Toast's New Order Processing Fee Stirs Debate
Earlier this week, the point-of-sale company Toast began adding a new 99-cent “order processing fee” to online orders of more than $10 at a portion of its restaurant client locations. Toast, which processes POS orders at 85,000 restaurant locations, will launch the fee nationwide on July 10.
In a statement shared with HT, Toast says: “As we innovate we remain committed to keeping restaurant digital ordering costs low and protecting restaurant bottom lines from third-party commission fees. We also take any changes to our pricing model at Toast very seriously. That is why to help fund ongoing innovation in restaurant technology, we are updating our pricing model to add a nominal $0.99 fee (this is not a surcharge) paid by guests on orders $10 and over on Toast online ordering channels. This change helps fund product investments, such as those highlighted above, and continued innovation in support of helping restaurants maintain the direct relationship with their guests.”
We could not help noting that nominal, which means “very small” or “negligible,” is a relative term. If my bill for two slices of pizza and a can of soda is $11, the new order processing fee of 99 cents is a 9 percent increase.
How Will Toast’s New Fee Affect Guests?
As one might expect, the response from the restaurant industry was swift.
"I'd gladly pay for the best seat in the house and /or for some type of VIP treatment / special menu item or service, but don't charge me for the table stakes tech that runs your business,” says Angela Diffly, co-founder of the Restaurant Technology Network.
Indeed, most restaurant guests are likely to agree with Diffly — resulting in downstream effects in their relationships with restaurants.
“The relationship between restaurants and POS companies has typically been a business-to-business one, with the restaurant owners negotiating terms and costs directly with the service providers,” notes Tom Seeker, CIO, Earl Enterprises. “By passing on the fee to customers, it may inadvertently place a strain on the customer-restaurant relationship, as customers may perceive it as an extra charge imposed by the establishment rather than a necessary adjustment to cover business expenses.”
“Toast's decision to pass along a fee to restaurant consumers may increase tensions between restaurant customers and restaurant employees at a time when rudeness and disrespectful behavior within the industry are already at an all-time high,” observes Daniel J. Connolly, Ph.D., professor of management, Zimpleman College of Business, Drake University.
"Toast as a vendor has the right to charge what they think is appropriate, fair, necessary, and/or equitable, and it is the marketplace’s role to determine if they agree," says Toby W. Malbec, managing director, ConStrata Consulting. "The operator indicates their agreement – or lack thereof – based on their decision to license or not license the solution. Suppliers did not weigh in when operators took two, three, or even four price increases over the last two years, and it is any company’s right to set their own pricing as they deem fit or necessary to operate profitably."
And while Toast has not yet demonstrated profitability in its 10 years, it's important to remember that it is a publicly traded company with a responsibility to its investors. “Toast's investors want a return,” notes Tamy Duplantis, president, Return on Information. “When the merchant has signed away their ability to control the final fees customers pay for their brand experience to delivery service providers or credit card processors, then the investors’ return may supersede the merchants’ profitability.”
Challenges in the Service Economy
Pulling back the lens, HT feels strongly that the discourse over Toast’s new fee is an opportunity to truly address deep challenges in our service economy. Restaurants and their guests are already grappling with (a) a baffling array of fees and surcharges tacked onto tickets, (b) the evolution of the gratuity concept (e.g., some guests feel they shouldn’t be pressured to tip if they’re already paying a service fee; meanwhile, some POS platforms prompt guests to tip for basic counter service), and (c) rising costs of goods and services — including the need to pay staff a living wage. Sure, let’s debate Toast’s new fee, but let’s keep it within that broader context.
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