David Chang...GQ article...restaurant business challenges


nice to see an honest representation. he lays out what is happening “in real life” not the “liberalized everyone must make a million” press.

eateries have moved to “no tip” model. some have failed (and some after many years of success…) and some have switched back. a few are happy. some have huge labor issues - really? yeah - the waitstaff has taken a huge pay cut as their “tips” are now used to ‘even out’ pay rates for the entire restaurant staff.

don’t shoot the messenger - go read the news.

the question of course is “why?” - the European no tipping model works quite well. why not here?

I reread this to make sure we were talking about the same article. Chang’s piece was about WAY more than no tipping and, for that reason, I found it quite interesting.

it is interesting. and my impression of his point is: it’s shortly gonna’ cost a whole lot more.

the big issue he identified is labor costs.
there’s a popular movement afoot to raise the minimum wage.
there are locations ala California/et al cities where waitstaff must be paid (local) minimum wage plus they keep 100% of tips.

the basic problem being touted is that food service workers do not earn plus/minus the current politically ballyhooed $350,000 per year of the “middle class”

that restaurant operate on a thin margin - rather quite true for the vast majority. of course, if the owner opts to pay himself a $2,750,000/year salary, that could impact the financial statements and their ‘profitability.’ owners may indeed make that kind of money, but it’s not gonna’ appear on a W2 or an S-Corp statement. they cheat - in case you didn’t suspect that.

and the whole debate sidesteps the question of who is skimming how much from where.

I found the idea of success via “cloning” very curious. take yer’ Mark 1, Mod 0, organic, free range, non-juiced chicken and cook it. ever run into chicken dry enough to work as an oil blotter for the Exxon Valdez? what’s is the issue - the chicken or the cooking talent?

boil-in-bag, reheated from a central kitchen, frozen per-portioned nuked dishes . . . none of that is going to make for good fine dining food. either you have talent on the line, or you get TV dinners out the door.

so how do you get/keep talent? gosh - what a surprise - more money. where do you get the more money? up-charge the service / tips and spread the wealth around.

sounds like a neat theory - however the ‘hidden’ costs of paying employees more vs. having the customer directly pay the waitstaff via tips is huge. using the 1/3-1/3-1/3 rule of thumb - raising the minimum wage, paying all the taxes will just about double the cost of doing business. your check is going up. forget about full time employment - everyone will be going to less than (currently) 30 hrs/week - because if a business is required to provide health insurance - at $24,000/yr per family of 4 (nat’l average) - that immediately adds $12/hr to their wage.

there is no such thing as a free lunch - all the costs have to be covered somehow.

Do you realize when you say this you lose all credibility?


Chang makes some interesting points.

The current cost model with such a significant part of income based on tips does seem flawed, but its deep so deep seated in the US cultural psyche that it will take a lot to change it. I suspect prices will need to rise to a level where a high tip percentage starts to hurt. And rises maybe driven as much by the need for restaurateurs to share the staffing cost component of a bill (including the tip percentage) more equably as much as minimum wage legislation.

Servers who are doing very well out of the system will see a net reduction in earnings - and if they don’t like it there are plenty of other people who are happy to work in a nice warm environment, with little physical effort, doing a low skilled job for a low wage. Those servers being ripped off by their employers, or who work in low cost restaurants could well be very happy - no tips but a reliable wage based on time worked rather than arbitrary generosity and a busy shift.

That said I live in Australia which typically was a no tipping country. But despite very high restaurant prices, driven by high labour costs (set minimum wages, penalty rates for unsocial hours and Sunday working, and overtime rates) tipping is starting to become commoner especially amongst younger diners.

Where has it come from, I can only assume is a cultural transfer from the US as a result of TV and travel. I fee its driven by the servers/owners; first tip jars arrived on bars, now tip lines are left on credit card bills.

Chang other point about chefs rolling out repeatable models to build mini chains doesn’t seem that new. Many chefs have done it very well although thee seems to be an inflexion point where they get too big to maintain quality (usually far less than ten places). Gordon Ramsay was pilloried in the US when he used a central prep kitchen for his chain of pubs in London - it made a lot of sense to me, but the great British public, saw it as low quality “boil in a bag” food. Despite just about 90% (my guess) of UK restaurants and pubs buying in pre-prepped food from big caterers.

just using the POTUS definition.

…Chang makes some interesting points.
yes, but imho there’s a difference between “interesting” and “pertinent.”

there are many jobs and careers where one’s income is not “guaranteed” - waitstaff / tip-employees are not the only “affected” group.

people who have never owned/run as business frequently have no idea of “not in your face / hidden costs” involved. payroll based taxes can “cost” an employer +/- 20% of the hourly rate. and taxes, if one has not noticed, do not go down - the politicians prefer to tax the employer / business - not the employee - as a way of “getting elected by not raising your taxes.”

given the usual and customary 1/3 labor + 1/3 food costs + 1/3 overhead, and the tipped portion of labor changes from $2.13/hr * 1.2 = $2.56/hr to $15.00 * 1.2 = $18.00, the menu price of a no-tip meal will have to nearly double from the tipped model. the theory of just raising the menu price 20% to cover tips is myth - financially it can not work.

