk fees” are no longer allowed to be added to receipts for restaurants in California.
“The Money Has to Come From Somewhere Else”
“They’ve been relying on those junk fees to pay employee benefits,” said Fox Business host Stuart Varney. “Now, that money has to come from somewhere else.”
Jon Taffer’s Thoughts
Varney welcomed Jon Taffer, best known for the reality TV show Bar Rescue, and asked him to break down the concept of junk fees and why they are important to businesses.
Restaurants Opted for Service Fees Over Increased Menu Prices
“A lot of restaurants have said, ‘I don’t want to raise menu prices, I’m gonna add some surcharges, if you will, to doing business with us,’” Taffer explained. “‘I’m gonna put a $2 surcharge on every item to cover my increased energy or food cost.’”
“We’re Nickel-and-Diming People”
“They’re taking that approach, it’s almost like the airlines, Stuart, with all the little charges that they’re adding, you know, to fly on a plane today – aisle seat, window seat, baggage, etc – and we’re nickel-and-diming people,” Taffer continued.
“This is a Consumer Choice”
“I don’t believe that the state of California should be involved in the way that we go about doing our business,” he said. “This is a consumer choice.”
Taffer’s Own Choice: Raise Menu Prices
Taffer said he made the decision to increase menu prices instead of implementing service fees at his restaurant, Taffer’s Tavern.
Increased Menu Prices are More Transparent, Consumers Say
Many regular restaurant visitors online say they would prefer increased menu prices over junk fees because it feels like a more transparent way of advertising prices.
Some people feel misled when a meal is advertised at $10, but then their bill is for $12 because of an undisclosed surcharge.
The New Reality of “the $30 Hamburger”
“The consumer is starting, dare I say, to get used to the $30 hamburger,” Taffer said. “Prices are incredibly high now – a hamburger in some markets costs what a stead used to cost.”
Other Industry Giants Share Taffer’s Concerns
Taffer’s concerns echoed those of Andrew Wiederhorn, founder of restaurant group FAT Brands, who recently spoke out on the issue of increased minimum wage in California.
Wiederhorn said that restaurant operation costs are increasing, and the difference has to be covered somehow.
“Someone’s Got to Pay for It”
“Someone’s got to pay for it and the restaurant operators don’t have the margin for that,” Wiederhorn said. “So, prices are going to go up.”
Taffer’s Support for Higher Menu Prices
Taffer advocated for his method of increasing menu prices to cover higher costs, saying that was a more “honest” way to shift the burden of expense to the customer.
“Let’s Do It Honestly”
“Let’s do it honestly; let’s just do it through the menu,” he said.
Public Support for Law Changes
Many Californians support the plan to increase the minimum wage for fast food workers and eliminate surprise surcharges, hoping that it will lead to a better overall customer experience due to well-compensated staff and transparent pricing.
Concerns of Government Overreach
The largest point of contention with the junk fees ban seems to be that opponents feel it is an example of government overreach, and some people are taking issue with the fact that businesses will be forced to change their practices as a result of the new law.
Consumer Protection vs. Government Control
But government involvement in business matters is relatively common when it comes to issues of consumer protection, which supporters argue this ban qualifies as.
Some argue that the additional cost is not the problem—the fact that people are not informed of the true cost of dining out is.
How Much More Will Customers Pay?
As restaurant-goers in California prepare for how this change will affect their wallets, the question remains whether the increased menu prices will reflect the same extra charge as the previous service fees did.
If so, the bottom line for the customer should not change much, if at all.
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The post – California Restaurants to Ditch Service Fees This July – first appeared on Liberty & Wealth.
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The content of this article is for informational purposes only and does not constitute or replace professional financial advice.
