Jan 06

Holiday Surcharges – burden or marketing opportunity?

Should restaurants and cafés pass on the additional labour costs on public holidays?

Holiday surcharges have been in the news lately in New Zealand.  Should restaurants and cafés pass on the additional labour costs on public holidays? The response from Steve Mackenzie, CEO of the Restaurant Association of NZ has plenty of emotive words, but little by way of constructive comments.  According to Mackenzie, the industry operates on a net profit of less than five  percent a year.  No wonder so many restaurants struggle to survive and only a few thrive.

Paper Moon cafe in Mairangi Bay

This café is open for business

Let's take a dispassionate view and apply some basic marketing principles.

Some businesses do charge higher rates for their services outside normal business hours. Surgeries and plumbers for example. This reflects both higher costs and a premium for a valued service,  such as restoring water supply over a weekend.  Most of us do not mind paying a" bit more".  On the other hand, we would be outraged if a supermarket tried to charge more on a public holiday.

So what should a restaurant do when faced with higher wages costs on a public holiday?  "Raise prices" is the easy and lazy response and is based on a "cost-plus" mentality.  The right choice for some might be to close, but they should make this known in advance and explain the reasons to their regular customers.  Yes, this does mean knowing who your regular customers are and communicating with them!

There are some more imaginative ways of dealing with this.  Here are some examples:

  • Offer a special holiday menu, with a limited choice of items to reduce costs and wastage.  Fewer choices may actually be well received by your customers. Read "we have so many products. Choice, eh!"
  • Encourage your customers to spend more by offering specials for two or three courses from the holiday menu.
  • If you feel you have to charge more, make this a cover charge, which could be cancelled if the total bill is more than a set amount - say $30 or whatever figure seems reasonable.
  • Increase patronage by promoting "no holiday surcharge" or better still "special holiday menu: two courses for only $25".
  • Hire a band to entertain your customers - not too loudly unless you are running a disco.  Charging per head is accepted and you could charge bit more.
  • Work as a team with all the staff to provide a truly memorable experience and craft this into a story that has emotional appeal.  "We have made a special effort to make this a memorable experience and it would be wonderful if you could show your appreciation.  All tips are shared equally".
  • Make good use of social media to convey these messages to your target audience.

I encourage owners and managers of restaurants and cafés to think of creative ways of dealing with the increased costs of operating on public holidays. Don't just think about the day's takings, think about providing an enjoyable experience for your customers and the power of word of mouth referrals.

As consumers we should always be on our guard against poor service or excessive charges.  If you are not happy complain and tell your friends to be on their guard.  If you are happy, say so and perhaps be a bit more generous with that tip. You will of course tell your friends as well.

There are lessons to be drawn for most business managers and advisers too.  Don’t assume that increasing your prices when faced with a cost increase is the only, or worst still, best option.

Simon Fawkes
Business to Markets Ltd