April 24, 2024
Restaurant Industry Protests FTC's Surcharge Ban: Operators Fear Price Hikes and Service Shake-Up
Washington, D.C. (April 24, 2024) – Today, the Federal Trade Commission held an informal hearing on its recently proposed ban on so called “junk fees.” The proposed rule would ban common restaurant service fees and surcharges, forcing restaurant operators to raise menu prices and rewrite how servers are paid. It would also force operators to create multiple menus with different pricing, depending on how a customer pays, whether they’re dining in or ordering delivery, and even how many people they’re dining with.
The FTC unfairly swept restaurant operators into its far-reaching “junk fee” rule. Restaurant fees aren’t junk fees — they are long-standing fees for additional services or greater convenience which customers choose and that add value — like delivery fees.
“If the FTC bans delivery fees, we will again be forced to raise our prices to absorb the cost of offering delivery to our customers,” said Michael P. LaMarca, owner and CEO of the Master Pizza Franchise Group in Cleveland. “Our customers that CHOOSE to have their food delivered are accustomed to paying a delivery fee (for over 20 plus years) and appreciate the service that we offer.”
Jeffrey Gosnear, president of Grotto Pizza based in Rehoboth Beach, Del., agrees and says in the end, it will likely end up costing customers more, if they have to have a delivery menu with ‘all inclusive’ pricing, “right now, order one pizza or 15, and you only pay one delivery fee. If we have to put the cost of delivery in the menu price, when you order more, you’re going to be paying way more than if we just charged a delivery fee.”
The elimination of these long-standing fees will not only impact restaurant operators but tipped service staff. Restaurant operators use large party service fees to ensure that a tipped server who manages extra responsibility for large parties is guaranteed a tip for their work.
“When we have large parties, we dedicate at least one server to the table, and that means for part of their shift, that server is giving up other tables where they could be increasing their tip opportunities,” said Gosnear. “To protect our server’s earning potential, we use a large party service fee that we post on our menus and website. But we find that our customers expect it and don’t object. We would rather continue this than having to hide that service fee from our diners. It would also cause confusion about whether they had to tip on top of the higher prices.”
The FTC estimates that this rule will cost operators up to $3.5 billion to implement — a cost of about $5,000 per restaurant. For small independent operators, who run on a 3 to 5 percent pre-tax margin and make an average of $45,000 annually, that’s approximately 10% of their total income.
“Last week, the Association convened nearly 600 restaurant owners to discuss the FTC rule and its impact. The best word to describe their reaction — shock,” said Sean Kennedy, executive vice president of Public Affairs at the National Restaurant Association. “The sweeping nature of the FTC proposal on the restaurant industry is the epitome of a solution in search of a problem. Customers recognize that some charges on a bill are absolutely predictable and reasonable. We will continue engaging our membership, Congress, and the FTC to find a workable solution.”
Learn more about the impact of the proposed rule here and read the full National Restaurant Association and Restaurant Law Center joint comments here.
The FTC unfairly swept restaurant operators into its far-reaching “junk fee” rule. Restaurant fees aren’t junk fees — they are long-standing fees for additional services or greater convenience which customers choose and that add value — like delivery fees.
“If the FTC bans delivery fees, we will again be forced to raise our prices to absorb the cost of offering delivery to our customers,” said Michael P. LaMarca, owner and CEO of the Master Pizza Franchise Group in Cleveland. “Our customers that CHOOSE to have their food delivered are accustomed to paying a delivery fee (for over 20 plus years) and appreciate the service that we offer.”
Jeffrey Gosnear, president of Grotto Pizza based in Rehoboth Beach, Del., agrees and says in the end, it will likely end up costing customers more, if they have to have a delivery menu with ‘all inclusive’ pricing, “right now, order one pizza or 15, and you only pay one delivery fee. If we have to put the cost of delivery in the menu price, when you order more, you’re going to be paying way more than if we just charged a delivery fee.”
The elimination of these long-standing fees will not only impact restaurant operators but tipped service staff. Restaurant operators use large party service fees to ensure that a tipped server who manages extra responsibility for large parties is guaranteed a tip for their work.
“When we have large parties, we dedicate at least one server to the table, and that means for part of their shift, that server is giving up other tables where they could be increasing their tip opportunities,” said Gosnear. “To protect our server’s earning potential, we use a large party service fee that we post on our menus and website. But we find that our customers expect it and don’t object. We would rather continue this than having to hide that service fee from our diners. It would also cause confusion about whether they had to tip on top of the higher prices.”
The FTC estimates that this rule will cost operators up to $3.5 billion to implement — a cost of about $5,000 per restaurant. For small independent operators, who run on a 3 to 5 percent pre-tax margin and make an average of $45,000 annually, that’s approximately 10% of their total income.
“Last week, the Association convened nearly 600 restaurant owners to discuss the FTC rule and its impact. The best word to describe their reaction — shock,” said Sean Kennedy, executive vice president of Public Affairs at the National Restaurant Association. “The sweeping nature of the FTC proposal on the restaurant industry is the epitome of a solution in search of a problem. Customers recognize that some charges on a bill are absolutely predictable and reasonable. We will continue engaging our membership, Congress, and the FTC to find a workable solution.”
Learn more about the impact of the proposed rule here and read the full National Restaurant Association and Restaurant Law Center joint comments here.
About the National Restaurant Association
Founded in 1919, the National Restaurant Association is the leading business association for the restaurant industry, which comprises more than 1 million restaurant and foodservice outlets and a workforce of 15.5 million employees. Together with 52 State Associations, we are a network of professional organizations dedicated to serving every restaurant through advocacy, education, and food safety. We sponsor the industry's largest trade show (National Restaurant Association Show); leading food safety training and certification program (ServSafe); unique career-building high school program (the NRAEF's ProStart). For more information, visit Restaurant.org and find @WeRRestaurants on Twitter, Facebook and YouTube.