The Rising Cost of Dining Out

Over the last few years we have all felt it – that familiar sting when a restaurant bill arrives and it’s just a little higher than we expected. The months pass, and we get used to it… until that little shock comes again. And then again. Perhaps we eat out less, perhaps we order less, perhaps we just swallow hard and cut down on other things to make it work.

But those of us in the hospitality industry know the other side too: those incremental rises barely dent a restaurant’s own soaring outgoings: the utilities, the produce, the rising wages – the same issues that we’ve spoken about at such length and with such frequency. If even we, understanding the context, still feel that pain, the fear of many business owners is that, even with the vital education around costs, consumers would still shy away from menu prices which truly reflect the cost of eating out.

Businesses are pulled in three directions, each caused by the same forces but with directly opposing results. They are caught between reduced customer spending power, surging overheads, and their own employees’ soaring cost of living. Where is the margin for movement? For many, the only answer lies in an increased service charge.

Behind the Bill, After the Aftershocks

When legislation changed last October, mandating all tips to be paid directly to staff within a month of billing, many restaurants—some acting in good faith, saving surpluses for bonuses or to stabilise pay—lost a critical financial cushion. To compensate, many had no choice but to reduce many base salaries to minimum wage, relying entirely on the tronc pot to top up pay.

It was during this period that we began to see the widespread adoption of a 15% service charge, up from the more common 12.5%. This shift had begun post-pandemic, when the industry was burdened by loan repayments and rent arrears. This was a strange time in which publicity surrounding the failings of the furlough scheme for tronc-reliant workers meant that the general public had a greater understanding of, and sympathy for, the machinations and subtelties of the hospitality industry. But that goodwill was short-lived. Complaints returned with renewed force as memories faded and disposable incomes shrank.

Still, the principle had been established. In the years that followed, the dual aftershocks of Brexit and COVID-19 continued to disrupt supply chains and staffing. The war in Ukraine pushed energy prices even higher. The new service charge legislation loomed, and initiatives for service-included pricing stumbled under customer price sensitivity and tax burdens. Faced with these realities, operators found that adding a slightly larger fee at the end of a meal, when customers were full of the joy of a good time, was an easier sell than a pricer menu at the beginning of a meal, when people might order less – or even book elsewhere.

Attitudes to Tipping

Ironically, the largest service charge hikes—those edging beyond 15% – have emerged first in affluent areas like Mayfair, where restaurants typically have the greatest financial cushions. At least one restaurant has already moved to 18%.; here operators are confident that their wealthy clientele, who are also often familiar with the 20% tipping culture in the US, won’t bat an eyelid. Will this be tolerated elsewhere?

In America tipping norms stem from notoriously low base pay for service staff.  Yet even in America restaurants are finding that this charge is insufficient: a recent New York Times report highlighted a growing cultural confusion around service charge versus tipping. In the UK, a service charge is generally assumed to be a tip; in the US, the wording feels more ambiguous—likely due to the lack of clear legislation governing its use. As a result, diners are often encouraged to tip an additional 20% on top, pushing the final bill to as much as 40% above the original menu price. And that stings.

This calls to mind the much-ridiculed “brand charge” which beleaguered chain Ping Pong instigated in an attempt to circumvent the service charge regulations. After a public outcry this policy was quickly reversed, and seems (morality aside) serve as a poor solution. As one independent restaurateur, who preferred not to be named, told Countertalk:

“In the UK, now, why would you want to do that? Service charge is basically a tax loophole. If 100% of your wages come out of house pay, the business is paying more tax. The employees are paying more tax. It only works if you’ve got loads of people who aren’t looking at their bill or who you know won’t return, and loads of staff who are happy to work for sh*t wages. The more wage you’re able to pay out of tronc, the lower the house pay, the better for everyone.”

The Workarounds, The Challenges Ahead

But therein lies the next looming issue. In April National Insurance costs go up once again, business rates relief will decrease, minimum wage will rise. Once restaurateurs find that there’s no more room to raise menu prices, where do they find the additional money? Harrod’s has recently added a £1 ‘cover charge’ to all of its restaurant bookings. The Big Mamma Group encourage diners to pay through an app, then charge a £2.99 ‘checking out’ fee. Both are part of an increasing trend towards what the media often brands “steath charges”. But for many establishments, the only option will be to reduce still more of their employees’ pay down to that minimum level. That means the Tronc pot will have to be spread thinner, so their only choice will be to raise the Service Charge to ensure that team salaries remain competitive.

Will consumers outside of the wealthiest postcodes put up with this? Reports indicate that more than a fifth of UK diners are now refusing to pay ‘optional’ service charges, failing (perhaps understandably, given the misleading language) to understand that the charge is really not optional at all if we are to see the survival of our industry. The balance that we are already fine-tuning every day will have to be finessed still further as we figure out a sustainable solution to fund our struggling businesses without driving customers away.

Bucking the Trends

There are some operators who, with a careful eye to the future, continue to buck the trend. Chantelle Nicholson of Apricity charges a mere 8% service charge, in spite of its Mayfair location. This was a recent increase from their previous 5%. Nicholson believes that the whole concept of service charge is a flawed system, a thought echoed by many.

Apricity’s founding focus on sustainability in all areas means that competitive pay without service charge was part of the financial planning from day one, and they make it work, noting that guests do often leave extra – a fact on which they do not rely. But Nicholson also speculates that things may change, even if she would wish any amendments to be minor, noting that her lower charge “leaves room to increase again, which is helpful to know it’s there as an option”.

What Comes Next?

Restaurants now stand at a crossroads. Do we continue putting sticking plasters on our wounds, which will open again and with greater pain come April? Or do we rethink the system entirely? It’s easy to say we must innovate, find sustainable solutions, and educate the public on the true cost of their dining experience – the food on their plate, the table off which they eat, and the people who make it happen. But how?

Previous generations dined out sparingly. Ours often dines out weekly, sometimes more. If that changes or reverts, what would it mean for an industry built around these current behaviours? What’s the tipping point at which wholesale change becomes inevitable? How painful will that change be, for whom, and how will that affect our wider economy and culture?

There are no easy answers. But whilst we search for them, don’t expect your service charge to stay at 12.5%, 15% – or even 20%. And customers, please, when that little jolt of shock comes, understand that it’s not greed. It might just be necessity.