The COVID-19 surcharge: Companies confront unforgiving economics of coronavirus

The COVID-19 surcharge: Companies confront unforgiving economics of coronavirus
Companies from major retailers and package carriers to local restaurants and hair salons are awakening to a new economic reality in the age of the new coronavirus : Being open for business is almost as hard as being closed.

For large companies, the price—and perils—of operating in a pandemic are already coming into focus.

Walmart Inc., Target Corp. and Home Depot Inc. this week said they absorbed more than $2 billion combined in added expenses for wages, bonuses and other benefits for workers during the early months of the pandemic. McDonald’s Corp. laid out conditions for franchisees to reopen their dining rooms that include cleaning bathrooms every half-hour and digital kiosks after every order. Ford Motor Co. this week opened its American assembly plants for the first time in two months, and promptly had to idle factories in Michigan and Illinois after employees tested positive for Covid-19.

The stakes can be higher for small businesses, which tend to operate on thinner profit margins and smaller cash reserves. As they begin to reopen after weeks of being shut down, they are confronting a cost-revenue ratio that is increasingly out of whack.

Prices of food and other items have risen. Employees need protective equipment at work. Rising unemployment, safety concerns and limits on the number of customers a business is allowed to serve are setting a cap on sales. Some have tried to raise prices to bridge the divide, but greeting consumers who have been staying at home with higher costs is a delicate proposition.

Billy Yuzar saw adding a surcharge to diners’ tabs as a simple way to compensate for higher food prices at his West Plains, Mo., restaurant, Kiko Japanese Steakhouse & Sushi Lounge. It was more convenient than raising menu prices, Mr. Yuzar said, because he could update the fee in the business’s point-of-sale computer in one step.

Regular customers were supportive, he said, but when a photo of a Kiko receipt showing a Covid-19 surcharge surfaced on social media, people who had never been to his restaurant began calling to complain.

“The people from this community and my actual customers don’t mind at all paying,” Mr. Yuzar said. “The backlash that I got is just because of these tweets.”

Mr. Yuzar has removed the surcharge and raised menu prices.

Other small businesses have stuck with the surcharge strategy.

Herman Halici, the owner of Dan’s Super Subs in Woodland Hills, Calif., said the price of meats such as pastrami, roast beef and corned beef has risen by up to 60%, and new procedures mean that employees must spend 25% more time on cleaning. In response, the shop has added a surcharge of 75 cents to $1 a sandwich. Most customers have been understanding, Mr. Halici said.

“Out of a hundred people, maybe two complain about it,” Mr. Halici said. “Unlike before, everyone goes to the grocery store now, so they understand about the meat prices.”

Some states have cracked down on price gouging during the pandemic, but Covid-19 surcharges don’t appear to have drawn many official complaints. A spokesman for New York’s attorney general said the office hasn’t received any complaints about surcharges, while a spokesman for Missouri’s attorney general said the office has gotten one out of 1,501 total price-gouging complaints.

A surcharge has helped Melissa Aviles grapple with higher costs and lower capacity at her salon, Studio M, in Amelia Court House, Va. After reopening, it can only host one customer at a time, so she can do just four hair-color appointments and one haircut a day, compared with eight to 10 appointments in normal times. Finding supplies such as Lysol also has been a challenge because of high demand.

Ms. Aviles said one customer questioned Studio M’s new $3 sanitation surcharge but was understanding once she explained the rationale. “I’m fortunate that I live in a small town, and I’m close with my clients,” Ms. Aviles said.

Costs are rising for health-care practices too, leading some to consider adding fees. Jeff Shapiro, a dentist with a practice in Manhattan’s financial district, has always worn a surgical mask while he works but has switched to pricier N95 masks following industry recommendations. He now also dons a face shield and disposable gown for each appointment, and said his office may spend tens of thousands of dollars on improved air-filtration systems.
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