Surcharge ban for hospitality: cafes and restaurants

The biggest hit from the surcharge ban is going to land on hospitality. Cafes, restaurants, pubs, bakeries — they’re going to wear this harder than anyone.

And why is that? Because they all surcharge. How many cafes and restaurants and coffee places do you know that don’t?

How we got here

I still remember the day I first saw a surcharge. I was working for a bank at the time, and I looked at it and thought: that’s a good idea. That’s smart. Why aren’t we doing that?

Then the market just flooded.

And the reason it flooded so hard is that the margin was good. You were probably getting 1.1, 1.2, 1.3 per cent off your bank, and everyone went to 1.7 on the surcharge in the early days. That gap was free money.

Then something else happened, and it’s the bit that matters now. Once you’re locked into surcharging and your customers aren’t complaining, everyone gets lazy. Nobody’s standing at the counter going mate, you can’t charge me seven extra cents on my coffee. No one cared. And when no one cares, nobody goes looking for a better deal.

I’ve had this conversation a hundred times. You go in, you say I’ve got a better rate for you, and they say: do I care, mate? I’m not paying for it. My customers aren’t complaining. It works. Half an hour of paperwork for a saving that lands on someone else — they don’t want it.

That’s the position the whole industry is in on 30 September. And on 1 October it stops being someone else’s problem.

Hospitality starts on the back foot

There’s an unfortunate bit of structure here that’s worth understanding.

All else being equal, a lower average transaction size costs more to process than a higher one. So as a cafe or a bakery, you’re naturally going to get a worse deal than a mechanic — same bank, same day, different rate — purely because of your ticket size.

But not every bank thinks that way. A lot do. Some don’t. Knowing which bank actually suits your situation is the whole game, and it’s the thing a broker is for.

The coffee problem

Here’s what makes hospitality different from every other industry in this.

It’s hard to put your coffee up seven cents. Someone comes in and says it was $6.50 yesterday — yeah, it’s $6.57 now, it’s the 2nd of October. That’s not a conversation anyone wants.

And even if you were willing to have it, it’s a heap of work. You’re potentially changing every single price in your point of sale to do it. That’s real effort and real staff time.

Prices in this industry are going up anyway, and they were before any of this. A large coffee is $6.50 now. It’s milk, labour and coffee — and labour is a lot in this country. Milk’s gone up, which is probably good news for the farmer but it’s still more expensive. Sugar, everything.

So for a bakery or a cafe running a $15 average basket, I think you should just put your prices up. I reckon customers would be reasonable about it. That’s the honest answer, and how to actually do it is its own question.

What I don’t agree with is the other stuff I’m already hearing the industry talk about — software charges, point-of-sale charges, various loopholes. That’s just skirting the law, and it’ll get closed.

And as a customer I don’t want to see a point-of-sale fee on my bill. Next I’ve got a mechanic charging me a dirty shoe cleaning fee. Where does that stop?

But do this before you touch your prices

Here’s my actual advice, and the order matters.

If you’re about to go into your point of sale and change every price on the menu to cover this — stop. Before you do all that work, and definitely before you add some sneaky service charge, go and get a quote.

Because you’re about to spend a day of someone’s time punching numbers into your system anyway. If you’re doing that much work regardless, you may as well find out what you could be paying first.

Restaurants: the point of sale is the real problem

A lot of restaurants are tied in with the same company for both the point of sale and the payments. Not all, but I’d say the majority these days have the POS-and-terminal combo.

Now do the maths on that. Plenty of restaurants turn over one to two million. Some do more, and some people have two or three venues. On $2 million at 1.5 per cent, your merchant fees are about $30,000 a year.

If you’re paying 0.3, 0.4, 0.5 per cent more than you should be — and on a bundled platform you very well might be — that’s up to $10,000 a year you’re handing over for nothing.

I’m sorry, but at that number you just have to change your point of sale. I’ll put it this way: we’re yet to look at a Square client’s account and not be able to save them money — and often a large amount of money.

And a lot of these systems are old anyway

Have a look around while you’re at it, because there are some genuinely good newer systems out there.

A lot of point of sale in this country is still on-premise — the server sitting in a cupboard on site. That’s old technology. Every time something goes wrong, they’re sending a technician out to you, and the meter’s running the whole time. Get into the cloud. Get pay-at-table.

