What my $30 hamburger reveals about fees and how companies use them to jack up prices
It started out innocently enough: lazy Monday, working late, nothing in the fridge. I decided to splurge and order a burger and fries for delivery.
Subtotal for my meal? $14.07. A little pricey, but it's a good burger and $14 seemed like a totally acceptable price for dinner, especially when it's delivered to my door.
Then came the fees:
Delivery fee: $5.49
Service fee: $3
Grand total for my delivery burger: $27.81
My lazy Monday went from costing me $14 to almost $30. The price had doubled. What was going on?
"A way to raise prices without raising prices"
"It's fees — fee-flation" says Jeff Galak, professor of marketing at Carnegie Mellon University's Tepper School of Business. "Fees are a way to raise prices without raising prices."
This is what's known as stealth inflation.
Basically, a price hike lurks, sharklike, just beneath the surface, waiting for you to click on that tantalizing $200 airfare deal or order that refreshing $4 iced coffee. Then it strikes: one fee, another fee, a 20% tip.
Before you know it, you've just paid 30 bucks for a hamburger.
By the time you notice, it's too late
"Fees are not part of the thought process in choosing the product," says Galak. "If you sneak a fee in, customers might not notice, and the data's pretty clear that they don't notice."
These fees go by many names: processing fee, booking fee, service fee, even "inflation fee."
But when you do notice these fees on your receipt, you're probably locked in.
"By the time the fee is tacked on, it's too late," says Galak. "It's either actually too late, like 'I'm standing at the hotel check-in desk, I don't have a choice anymore.' Or it's apparently too late. You're not gonna hand a coffee back to a barista if you see a 20% service charge, right?"
The White House takes on "junk fees"
Yes, fees have always been around, but these days they are cropping up everywhere, Galak says. The White House estimates Americans now spend more than $65 billion on fees every year.
And it's been cracking down on them.
President Biden has called fees a growing problem and a way for companies to trick consumers with a kind of pricing bait-and-switch.
"Something that's weighing down family budgets: unnecessary hidden fees ... junk fees," Biden said in a speech to the White House Competition Council. "Like finding out you have to pay a $50 processing fee for a hotel room."
The federal government has been targeting some of the most fee-heavy industries:
The Consumer Financial Protection Bureau just fined Bank of America $150 million for abusive overdraft fees.
The White House pressured a bunch of airlines to drop rebooking fees, which can run into the hundreds of dollars.
And just last week, the Biden administration announced that Zillow and other housing sites will disclose fees that get tacked onto monthly rents, such as rental application fees, parking fees, or pet fees.
The case for fees
Some businesses say fees aren't always the evil tools they're made out to be, but, rather, a way to stay afloat.
Troy Reding owns Rock Elm Tavern in Plymouth, Minn., which is known for its burgers and tater tots with bacon-ketchup (yes, that is ketchup that tastes like bacon). During the pandemic, as the price of bacon, ketchup and everything else spiked, and workers became harder (and more expensive) to find, Reding scrambled to keep the restaurant's doors open.
He raised prices, and raised them again, as high as he thought his customers would bear: more than 20%.
"If I charge too much, they'll quit using me," says Reding. "They'll go elsewhere."
But price hikes alone were not enough to cover Reding's costs, especially labor.
Reding says these days, it's hard for him to find workers at any wage, and really hard to get them to stick around. So Reding offers full benefits, including mental health insurance.
7% service fee: "Are you kidding me?"
To cover all of that, Reding adds a 3% "wellness fee" to every bill.
"I use it to help take care of my employees," he says. "And that's what I tell my guests or people who complain about the fee. I say, 'I need to take care of my people.'"
Reding says fees are a way of being transparent about how he's covering his costs, while keeping prices competitive. But even he admits the fee situation has gotten out of control lately.
"I went to a food stall at the airport and there was a 7% service fee," says Reding. "This makes zero sense to me: 7%. Are you kidding me?"
The primrose path to a $30 burger
"Are you kidding me?" is pretty much exactly what I thought when I saw the $30 total for my Monday-night delivery burger.
So, like any sensible, self-respecting consumer, I canceled my order and decided to finally cook the lentils that have been gathering dust in the back of my cupboard for 18 months, right?
Well, here's the thing.
By the time I saw all those extra charges, I was already very excited about my burger and I was in the middle of an episode of The Bear and I already had my credit card out.
Give me lentils and frugality — but not yet!
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