« The facts about GMOs | Main | 5 ways to coach in your job »

Chances low for “no tip” policy adoption at restaurants

Jessica Dunker is President/CEO of the Iowa Restaurant Association

To tip or not to tip? That is the question the U.S restaurant industry is wrestling with in a serious way — perhaps for the first time. The latest conversation has been spurred, in part, by high profile New York restaurateur Danny Meyer’s experiment with a no-tipping policy in one of his 13 fine dining restaurants, and his announcement that he intends to move the rest of his establishments in the same direction. 

A “no tip” hospitality culture has long been the norm in most of Europe—but are Americans ready for this shift? Research firm Technomic recently asked U.S. fine dining customers how they would feel about a “no tipping” restaurant experience – and the results were strangely ambivalent. In fact, 47 percent of the consumers surveyed said they would feel indifferent if their favorite full service restaurant did away with tipping.

Digging a little deeper, the study revealed that those who said they liked the idea of a no tip policy were motivated by a perplexing mix of seemingly generous and self-serving reasons. While 49 percent said they liked no tipping policies because they thought servers would get a better deal, one-third said they liked the idea of not tipping because they would no longer have to do the math to determine what the tip should be, 29 percent said they’d feel less pressure when paying, and 26 percent liked the idea that they might actually end up paying less with a no tip policy.

Those who said they didn’t like the idea of a no tip policy were equally mixed. 47 percent didn’t like the idea that they couldn’t reward great service and 20 percent didn’t like that they couldn’t punish poor service. Of those who thought the current system of customer determined tips is fine — 30 percent thought they’d end up paying more for the meal under no tip policies.

You can understand why current restaurant operators hesitate to rock the boat. What essentially equates to bi-polar consumer response to potential cultural change does not bode well for hospitality industry results.

Equity in wages within hospitality establishments is a huge issue for restaurant owners. The fact that the people preparing the food nearly always earn less than the people who serve it, is frustrating for employers.  

Those outside the industry often suggest employers leverage the current system by pooling and distributing tips across their entire team. The problem is that’s not legal.

Only those who are not in management and perform functions that theoretically “touch the table” are eligible to receive a portion of their wages in the form of gratuities. Tip pools, while legal, can only be distributed among servers, hostesses, food runners, bussers, bartenders, etc.

The only sure way for restaurants to guarantee equity and reward across functions is to move away from tipping and pay everyone an hourly wage (likely over the objections of most tipped employees who often make more per hour than their managers). For this to be economically feasible, most restaurants would have to raise prices anywhere from 15 to 25 percent.

Would consumers tolerate the menu sticker shock and keep the bottom line bill in mind?

Maybe.

But in an industry where margins and profits average 6 cents on the dollar, most operators can’t afford to deal in maybes. So the chances that we’ll see mass adoption of no tip policies anytime soon are pretty slim.

Comments

The comments to this entry are closed.

« The facts about GMOs | Main | 5 ways to coach in your job »

Technorati Bookmark: Chances low for “no tip” policy adoption at restaurants

This site is intended for informational and conversational purposes, not to provide specific legal, investment, or tax advice.  Articles and opinions posted here are those of the author(s). Links to and from other sites are for informational purposes and are not an endorsement by this site’s sponsor.