Consumers who order food online from many restaurants that use Toast’s popular payment software are in for an unhappy surprise. The Boston company will start tacking a new 99-cent fee onto orders over $10 at a small portion of the restaurants it serves starting on Tuesday, with plans to add the fee nationwide on July 10.
But consumers may not immediately realize they are getting charged a new fee. According to a mock-up of Toast’s online app seen by The Boston Globe, the fee is not listed separately on the app’s checkout screen and is instead part of a combined line called “Taxes & Fees.” Only if a consumer clicks on a small, grey “i” is the charge listed as an “order processing fee.” An explanation below the fee states: “Set by Toast to help provide affordable digital ordering services for local restaurants.”
The many restaurants Toast works with have already been notified, and some are outraged. The new fee is mandatory and will be added to each order payment immediately, restaurants have been told; it’s even taxable in some states, further raising the price of an order.
Some restaurant owners such as Kathi Turner, who runs two seafood restaurants on the North Shore, said they worry the fee will upset consumers already hit by rising prices from inflation.
“They have no right to get between me and my customer,” Turner said.
Scott Plath, a Toast client who owns Cobblestones in Lowell and Moonstones in Chelmsford, agreed.
“Nobody needs extra fees and certainly not hidden extra fees,” he said. “And I have to bear the brunt of any and all fallout.”
Turner, who sits on Toast’s restaurant advisory board, said she has spoken to top executives at the company and told them she was willing to cover the fees herself, but to no avail. “I’m happy to pay for my customers,” she said. “We’re asking to give us the option to pay it. Let us choose how much we charge our customers.”
Toast said the fee is needed to help pay for new features the company is adding to help restaurants improve their business.
The fee “is a way for us to fund continued innovation for our community, avoid costly commissions charged to restaurants, and help keep costs low for guests compared to many other digital ordering platforms,” the company said in a statement to the Globe. “Specifically, at this time we have invested significantly in new features to help restaurants maintain direct relationships with their guests and avoid costly commissions.”
The fee move could also help Toast — which has never shown a profit in its decade-plus of existence — reach profitability more quickly. The company processed almost $27 billion of orders — both online and in person — at 85,000 locations of its restaurant customers in the first three months of 2023. And yet it lost $81 million, on $819 million of revenue, in the quarter. But Toast has told Wall Street analysts it could be cash flow positive excluding some expenses for the full year.
Small fees such as Toast’s new charge have proliferated from food delivery and ride sharing companies to all kinds of other businesses over the past few years. EV charging network EVgo added a fee of 99 cents per transaction earlier this year. And Buffalo Wild Wings was sued in federal court last year by customers who said the restaurant chain did not adequately disclose a new 99-cent service fee added to online orders. The lawsuit is ongoing.
“It absolutely is a way for companies to increase revenue,” said Praveen Kopalle, a professor at Dartmouth’s Tuck School of Business who studies pricing strategies. “There’s a lot of research that shows these kind of drip, drip, drip fees work.”
However, the wave of fees is drawing the attention of regulators and lawmakers. President Biden held a White House meeting last week with representatives from ticket sellers and vacation rental companies to improve disclosure of their fees. The meeting was part of Biden’s attack on “junk fees,” which he defined as “these hidden charges that companies sneak into your bill to make you pay more and without you really knowing it initially.”
“It behooves firms to clearly delineate and outline what the consumer is paying for so they can make an informed decision,” Kopalle said. “The downside when they keep these things hidden is when it comes out, customers might not want to do business with that firm. It’s not a great way to build brand loyalty.”
Turner is concerned that Toast could add additional fees, such as a charge on all in-person dining checks, next.
“It’s a slippery slope,” she said.