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In a recent directive by the Indian Government’s Department of Consumer Affairs (DCA), it ruled that the consumer is at liberty to pay service charges the next time he/she chooses to dine in a restaurant. In its statement, the DCA noted the following:
“A number of complaints from consumers have been received that hotels and restaurants are following the practice of charging 'service charge' in the range of 5-20%, in lieu of tips, which a consumer is forced to pay irrespective of the kind of service provided to him.”
Furthermore, it notes:
“In this context, the department of Consumer Affairs, Central Government, has called for clarification from the Hotel Association of India, which have replied that the service charge is completely discretionary and should a customer be dissatisfied with the dining experience he/she can have it waived off. Therefore, it is deemed to be accepted voluntarily.”
Upon reading the press release, the similarity between a “service charge” and a “tip” becomes clear. With this ruling, the DCA has sought to redress the issue of compulsory service charge issued by several eating joints and bring back the earlier status quo. It has also given a directive to the State governments and establishments in this matter: to educate the customer and display information regarding this ruling.
It wouldn't be an exaggeration to say that Indians are poor tippers, when left to their own volition, and in comparison with the rest of the world (monetarily speaking, by Western standards); whether or not to tip a parking valet or petrol bunk attendant on tyre inflation duty is a grey area in itself. From my own personal experiences, in the pre-service-charge era, customers (myself included) favoured a tip based on the change returned, as was convenient (and never as a fixed percentage of the bill).
Restaurants have been largely successful at getting the moneyed to part with their cash and tip their staff better. The recent directive has now put a spanner in the works to the Robin-Hood model of crowdsourcing supplemental employee earnings.
There are other factors to be considered as well. In our country where dignity of labour is nearly absent, bringing respectability to a waiter and encouraging him to do well in his job using tips is a catch-22 situation. Hence, I would like to attribute this parsimonious behaviour to the naturally thrifty, always-looking-for-a-bargain nature of us Indians. It is not uncommon to hear the aggrieved service industry in the West grumble about Indian miserliness in tipping matters.
Then there is the matter of clientele; the customers that frequent a thali restaurant for a quick lunch may not be the same as the ones patronising a “fine-dining” restaurant. In the former, you could expect a quicker turnaround time and a smaller tip; the latter might favour a more laidback style and be okay with attracting a smaller footfall. While there may be exceptions, these are merely broad cases in point to highlight the differences in expectations of a meal and service (and a tip).
Hence, reactions to this order have been mixed based on which side of the table one was from — it has been hailed as a sign of "#AccheDin" by customers for whom a mandatory tax is rendered a voluntary tip; establishments have been understandably wary of this development and have made noises about moving the courts ; some have also impishly suggested implications for democracy.
What if taxpayers ('customers') try to extend the same principle beyond restaurants to, say, governments? (Runs...) https://t.co/frQ2L4M2rJ
— Baijayant Jay Panda (@PandaJay) January 2, 2017
In Bengaluru alone (my home city), going by Zomato’s listings , around 5,900 restaurants cost less than Rs. 500 per couple for a meal; whereas 3,600+ restaurants are more expensive. Among these more expensive joints, around 75% (2,700) charge between Rs. 500 and Rs. 1,000 per meal. Therefore, we can safely assume that a meal for two in these types of restaurants might cost Rs. 800 — and Rs. 400 per person — on an average. Keep in mind, this is still an underestimation for “fine-dining” restaurants. It would also not be an exaggeration to claim that a vast majority of restaurants that levy a service charge belong to this category; it follows that their customers hail from well-to-do backgrounds, and have disposable income.
Now for some back-of-the-envelope math: we can assume that an average establishment of this type has a seating capacity of 50. Hence, a full house (one batch of 50 diners) would earn the restaurant Rs. 20,000 (multiplying Rs. 400 by 50 diners). Of course, over the course of the day, the seat is occupied by more than one customer. In Bengaluru, most restaurants of the service-charge-levying variety are open for four hours each during lunch and dinner.
Since the restaurant is of the “fine-dining” variety, we could suppose that it takes 80 minutes between two successive customers during these meal times; this means that during the eight service hours per day, these restaurants serve six customers per seat (or three per meal). On a busy day, say, during the weekend, it is reasonable to assume that these restaurants run on full capacity. Hence, 50 seats times three customers per meal for two meals gives us 300 customers per day during Fridays, Saturdays and Sundays. The restaurant may not be as frequented from Monday to Thursday — here, we can assume a 60% utilisation for lunch, which gives us 360 customers (0.6 x 50 seats x 3 customers per seat per meal x 4 weekdays) and 80% utilisation during dinner, which yields (0.8 x 50 seats x 3 customers per seat per meal x 4 weekdays) 480 customers.
We now have our estimate: 1,740 customers per week (900 on weekends+ 840 on weekdays), or about 90,000 customers a year; a quick multiplication with the cost per head yields us a conservative figure of Rs. 72 lakh as the yearly revenue for this sample of “fine-dining” restaurant. Let us remember that this is an underestimation — any upward revision to the popularity factor of the restaurant (it being always full) or to its per-head charges will only push this number higher.
A 10-percent service charge on this estimate shows us the kind of money that is saved by these establishments per year — money that does not have to be paid as salaries to waiters in order to retain their services. Going back to the old system of voluntary tips will significantly dent their take-homes , a shortfall that would now have to be borne by the restaurant. Then there is the threat of startups competing for the same pool — delivery boys, taxi drivers and their ilk. Understandably, the National Restaurant Association of India, which represents the industry’s interests, is not going to go down without a fight .
Simply put, the restaurants have been largely successful at getting the moneyed to part with their cash and tip their staff better. The recent directive has now put a spanner in the works to the Robin-Hood model of crowdsourcing supplemental employee earnings. Reverting to the old model will no doubt cause some course correction, either through attrition, lesser profits, and higher cost of dining-out.
