COVID Tax- To Charge or not to Charge?
As COVID continues to alter our world as well as the business community, many of us are still taking it day by day as we adjust to our new reality. Half capacity dining rooms, masked patrons, and evolving regulations reign supreme. Yet the biggest concern for the owners seems to be recouping losses and trying to secure the financial future and success of small business.
With this comes the hottest debate of all- the COVID “tax” or “fee” that’s been implemented by some small businesses to help in recouping the losses and ensuring a positive cash flow now that the business is back open with reduced capacities and abilities.
So, should you charge a “COVID tax” ?
Before I dive into the good and the bad, I’d like to reiterate- I always tell my clients to treat their businesses like their child. That they get the final say and make the choices- it’s their business, their patrons, and they know it and what’s best. So please, take this post as a research and outline piece and not judgement. Always do what’s best for your ethics and business.
This idea of a surcharge or tax began creeping up in multiple industry groups I’m a part of on social media as early as April. People had strong opinions on one side or the other and the forum fights were to the death. The media also covered this phenomenon, with lots of heated debates lighting up the comment sections.
Some restaurateurs are justifying this concept as the losses during covid have been extreme. Not a single small business I know of has received a payout from their insurance company for business interruption. The Commercial Lease relief program implemented by the government to supplement the payments only applied if your landlord agreed to it, and from what I’ve heard, most did not in Ontario. The employee supplemental payments only worked if you could actually be physically open to employ them in active work, and only if the employee felt comfortable working in a covid environment. Many of these hard workers opted for the curb payments, in order to keep themselves and their families safe. I don’t blame them for one moment- autonomy is more important than ever right now. Training and sourcing new staff takes time and money when there isn’t a pandemic, so yet another unplanned expense. Finally, less business equals less orders for ingredients. When you are ordering your raw products, buying in bulk always drives your cost down as the suppliers love to cut deals and give good prices for big purchases. So ordering less means another high cost.
On top of all this, we now need to cover the cost of personal protective equipment (PPE) for employees as well as increased sanitation measures- products, and additional employee labour.
Needless to say, folks are panicking.
From what I’ve seen online there are big feelings in regards to this surplus fee, so let’s have a look.
Not a surcharge, but an increase. The one thing that keeps coming back is rather than having a visual surcharge on bills that could incite negative feelings in clients and potential abuse to your staff as a result, a price increase of 5-10% would suffice and generate the same additional revenue that the “tax” would. For example, it would add $5 to every $50 spent, if you charged $2-$5 as a “covid tax” amount. I agree with this and if I was still in the business of selling food to the public, it would be my strategy.
The downside to this will be that you or your team can still potentially still experience client anger as a result of the raised prices. Keep in mind the majority of your client base is also making less money at the moment, so be sympathetic and open to receiving their feedback. Before you do anything else, create or have your marketing person draft some copy for social media for transparency. Explain exactly why the prices have gone up, how much they’ve gone up and how it will help your business
Next you’ll want to draft policies for staff so the message is consistent, and put a “business 911” plan in place in case you experience a negative blowback or what I like to call “toxic trending” the social media situation where you get lots and lots of bad attention. My anxiety brain always has me thinking of the worst case scenario- I joke it’s my “superpower” as a consultant- so prepare yourself for the worst in case it does happen.
Should you choose to go the route of upping a price or charging a fee, DO NOT encourage other restaurateurs to join you in a united effort. You could be inadvertently breaking the Canadian Competition Act, a law in place to protect Canadian consumers. The simplest way to explain it is as soon as you start colluding with competitors on anything related to pricing- you're in violation of the Act. So tread lightly.
Talk with your fellow business owners,network in industry groups on social media and really weigh your options- it’s not the end of the world if you have to increase your prices a little to make it out the other side as we navigate this new normal. If you don’t you could begin hemorrhaging money and as someone who has done it, trust me when I say it becomes a slippery slope into bankruptcy very quickly.
If you take away nothing else from this piece, please take this- charge what you need to to survive this extraordinary time.
Join me next week for “Business on a COVID Budget” when I’ll share my top 5 cost saving measures for your small business. It’s time to get creative.
Do you have a business related inquiry for me? Ask Mandi is the last Friday of each month when I take your business related inquiry and answer it on my blog. You may keep anonymity if you wish. Send me an email: yum@foodbusinesscoach.com