Are Temporary Surcharges Better Than Higher Menu Prices?

Waffle House’s move to add a temporary 50-cent-per-egg surcharge tied to an ongoing egg shortage, instead of raising menu prices, has drawn significant media coverage. Was it the right move?

The charge, which went into effect on Feb. 3, is temporary and is the result of the "continuing egg shortage caused by HPAI (Bird Flu)" that has caused a "dramatic increase in egg prices," the Georgia-based chain said in a statement shared with USA Today.

"Consumers and restaurants are being forced to make difficult decisions," the statement continued. "Rather than increasing prices across the menu, this is a temporary targeted surcharge tied to the unprecedented rise in egg prices."

It added: "While we hope these price fluctuations will be short-lived, we cannot predict how long this shortage will last."

Waffle House, with over 2,000 locations, serves around 272 million eggs per year, according to its website.

Restaurants and grocers are facing a spike in egg prices as the avian flu outbreak decimates the nation’s commercial egg-laying chicken flock. News arrived last week that both Trader Joe’s and Costco were limiting egg purchases across its stores.

Surcharges have become more common but remain controversial. “Covid surcharges” started arriving during the peak of the pandemic to overcome related hardships faced by restaurants, while other service fees started arriving in 2022 to offset inflationary pressures. Some restaurants have added permanent service fees to supplement or replace a tipping system and offer greater pay equity for front-of-house and back-of-house workers.

Surcharges Seen Offering Transparency

As long as the reason behind the add-on fee is fully explained, surcharges are seen by some as a more transparent way to pass on specific costs directly to customers, such as increases in ingredient costs, labor expenses, or regulatory fees.

Popmenu, a digital marketing and ordering SaaS platform for restaurants, said in a blog entry, “Customers embrace surcharges when restaurants are transparent about what guests are paying for and educate their staff on how to present those fees.”

Changing the price on a menu will often add to an operator’s costs and doesn’t offer the same transparency to customers about why prices are increasing. A surcharge also can be implemented temporarily to address short-term cost increases, while adjusting menu prices often leads to prices not returning to prior levels.

"When a restaurant operator adds a surcharge to their menu in a situation like this, it’s generally because they are optimistic that it will be resolved quickly and because they want to be transparent with their customers about their rising costs," Michelle Korsmo, CEO of the National Restaurant Association (NAR), told FOX Business.

Surcharges Accused of Being ‘Hidden’ Fees

Opting to increase menu prices avoids the need for wait staff to explain surcharges. Surcharges as well as service fees are also often seen as “hidden” fees since they’re usually a surprise to the diner when the check arrives.

California came close to passing a law last summer banning restaurants from charging service fees. A survey of 1,000 adults by the San Francisco Chronicle at the time found that over 81% think restaurant surcharges should be illegal. One critic told the Chronicle that surcharges are a “deceptive” way of making prices appear lower, while another complained they ruin the dining experience.

“Dining out should be a fun, hassle free experience,” Gary Furlong, a Pacifica resident wrote in an email to the Chronicle. “Sitting there trying to figure out all the surcharges and how to tip on all this mess makes the experience less enjoyable.”

Surcharges also offer a marketing opportunity for competitors.

In response to Waffle House’s move, Cracker Barrel earned media play for promising not to charge extra for eggs as it doubled rewards for its loyalty members.

“A surcharge on eggs? Well, there’s nothing hospitable about that,” Cracker Barrell cracked in a media statement. “At Cracker Barrel, country hospitality is as important to us as a hearty breakfast — and that means not charging extra for eggs.”