Yes, the changeover is annoying — that barrier to exit is real, and it’s the reason this gets left in the too-hard basket. But make it easy on yourself: there’s training available, and honestly a lot of these systems are much of a muchness — a slightly different look, a few different features. If I were running a pub right now, changing the point of sale is what I’d be doing.

If your traffic isn’t heavy, decouple instead

Not every venue needs to change everything. If you’re a cafe where the throughput isn’t enormous — you’re not a supermarket serving twenty people every five minutes — look at decoupling the terminal from the point of sale.

You keep the POS your staff already know. You move just the payments onto a standalone terminal and punch the numbers in for the time being. It’s not elegant, but it gets you off the pricing you’re stuck on without retraining anybody. There’s more on getting your costs down after the ban if that’s where you’re headed.

Why a service charge costs you more than a price rise

A service charge is more likely to drive a customer away than putting your prices up. It does for me, and I’ll give you the example.

I went to a really fancy restaurant once and they hit me with a surcharge. Seventy dollars of margin on a little piece of fish, and you’ve got to cover your thirty cents in payments? I’ve never been back. Maybe I’m some payment-crazy nutter, but that’s the truth of it.

Put the price on the menu. People accept a menu price. They don’t accept a line at the bottom that makes them feel done over.

Shop for the features, not just the rate

This is where hospitality gets fiddly, and it’s worth knowing before you start ringing around.

Tipping. Some restaurant owners I know will not live without it. They’ll happily pay 0.2 per cent more on their payments just to keep tipping working — and they’re right to. Their staff are earning two hundred bucks a week more, and suddenly filling the Wednesday night or the Sunday morning roster stops being a problem. People are asking for those shifts, because that’s where the money is. That’s worth more than 0.2 per cent to a venue.

Pay-at-table. Same deal. It turns tables faster and it changes how service runs.

And here’s the catch: the coverage is patchy. One bank does tipping but not pay-at-table. Another does pay-at-table but not tipping. Working out who does what, at a rate that suits a low average ticket, is a job in itself — and it’s the job we do, so come and have a chat rather than ringing around all of them yourself.

What you’re looking for is a bank that actually rewards your business. Not one that looks at your average transaction size and says sorry, pal and charges you a fortune. Most of them do that. There are a couple that don’t, and we know which ones.

Don’t let it sit until January

Here’s how this actually plays out if you do nothing.

You get busy over the holidays, or you go away. You get back to work mid-January, the staff are running around, you sit down in the office and open the envelopes — and you go oh no.

Don’t wait three months. A $2 million venue at 1.5 per cent racks up about $7,500 in merchant fees over a quarter. If you could have saved a third of that, you’ve just handed over $2,500 across summer — while you were sitting around not having to think about it.

Sort it out now. Don’t snooze on this one, because you snooze, you lose.

FAQ

Why does the surcharge ban hit hospitality harder than other industries?

Two reasons stacked on top of each other. Almost every venue surcharges, so almost every venue is affected. And hospitality runs small tickets, which cost more to process and get the least benefit from the October interchange cuts — those are mostly on the credit side, and hospitality is mostly debit.

Should a cafe just put its prices up?

If you’re running a $15 average basket, I’d say yes, and I think your customers will be reasonable about it. But get a quote on your payments before you go and change every price in your system, because you’ll be doing that work either way.

Can I add a service charge instead of a surcharge?

You can charge for genuine things. What you can’t do is rename a card fee. And beyond the rules, a service charge annoys customers more than a menu price does — that’s the part people underestimate.

Can I keep my point of sale and change only my payments?

Often, yes. A standalone terminal alongside your existing POS is a real option, particularly if your throughput isn’t heavy. You lose the integration and you punch amounts in manually, but you get off the pricing.

Will I lose tipping or pay-at-table if I switch?

Maybe, and this is the thing to check first rather than last. Not every provider does both. If tipping is what keeps your roster filled, it’s worth paying a little more on the rate to keep it — that’s a legitimate trade, not a rip-off.

How much could a restaurant actually be overpaying?

On $2 million of turnover, being half a per cent off the right rate is about $10,000 a year. That is the number that makes a point-of-sale changeover worth half a day of someone’s time. We’re yet to look at a bundled-platform account and not find something.