The Great “No Tip” Debate & What It Means for Your Restaurant

alt The verdict is still out as to how the restaurant industry’s workforce and its patronage will react to various U.S. restaurant groups’ move away from the traditional service tipping model. This is due in large part to the staggered nature of the policy roll-out across the industry, but also the varying flavors of business model adjustments themselves. As the old adage goes – different strokes for different folks.

As we mentioned in an earlier BlueCart blog post, whether you choose to be an early adopter of the “No Tipping” movement or care to stay the course for now, the fact remains that there is a mounting problem plaguing the hospitality industry. It’s called back-of-house attrition and it’s an ever-growing concern for restaurant owners both big and small.

And while there is no silver bullet to tackle this mounting problem, it will certainly remain a hot topic and something to pay close attention in both the near and long term. As Danny Meyer states in a recent NY Times article spotlighting his restaurant group – Union Square Hospitality Group, “If cooks’ wages do not keep pace with the cost of living” the restaurant industry will have an even tougher time attracting the culinary talent needed “to keep its edge.”

In other words, what Mr. Meyer suggests with provocative foresight is that we should certainly expect more “no tipping” business models to hit the market as restaurant executives attempt to address this talent gap. In Danny’s opinion, this is about correcting for unfair market dynamics that have been in existence his entire 30 year tenure within the hospitality sector. According to Mayer, it’s time to address the elephant in the room – the wage gap between kitchen and dining room workers is unsustainable and it continues to grow by leaps and bounds: “Kitchen income has gone up no more than 25 percent. Meanwhile, dining room pay has gone up 200 percent.”

So how does a restaurant owner like you react to these market shifts? In BlueCart’s view, it all starts with a general lay of the land. As we stated before, there is no silver bullet to tackle this issue, and there are a lot of factors at play here. Ultimately, you need to make the best decision for you and your business.

alt To help you approach this complex and, at times, polarizing topic, we’ve come up with a short list of the business model alternatives we expect to hit the market in the next few months, along with a pro’s and cons list for each.

Option 1:

Factor the Cost of The Desired Wage Increase Into Your Menu Prices

Self-fund higher kitchen staff wages by way of a service fee that is evenly baked into the price of every item on your menu. The result? Additional restaurant income that would then be evenly distributed amongst all your restaurant’s employees via an hourly wage. Take the salary of The Modern restaurant in New York City, for example. By end of 2016, their anticipated kitchen worker wage will adjust upward from a below market average of $11.75 to $15.75 per hour, putting your line cook’s hourly wage back is in line with the state minimum wage.

Pros:

• Wage equality for front AND back of house staff

• An immediate selling point to recruit top talent to the kitchen

• Lower kitchen staff turnover due to improved wage satisfaction

• Takes the tipping guesswork out of the picture for your patrons

Cons:

• Attrition of your highest-performing wait-staff

• And.. potentially lower productivity by the wait-staff that does stay (They get the same wage regardless of how hard they work, right?)

• Lower average bill size as price sensitive guests respond to price increases

• ..which could impact your inventory turn and lead to greater food waste as your procurement processes adjust to market demand

• Lack of guest visibility into what they are truly paying for

• Additional taxable income for your restaurant group at the end of the year

• Reprinting your menus to reflect the new pricing structure

Option 2:

Replace Gratuity Line with a Flat 20% “Service Fee”, and Use This to Pay Wages

In line with how other areas of the world compensate for service, you could instead elect to charge a flat 20 percent service fee below the bill total. Atelier Crenn in San Francisco adds such a service fee to the final bill.

Pros:

• Wage equality for front AND back of house staff

• An immediate selling point to recruit top talent to the kitchen

• Lower kitchen staff turnover due to improved wage satisfaction

• Increased guest visibility into what he/she is paying for

• Takes the tipping guesswork out of the picture for your patrons

Cons:

• Attrition of your highest-performing wait-staff

• And.. potentially lower productivity by the wait-staff that does stay (They get the same wage regardless of how hard they work, right?)

• Lower average bill size as price sensitive guests respond to price increases (though if it’s not in the menu prices as above, it hits them at the end, and should feel similar to tipping for guests who already—HOPEFULLY—tip 20% anyway)

• ...which could impact your inventory turn and lead to greater food waste as your procurement processes adjust to market demand

• Additional taxable income for your restaurant group at the end of the year

alt Option 3:

Incorporate a Cost Breakout for each Item Offered on Your Menu

William Street Commons, a popular beer garden in Philadelphia, is attempting to address some of the pitfalls in the first model by taking a unique approach to the tipping issue. Owner Avram Hornik believes that with his model customers will react more favorably if they see exactly what they are paying for.

The WSC menu shows that all drinks cost $6, ($5 for the drink itself and $1 for the 20% service fee). Hornik explains, “We wanted people to compare apples to apples. Instead of charging $6 and no tip, we wanted the customers to understand that the staff is being taken care of.” The service charge will then be split equally among servers, going towards the $15 wage, and management will cover any difference. All employees will also receive paid sick leave and health insurance benefits.

Pros:

• Wage equality for front AND back of house staff

• An immediate selling point to recruit top talent to the kitchen

• Lower kticehn staff turnover due to improved wage satisfaction

• Increased guest visibility into what they are paying for

• Higher average bill size as guests respond more favorably to menu price increases

• Takes the tipping guesswork out of the picture for your patrons

Cons:

• Attrition by your highest-performing wait-staff

• And… potentially lower productivity by the wait-staff that does stay (They get the same wage regardless of how hard they work, right?)

• ..which could impact your inventory turn and lead to greater food waste as your procurement processes adjust to market demand

• Additional taxable income for your restaurant group at the end of the year

• Printing new menus to reflect your new pricing structure

Option 4:

Just Leave Tipping in Place

If it ain’t broke, don’t fix it? A fair number of folks are gravitating toward No Tipping policies, but this movement won’t make it much further unless a plurality of the industry agrees there’s a problem in need of solving. What do you think? Is tipping the problem behind wage issues in the restaurant industry? Is it a problem in YOUR restaurant? Maybe its time to talk to your staff. Or maybe not. Up to you.

For a more detailed background on this debate, take a peek at the articles earmarked below:

http://www.nytimes.com/2015/10/15/dining/danny-meyer-restaurants-no-tips.html?_r=0

http://ny.eater.com/2015/10/14/9517747/danny-meyer-no-tipping-restaurants

http://thinkprogress.org/economy/2015/03/11/3632153/william-street-common-wage-tipping/

http://www.forbes.com/sites/kristintablang/2015/10/18/forbes-contributors-sound-off-on-danny-meyer-no-tipping-policy-union-square-hospitality/

http://www.cnbc.com/2015/11/13/no-tipping-policy-defended-by-crafts-colicchio.html

http://nymag.com/scienceofus/2015/10/psychological-case-against-tipping.html

http://www.heraldtimesonline.com/life/joe-s-crab-shack-tests-no-tipping-policy/article_678ab569-78f1-55a1-a401-bd7a33448e81.html

http://bigthink.com/ideafeed/this-restaurant-is-trying-on-a-no-tipping-policy-across-18-of-its-eateries

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