Danny Meyer Abolishes Tipping

Culture, Media, General Food Media and News
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Meyer appeared on TV out here and mentioned prices will increase 21%. His corporation willalso lose the tip credit which is $1.5MM for his company.

I think it will work in places like his but the further down the food chain I am not sure. I had dinner with a chef/owner last week and he agrees that there will be a lowering of service quality as you move down the culinary scale.

Here is my prediction if too many take this approach and receive lousy service…

“I want to speak to the manager.” Manager arrives. “I did not receive the service I should have and want a reduction in the bill.” Manager either agrees or not but it is now a confrontation versus a simple add 5-10% versus 20% and leave.

It will fail at 80% of the restaurants.
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I agree and also wonder if those who woefully undertip will pitch a hissy fit. It should be interesting. OT, glad to see you here. Will you be keeping an eye on HC as well? You’ve been my and others go-to for many years.

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Well, that raises a number of questions.

Surely it’s fair to say that service quality is generally higher in higher end restaurants. They are able to recruit the best in the business, paying accordingly.

As I think you know, I come from continent which has a very different attitude than America has to tipping. My own country is either low or no tip - certainly very discretionary. I don’t see any particular differences in standard of service betwen palces that, say, levy a 10% service charge (which most people invariably pay) and those that rely on the customer tipping inthe bold fashioned cash way. Good service comes from good servers who are appreciated by their employer and rewarded accordingly - and the converse holds true.

I have often read threads on, say, Chowhound about tipping. And the conclusion I come to from reading many of those, is that Americans rarely vary their tip percentage or, if they do, then it is a small difference - even when there has been very poor service. As such, I’d take the view that servers also know this and dcide for themselves whether they feel like working their socks off that shift for the 20% tip and adopt a “couldnt give a shit” service to get them 15%.

I’d also suggest that Americans are very used to not tipping, as such, in restaurants. I’ve been to many places where there is a service charge added for larger parties. So, let’s forget that there’s a cultural necessity to tip. Americans are not so stupid to be able to do the same if there’s just a couple dining.

By the by, I’ve just returned from three weeks in Florida. Some of the best service we received was a place in Miami Beach that had a team approach to service where “everyone serves everyone” and levied an 18% service charge in place of cash tipping.

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Last week:

"Following in the footsteps of the Danny Meyer restaurant group, Joe’s Crab Shack, a Houston-based chain with more than 130 locations nationwide, announced on Wednesday that it would test a no-tipping system in one of the largest trials yet of the policy.

The casual seafood chain will adopt the change at 18 locations, its parent company, Ignite Restaurants, said in a statement. The company indicated that menu prices would rise to absorb the added labor costs, but said the increase would be “typically less than the average 20 percent service tip.” It didn’t say when the new policy would begin."

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Leaving aside my dislike of tipping, I would think that the Crab Shack’s test seems likely to fail. If they are not increasing prices insufficiently to allow for the 20% tip, then one of two things are likely to be the result. Either employee income is going to reduce, or the company is going to squeeze its own profit margins to maintain employee income.

I take the view that any employee (in any industry) goes to work each day with an expectation of how much they are going to earn. After all, they have bills to pay, mouths to feed, etc. It doesnt really matter to us how we earn that amount. It could be from a straight salary; could be from sales commission arrnagements or, in the catering industry in some countries by a combination of wages plus tips. You take a job on the expectation that you will earn “X” and that allows you to pay the bills. If “X” is made up of wages plus tips, then that is fine. As is if “X” comes all from wages. There is only an issue if the new arrangements for JCS’s employees mean that income does not reach “X”.

On the other hand, if JCS is going to squeeze its own profits to maintain employee income, then all credit to it. Although that is likely to be a very short term solution. We all know that the restaurant industry works on small margins. Making them smaller is not sustainable

JCS should be bold enough to increase its menu prices to ensure its the customers continue to fund it. But they have a golden opportunity to sell the concept to customers as to why they are doing it.
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according to that article the co-founder say they are going to pay servers a living wage - servers don’t get tips anymore - they get paid by the hour.
he did not specify their concept of what $/hour is a “living wage”

they are raising prices to cover the added $/hour they are paying servers - plus the added payroll taxes the company must contribute for servers.

they are not automatically adding / charging a 20% service charge and giving that 20% to the server.

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Exactly.

If they currently take home $X and will still take home $X or better, then all is fine. If the new arrangements mean that take home pay is $X-Y, then it’s doomed to failure. Which will be a great shame - a reasonably sized chain trialling this is a big step forward for the industry and its customers.

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Although I don’t question your analysis, Harters, I do your underlying assumption. I find it quite believable that the average tip at Joe’s is less than twenty percent.

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Actually not my assumption, as such. I mentioned 20% as this is what the company was reported in the article to have said was the average service tip. Principal remains - if the company reckons it’s 20% but is not raising prices to allow for that, then there is going to be a problem, assuming they are correct in knowing what happens in their business.

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the glitch to that is:

20% of Y dollars served
is not linear with
$Z per hour times hours worked.

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At least one restaurant in Northampton MA is trying “no-tipping” as well.

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Perhaps you’re correct. I read that quote as a reference to the shorthand we use in America for an “average tip” even though, statistically, it isn’t true for every restaurant, restaurant segment, or geographic area. Tips in the more affluent Northeast, for example, tend to be higher than in other parts of the Country. See, e.g., http://nrn.com/blog/average-us-diner-tips-18-percent-study-indicates Joe’s has much less of a presence in this area than elsewhere in the States. Moreover, fast/casual chain dining tip percentages tend to be slightly lower than for other restaurants (but, this may be circular, given their geographic distribution).

