In April 2017, the Supreme Court imposed a ban on the sale of alcohol within 500 meters of state and state highways to combat drunk driving. This order came because someone was involved in an accident after consuming alcohol from a vendor near the freeway. The ban was quite ironic as it was imposed not only on alcohol vendors but also on restaurants and luxury hotels which anyway have very strict guidelines on serving alcohol. A restaurant will refuse to serve alcohol to a person who enters a hotel intoxicated, as it would consider it a public order problem. Unfortunately, this was not considered and a ban imposed on all.
For several months, members of hotel and restaurant associations ran from post to post trying to get this message across. Meanwhile, the order led to a massive drop in restaurant revenue, and because restaurants don’t operate with very high profit margins, they were forced to close, leading to the loss of thousands of jobs.
So why is this story important? Because something similar happens with service charges.
On July 4, the Central Consumer Protection Authority (CCPA) issued guidelines stating that no hotel or restaurant should add service charges automatically or by default to the bill and that service charges should not be collected from consumers under another name. Before discussing the merits of the service charge, I would like to point out that customers who dine at restaurants are well aware of their rights. They can choose to pay a service charge or not go to a restaurant that charges a service charge. So I don’t understand why the government has to get involved in this file.
When he really should have gotten involved was when thousands of jobs were lost in the hospitality industry during the first two waves of Covid. While countries like Bhutan paid salaries to all hotel workers and the UK offered an expense allowance for people to eat out, there was nothing here and thousands of people lost out their employment in this sector.
I would also like to point out some myths and facts regarding the issue of service fees. First, there is a lot of discussion that service fees should be discretionary. It would actually open him up to more conflict in the restaurant and with customers. My take is that if a restaurant doesn’t provide good service and keeps charging a service charge, would you ever go back to that restaurant?
Restaurant owners and hoteliers are trained to focus on delighting customers and guests. From this point of view, if the right food and service is not provided and you are still being charged, you should ideally not return to this restaurant. Thus, the restaurant loses in return. In fact, good restaurants won’t even present the bill if they feel they’ve made a mistake in providing quality food and service because they want the customer to come back.
The second point concerns the distribution of service charges. Many people think that some restaurateurs keep it to themselves or don’t pass on all the benefits to employees. From my years of experience, I can say with certainty that over 95% of catering service costs are spread among employees. Again, just like consumers, employees also have a choice. There is a massive shortage of skilled employees in the industry. So, if an employer does not pass on the benefits to the employee, the employees will leave, which will affect the business. So there is an automatic control system here.
The third is the negative impact on non-service people such as chefs, kitchen stewards and maintenance staff who work in restaurants. They stopped charging the service charge after the government decision as many establishments decided to remove the service charge as they don’t want to argue and fight with the government. So, after two years of the pandemic, when money was starting to come in from tips, this guideline won out.
Fortunately, some relief came this week thanks to a Delhi High Court ruling that suspended recent service charge guidelines. In addition to defending the position of restaurant and hotel associations, it has above all put money back into the hands of employees who need it.
Instead of tackling trivial issues such as service charges, the government should focus on simplifying excise rules, reducing customs duties, reducing the number of licenses required to open restaurants and, thus , to make India a more attractive culinary destination where people can eat and drink in peace. But unfortunately, instead of running great restaurants, we are taking our restaurant owners to court.
The opinions expressed above are those of the author.
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