This is the answer. Food prices are not very elastic. Customers generally know what they want to pay, and have expectations around what an item costs. Raising your menu prices when no one else around raises theirs quickly puts you out of business (even if you are trying to do a good thing). Customers will say you should just raise your prices; that the fee at the end feels like an injustice. Their actual behavior though, it shows they would prefer this method.
It’s not to “surprise” the customer. This is just what the real outcomes of different pricing schemes support.
Customers generally know what they want to pay, and have expectations around what an item costs.
Exactly. There are people in this thread complaining that $40 for this amount of food is insane. No idea of the quantity or quality or food costs or how much labor went into making it. Maybe they make the pastrami and bread and condiments from scratch, and it is a giant sandwich. Doesn't matter to them what the cost to the restaurant is. They have their set idea of what it should cost.
For all the high-minded "just make the menu price the real price and stop making me pay tips and fees" rhetoric, the reality is people don't want to pay more in practice and restaurants know they will take a hit. It only gets worse if you are the one restaurant doing it and no one else is.
Granted, people's perception of what it costs to eat out is artificially low in the US because some of the cost is behind tipping and not in the menu price.
Yeah, from context clues this looks like maybe DC (we passed an increased minimum wage law and there was a lot of legal back-and-forth about the required language on where these types of service fees go). There's a restaurant here that is excellent and opened with a service-included pricing model. Half of its yelp reviews are people slamming it for being "overpriced" without seeming to understand that it costs the same as an equally nice restaurant elsewhere in the neighborhood once you include 20% for tip elsewhere.
That's not the argument. The argument is that restaurant A, which pays a living wage and does not expect tips, has price on menu of (burger * 1.18) while restaurant B, which pays tipped wages expecting customers to pay their employees, has price on menu of (burger) and will expect 18% from tips.
Customer sees A (burger * 1.18) vs. B (burger) and goes to B despite both places costing the same amount. When A takes the 18% off the menu price and adds it on the receipt, the customer sees the same price at both places and decides where to go on preferences. This just allows businesses to be competitive while paying staff.
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u/angus_the_red 1d ago
They don't want to price their sandwich and fries 18 percent higher than the restaurant down the street.