I view the corporate strategy in the following way:

Identify the actual average tip percentage for servers across all Joe’s restaurants for a substantial period of time, reducing the possibilities for spikes or declines. Let’s say, for our purposes, this value is 17.125%.

Announce the “no tipping” policy with the prepared, “we will be raising prices” acknowledgement and “by less than 20%” caveat. Rounding off is your friend with a math-challenged public after all.

Raise prices by 18%.

If you use 17 1/2 cents out of every dollar for employee wage increases, you can actually put them back where they were - possibly even slightly better and certainly less violative - and still have an extra half a cent available to pass upstream to the guys at Ignite.

I recognize my own cynicism in articulating this, but, as any rum-soaked, old drunk will admit, jaundice is something you earn. I actually think that it is this type of corporate, penny-pinching, “economies of scale” analysis that will finally lead to the end of tipping as a given in the US.

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the numerics of the higher wage / no tips are not quite so simple. exceptions abound because state and local laws vary, some places utilize tip pools - some are biggier, some are small, then there is the “but they don’t follow the law” issue and “they cheap me on my tips” issue - which just makes the whole thing very contentious.

the tax laws are funny. the employer does not pay payroll taxes on “tip wages” - but the employee does.
however the employer pays payroll taxes on wages. so raising prices by 18% do not translate to putting all that into a wage “increase” for employees.

let’s have some fun with numbers…assuming a 30 hr work week:
at the $2.13 federal min for tipped employees, the annual wage comes to (30 x $2.13 x 52) = $3,323/yr
(assuming the tipped employee exceeds the min wage, using wage+tips)
at the $15 ‘living wage’ being bandied about (30 x $15 x 52) = $23,400/yr

Federal FICA, Medicare and FUTA paid by the employer on:
$3,323 is $454
$23,400 is $2,210

(add state & city/locality taxes…and some wild and wooly localities can almost double the employer tax load)

so, a previously tipped employee “costs” the employer (3323+454) = $3,777
however as an increased wage hourly employee “costs” the employer (23400+2210) = $25,610

that’s a (25,6140 / 3,777) = 678% cost increase.

ole’ fashioned rule of thumb, kept outta’ the soup…restaurant costs are 1/3 labor + 1/3 food + 1/3 overhead.
but not all labor are servers; let’s assume 50% of the labor hours are waitstaff. this of course goes all wonky for tip pools…

the cost ratio
1/3 + 1/3 + 1/3 = 1
can also be expressed as
2/6 + 2/6 + 2/6 = 1

since 1/6 of the labor cost is going to increase 6.78 times, that changes to
6.78/6 (tipped labor) + 1/6 (non-tipped labor) + 2/6 food + 2/6 overhead =11.78 / 6 = total cost is now 1.96 times higher than previous.

this has nothing to do with whether tipped waitstaff get more or less gross/take home pay than when tipped.
this has nothing to do with whether the diner pays 100% of the tab to the restaurant and 20% in tip to the server, or 120% to the restaurant.

so, yup. a 20% menu price hike might not be enough.

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34

Ripert has a different take:

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Of course, there are chefs who are not in favor of tip included right now. However, I think it’s the proverbial wave of the future. I like to use the example of what happened with smoking. When Danny Meyer opened Union Square Café in 1985, it was the first restaurant in NYC to be entirely non-smoking. At the time, it was a daring thing to do. But it didn’t stop USC – and his other restaurants which also opened smoke-free – from becoming extremely popular. Slowly but surely, other restaurants went from having a non-smoking section to being entirely smoke-free. Finally it became law in 2003. That took nearly 20 years and my guess is that the same thing will probably happen with tip included. But we shall see…

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I went to a new restaurant in Toronto that had a sign at the door saying “No Tipping”
The bill came and it had a 15% “Admin. Fee” added. Then the credit card machine prompted me to add a tip.
Definitely not the way to roll out a no tipping policy. I felt like I’d been tricked and would have far preferred either higher food prices or an up-front explanation of the additional charge.

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It’s commonplace in the UK for restaurants to add a service charge in place of old-fashioned cash tipping. Unscrupulous places have their card machines set up to also ask “do you want to add a tip”. It is entirely disreputable. The most blatant example I’ve come across is the hotel next to Terminal 5 at Heathrow. It is blatant because the hotel is French owned - a country which, quite properly, fully incorporates service into the menu price. I could only conclude it was intended to catch out North American tourists who understand what a tip is, but may not understand what a service charge is or, may have overlooked that one appeared on the bill.

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A server’s thoughts:

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“…the rest of the staff, who also make $3 an hour and depend on tips to bring them up to a living wage.”

"… This hierarchy exists because servers receive a wage, dictated on a state-by-state basis, that’s well below minimum and depend on tips to cover that gap, "

“…since servers in Washington, D.C., (where I work) are usually making $2.77 an hour, they rely on those tips to support themselves.”

…"(This is pre-tax income, which is worth noting because of how highly earned tips are taxed.)"

that server needs another job. that server’s ignorance is sky high and …sigh, typical of the discussion.

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Any chance you might elaborate?

I know thirty percent of GOP voters support Donald Trump, but that doesn’t mean the rest of us have abandoned well-reasoned and supported argument in favor of “because I said so” pronouncements.