Food costs are on the rise. The minimum wage is set to increase and will bring with it massive changes to the overall cost of labor. Food safety issues continue to plague the news, forcing restaurants to enforce even stricter (and more expensive) safety standards across their operations. And the employee turnover rate continues to be a never-ending struggle.
Needless to say, restaurants are feeling the pain.
Then comes along a new idea - adopting a "no tipping" policy in restaurants.
Wait...no tipping restaurants?
Tried by a few establishments, restaurateurs have found out that removing tipping - while a good idea in theory- may not have the desired effects.
If you're considering becoming a no tipping restaurant, there may be reason to reconsider. Read on to find out who has tried to becaome a no tipping restaurant, what their staff and customers thought, and what they did in the aftermath of their decision.
Restaurants Were Desperate for a Solution
For major restaurant chains like Wendy’s or new restaurant concepts like Eatsa, the solution seemed simple enough: they were going to use self-service kiosks to counter rising labor costs. For many restaurants though, automation of the FOH service and dining experience wasn’t a possibility. When your entire business model runs on the promise of hospitality, it’s hard to turn guest engagement and customer service over to a touchscreen.
Late last year, industry news was flooded with word that some restaurants groups, chains, and upscale dining establishments were going to test out a new cost-cutting solution: becomming a no tipping restaurant and incorporating a “Hospitality Included” policy.
Their argument was that by becomming a no tipping restautant and increasing menu pricing, their businesses would reap big benefits, including: a fairer wage structure, an evening-out of costs, and happier guests.
When Hospitality Included policies became effective (almost) immediately, it was clear that everyone else was going to wait and see what happened before taking any action of their own—especially after Danny Meyer announced that his Union Square Hospitality Group of restaurants were taking the plunge too. While most other restaurants didn't fully buy into the idea, there was a lot of curiosity around how it would play out.
Was this a case of wishful thinking on everyone’s part? Perhaps. The restaurant industry has been struggling with very thin profit margins for quite some time.
When a well-known restaurateur is willing to take a risk and test out a new cost-cutting measure, everyone else will cross their fingers and hope that this is the solution that will help them all. Anxious for a solution, restaurateurs waited for the answers to their burning questions.
- Would guests be willing to pay higher menu fares in lieu of tipping?
- Would previously tipped staff be satisfied with the removal of tips and a move to a higher hourly wage?
- If restaurant tips were removed, what would then motivate FOH staff to deliver good service?
- How would customers feel if they could no longer use tips to provide their “feedback” on a job done well or poorly?
- Would higher menu prices, no tips, and higher wages all around really make that much of a difference in the battle against rising costs?
Why Wasn’t a No Tipping Restaurant the Solution?
For large restaurant chains and fast food restaurants that focus on speedy meal delivery, automation is a smart move. Their customer base expects fast food, and that’s exactly what they get with automation. In return, those restaurants can then reallocate their remaining workforce to focus on higher quality of food preparation or to better manage the customer experience.
For major restaurant groups and other establishments that have a larger margin to play with, cutting tips seemed like it could work—but only if they could get employees and customers on board with the new cost and revenue structures. That being said, the success of Hospitality Included was contingent on that support, and that support definitely wasn’t a given.
Now, for restaurant chains, franchises, and other independent restaurant operators, neither of these solutions seemed like they would work in their favor. Their tighter profit margins wouldn’t be able to cover the investment in expensive hardware and all the other costs typically associated with managing and maintaining it. And paying a higher salary to previously tipped employees in addition to higher wages for everyone else just seemed out of the question.
Having given this experiment some time to run, most people decided that transitioning into a no tipping restaurant is not the cost-cutting solution the restaurant industry needs.
This Is What Happened
Aside from Meyer, it appears now that most of the major restaurateurs who said “no” to tips within the last year have had to reverse that decision.
"While we made the determination that a gratuity free system does not work for our business at this time, we continue to believe that it has the potential to change hospitality for the better."
How long did it last? 4 months
Why did they pass? The restaurant began to lose money as customers opted to buy less in order to deal with higher menu prices.
What’s next? They’ve ceased operating as a no tipping restaurant and reverted back to the traditional tipping model.
“We started this experiment to pay our cooks a wage we believe in. Cooks will maintain the same wages moving forward as they did with the no-tipping model. This is, by no means, the end of the no-tipping discussion. But at this moment, we think a tipping model will benefit our guests and staff.”
How long did it last? 5 months
Why did they pass? Customers were really unhappy with the menu’s high prices.
What’s next? They’ve also ceased operating as a no tipping restaurant, but will continue to pay BOH staff a higher wage.
Bob Merritt’s Joe’s Crab Shack (Ignite Hospitality Group)
“The system has to change at some point, but our customers and staff spoke very loudly. And a lot of them voted with their feet.”
How long did it last? 10 months across 18 locations
Why did they pass? 60% of customers were reportedly unhappy with the new model and Joe’s reported a loss of .6% of their profit margin year-over-year.
What’s next? 4 of their locations will continue on with the experiment to figure out what works and what doesn’t.
Thad Vogler’s Bar Agricole and Trou Normand
"They [our servers] became more and more disgruntled, and we started to experience turnover. We were spending a lot of time and energy hiring and training, and rehiring and training… Unless we raised prices considerably more, we were expecting servers to take a dock in pay; that was an egregious oversight on my part."
How long did it last? 10 months
Why did they pass? Previously tipped staff became disgruntled with the new policy as the higher menu prices and their hourly wage were not helping to match their previous earnings. Vogler reported losing 70% of tipped staff during this time period.
What’s next? They’ve reverted back to tipping, but have kept menu prices higher so they can continue to pay a higher wage to BOH employees.
The Tipping Point: What's the Solution for No Tipping Restaurants?
Is it surprising that these restaurants received such an outcry not only from diners after becoming a no tipping restaurant, but also from FOH staff? Not really.
There's definitely an argument to support providing better wages to BOH and other non-tipped staff. But when the battle against rising costs, employee turnover, and implementing fair wages comes at the expense of diners who have to pay higher menu prices or FOH staff who have to make less money without tips, it has quickly become clear that no-tipping and higher menu pricing may not be the consensus among all diners - at least at most restaurants.
Could there possibly be an alternate route?
Chances are good that popular restaurant chains and groups will continue to experiment with other methods of countering rising prices. For those that don’t have that sort of flexibility though, but who still need a way to rein in all those costs, we anticipate seeing more (reasonable) automation in all areas of the restaurant. Self order kiosks and mobile POS systems are a great place to start. Restaurant management software is also an affordable and effective solution for operations needing a better handle on internal, back-office processes.
What's your opinion on no tipping restaurants? Let us know in the comments below!