TIPS ON TIPPING

TIPS ON TIPPING

I like to tip. It appeals to my free market sensibilities to be able to reward someone for a job well done. Maybe I’m also paying to get preferential treatment in future visits, but mainly
the money I pay is an unfiltered, undiluted way of saying, “Keep up the good work!” in a language we all can understand.

In the U.S. restaurant business, tipping is deeply ingrained in the economic culture. Many front of house staff earn just $2.13 in wages with the balance of their income coming from voluntary gratuity offered by the people they serve. This minimum wage hasn’t changed in years in most states, but the steady rise in menu prices results in increased income from tips, which is a more or less automatic mechanism for keeping up with inflation.

Not everybody feels the same way I do about tipping. Many restaurant managers believe it’s time to change to a different system. Ironically, the reason isn’t because servers make too little off of tips—it’s because the staff behind the scenes don’t make as much as those who benefit from the tips. Servers may complain that a base salary of $2.13 doesn’t even cover their taxes, but few of them would willingly trade what they get under the present system with the salary of a line cook.

Some restaurants have sought to lead the way to a different compensation formula by instituting “no tipping” policies. Typically, restaurants that move to this system will elevate their menu prices and adjust compensation to what they perceive to be market value for both front and back of house positions.

In early 2016, Joe’s Crab Shack announced they were testing a no-tipping system in 18 of their locations. This was the first name-brand chain to join the no-tipping movement, and it generated no small stir in the restaurant world.

Three months later, Joe’s announced that the participating locations had lost 8 to 10 percent of their customers. Other independent restaurants who have sought to lead the no tipping revolution in their markets have had similar results. The best servers moved on to other restaurants where they could get superstar compensation for delivering superstar performance, and diners felt funny not leaving something on the table despite paying more for their food.

Joe’s hasn’t quite given up on the idea, however. Out of the 18 locations in their test, 4 locations had more positive results, and they are continuing the experiment with these 4 locations to try to identify what’s different about them.
In my research for this essay, I did stumble across a case of one restaurant that has used a no-tipping format in a creative way successfully for 2-1/2 years. It’s a casual dining spot in Newport, Kentucky called Packhouse Meats. The secret to their success is a twist on their incentive package that even an inveterate tipper like me can’t help but admire: Their servers get paid either $10.00 per hour or 20% of their individual food sales per shift—whichever is more. In other words, they work on commission!

And it has to be an extremely slow day to fail to beat the $10.00 per hour base. On a busy shift, 20% of the receipts is a pretty juicy number. What really makes things fun is the customers are totally in the loop and totally happy to add more to their tab knowing that their server is going to directly benefit for every extra item that they come up with.

It harnesses reward psychology—the diners understand that ordering dessert is the same as adding an extra tip for their server.

I have a feeling that if this “no-tipping” trend ever catches on in restaurants in the U.S., it’s going to look a lot more like the Packhouse Meats version than the Joe’s Crab House version.

Have a great summer!

2016-winter-gabriel
GMC@hubindustrial.com

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