…there are plenty of other people who are happy
absolutely true. the missing bit is the impact on the establishment for training and turnover. multiple places have already learned that lesson, here’s just one:

I think Ramsay got so well pounded flat for his central kitchen because he portrayed such a pompous ass on TV with a everything fresh, it’s no trouble to make this ala’minute, etc etc. then, turns out he’s running high cost eateries via boil-in-bag… if he was dumping an exquisitely seasoned batter out of a bag at a fish&chips shop, he’d gotten away with it. but the public was not buying that approach for the level he pretended to operate on.


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Ridiculous to insinuate the president thinks that is middle class or that restaurant workers should make $350k.


Well aren’t there…?

Lots of kids wait tables going through school if earnings dropped would they all stop working, would there be a queue if others willing to do the work at the rate offered?

I understand the economics, but I think the key is that you need to rework the labour costs including the 20% added revenue and the reduced earnings for servers (keeping relatively overpaid on the same rates won’t work) - you don’t just pull one lever. And its the second bit thats really tricky, after all what is the relative value of a cook vs a server and thus how do you equitably distribute the rewards.

It won’t work in isolation as good servers will simply migrate to the more rewarding opportunities (as happened in the example you attach). But if there is structural reform in terms of minimum wage legislation and looking at why tips offset these requirements in many states it may be the inevitable consequence.

Maybe the restaurant tipping model isn’t sufficiently broken yet. I suspect the HO posters tend to experience the upper end of the spectrum (fine diners or funky chef operated places) of restaurants and don’t see how tipping/minimum wage legislation affects staff at the lower end of the market.

Definitely a tricky subject but as you say few people see the other side of the cost structure and the impact on non-serving staff. Much discussion seems to be about the percentage (and often develops into a pissing contest) rather than questioning the other issues.

turns out he’s running high cost eateries via boil-in-bag

Although to be fair to him he used this method for his pubs which were very reasonably priced. I also think the dishes he used it for were long braises etc like lamb shanks. I don’t believe it was ever used for the high end ones.

because he portrayed such a pompous ass on TV

Agree - its a shame because he quite a reputation for developing and nurturing talent in his kitchens. The list of Ramsay alumni is a bit of a who’s who of the UK’s top chefs.

You have completely missed the point…You are completely out of touch with amongst other things, the restaurant industry in the USA.

Aye, and there’s the rub. tipped employees are paid by the employer at a very low $/hour rate - Federal law uses $2.xx/hour but cities/local laws may be higher. the employer is required to pay additional $/hour if the tipped employee does not meet the (local) minimum wage.

with the result that tipped employees make at least minimum wage; and tips can make their hourly rate much higher.

in California tipped employees must be paid the full minimum wage (current $7.xx going to $15.xx in CA) by the employer plus their (portion) of tips.

so “reworking” the employer labor costs simply is a non-starter. “relatively over paid” - from the business accounting standpoint does not exist. the customer leaves a tip - the tipped employee (pool) gets the money (less credit card fees) with exactly the same impact on the employer as if the tipped employee found a wad of money of the street.

it is curious the only the rebels looking for a cause are onto this problem. have you noticed the absence of tipped employees demonstrating in the streets?

the demand for “a living wage” is actually not caused by cheap tippers…

the lovable theory of “just add a 20% service charge and pay everyone a decent wage” is so wonderfully simple - but is loaded with “oops” factors.

as mentioned, first is the fact that the employer currently only pays a multitude of payroll taxes on the $2.xx/per hour. when the tip becomes part of wages subject to employer paid taxes, it’s not a 20% increase for the presumed tip - it’s more like a 30% increase because the employer cannot pay employees the money that gets removed by taxes…

next up, it’s a funny world. US States and cities do not have the same laws / regulations. the menu price is taxable. if a “service fee” is added it may or may not be taxable by location; depends. sometimes one sees (here) “a gratuity of x% will be added for Y reason” - the “language” and “words” use are extremely important and whole generations of lawyers have paid for their kids education arguing such things.

upping the menu price by 20% / 30% also increases the sales tax amount the customer must pay (VAT, over there) which is not included in the stated menu prices here. that varies from 0% to 9% by location.

oh and by the way, you are absolutely correct about the labor market. there are only two requirements to become an excellent waitstaff and enjoy a good income - reliability and people skills. you can drop out of kiddiegarten and still become a most excellent waitperson. and when you land a better tip potential job - many people will be in line for the vacancy.

it is true when people start out, they start at the bottom. the slow / off-shifts where they may very well be less business and hence less tips no matter how good your are.

it is also true in the US that thousands of totally inexperience students finish culinary schools every June and expect to be hired as a $150,000/year executive chef 2-3 days after graduation.

the problem with the entire discussion is for everything there is an exception and for every exception it happens differently elsewhere.