Service Charges at Restaurants – who benefits?

Its odd these days not to see as many outlets of Cafe Coffee Day as one would see a decade or so back. From the peak of 1,400+ cafes across India, the chain is now reduced to around 500. The closest chain in business runs 280 cafes – Tata Starbucks. These cafe chains, alongside many others redefined the service business that is F&B – one doesn’t have to pay for the services availed and in many cases, not even pay for the beverage. To have a team meeting or simply sit with a book or laptop was considered birthright than a privilege. Without having to worry too much, discerning consumers could wade their time away.

Cut to restaurants. There are many classifications – Quick Service Restaurants (QSR), Fine-dining, Boutique Restaurants and of course, the fast food outlets. Of these, the fine-dining varieties and the boutique restaurants are the ones which seek “service charges” from the customers. One is already paying a lot by way of food charges, so why pay additionally for the service, is what most diners ask. Well, in a way they are correct. Prices at these restaurants are intentionally a tad higher even as they try to reach out to a different segment of customers who prefer privacy and personalised attention. What started off around Mumbai, NCR & Bangalore has now spread pan-India.

However, the owners of these restaurants have a different story to share. They include the demurrage + wear & tear of the crockery and cutlery in these so called “service charges”. Also, we are a stingy country at best when it comes to offering gratis or “tips” for the services availed. Bills of Rs. 4,000 or more do not elicit even Rs. 50 as a gratitude to the waiters. Globally, the accepted norm (at top restaurants) is 5% of the bill value. But in India, no matter how big is the bill, most diners do not tip more than Rs. 100. Many don’t even care to pay a tip, as they presume its already covered in the food prices.

To offset their wear and tear and to keep the employees motivated, select restaurant owners came up with this idea of a “Service Charge” by choice. Over time, it became a norm. While many diners ignored, the typical argumentative Indians took the matter to Central Consumer Protection Authority (CCPA) India and contested that they were being forced to pay for the service. This matter has attracted enough public debate, especially on social media. The CCPA in its recent verdict asked the Restaurants to stop charging for its services. The High Court of India has put the matter on hold by way of allowing a Stay on the Case. Both sides are reasonable some way or the other, but then, to pay gratis is voluntary. Let’s see what the Law has to say at the end.