CCPA ban on service charge leaves Indian HoReCa operators in dilemma, says GlobalData

Following the news that the Central Consumer Protection Authority (CCPA) has issued guidelines regarding the levy of service charge in hotels and restaurants in India:

Bobby Verghese, Consumer Analyst at GlobalData, a leading data and analytics company, offers his view:

“The CCPA’s clampdown comes at a time when the Indian foodservice sector is recuperating from almost two years of COVID-19-induced intermittent shutdowns and restrictions. GlobalData’s Q2 2022 Consumer Survey* reveals that 48% of Indian respondents ordered food and drinks at a full-service restaurant at least once a week, compared to 43% in the Q1 2022 survey**.

“However, the Indian foodservice sector has been grappling with an acute labor crunch as skilled workers returned to their villages during the pandemic lockdowns and have since moved to other better-paying jobs. Subsequently, instead of relying on the far and few tips from diners, more hotels, restaurants, and café (HoReCa) operators have begun levying an additional 5%–15% service charge in food bills to supplement wages and incentives to service staff.

“With public complaints on the rise about being billed without prior consent, the consumer watchdog has barred this ‘unfair trade practice’, terming it as a ‘violation of consumer rights’. The CCPA has clarified that operators are free to charge any price for food and drinks served at their premises, with the menu prices including both the cost of food and all associated service charges. This effectively empowers consumers to decide whether they are willing to pay for it or not.

“However, HoReCa operators often refrain from incorporating service charges into the menu prices as price-sensitive consumers typically compare prices of dishes among the restaurants. Moreover, menu prices are already high following the recent spike in food price inflation. Raising menu prices further can thereby undermine an eatery’s perceived value-for-money, which is a prominent factor for 53% of Indian respondents while consuming food/drinks outside their homes, according to GlobalData’s Q4 2021 Consumer Survey***. As a result, foodservice operators are poised to think twice before raising their menu prices and losing out on this resurging consumer footfall, especially at a time when 71% of Indians are concerned about their personal financial situation*.”

*GlobalData Q2 2022 Consumer Survey—India, with 598 respondents, published in June 2022

**GlobalData Q1 2022 Consumer Survey—India, with 613 respondents, published in March 2022

***GlobalData Q4 2021 Consumer Survey—India, with 530 respondents, published in December 2021

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