HISTORY OF TIPPING (It’s Important to Understand):
Tipping originated in Europe in the 1800s and was seen as a supplement to a worker for a service rendered, but was only done by the wealthy and didn’t replace the worker’s wage — it was a way to show one’s gratitude....gratuity. It was adopted in the United States after the abolition of slavery; to avoid having to take the responsibility for paying employees, several industries (including hospitality) deferred that obligation to the customer. This was how the employees were paid, not a mere supplement like it was overseas in the 1800s. It would be like tipping a shoe salesman to ensure that you receive prompt and efficient service — doesn’t seem right.
The Disparity in Wages:
The disparity in FOH vs. BOH wages has
increased dramatically over the last couple decades. For Danny Meyer of Union Square Hospitality Group, his servers over the last twenty years have seen an increase in around $100 a night, (primarily from tips), to somewhere in the $300 a night range, which is due to higher check averages, as well as customers tipping better overall. Kitchen wages, on the other hand, have increased a mere couple of dollars an hour more than what they were a few decades ago.
If a restaurant were to leave tipping ‘as is’ and attempt to account for this disparity by simply increasing menu prices — that would account for more revenue, which would allow for restaurants to pay kitchen workers more — this sounds good in theory, but a number of things would happen:
1. The restaurant would most likely, almost over night, price themselves out of the market. Restaurant margins are, for the really good ones, 10%. So typically, there isn’t a whole lot of extra cash floating around.
2. The wage disparity would actually increase between FOH and BOH employees, because service staff would then further benefit from the increased menu prices, which would be drastically more than a raise of a few dollars an hour for kitchen workers.
A Few More Things:
It is illegal to 'pool' tips with non-customer interacting employees (for New York you have to spend 80% of your time with guests). We saw Mario Batali get in trouble for this a few years back.It is also illegal to include a ‘service charge’ on the bill and have that distributed equitably.Restaurants are having trouble keeping quality kitchen workers, because of the low wages and also because of the fact that more good restaurants are popping up in big cities and smaller ones as well, so workers can find employment closer to home, or in an area that is more affordable than population dense cities like NYC amd San Francisco, where the cost of living is incredibly high.
How it Works for the Union Square Hospitality Group:
— Danny Meyer has instilled a company culture that is unrivaled — they see their staff as their greatest asset and most important stakeholders. If they can keep their staff happy, that results in lower staff turnover (less resources allocated to training = lower labor costs) and a better experience for their guests. This should directly impact their bottom line.
In other words, USHG has created an internal culture where their employees trust them.
— Danny Meyer started this, at the now publicly traded, Shake Shack, which shows that this type of system, with the right company culture can be implemented in fast casual and full-service restaurants alike.
— Menu prices will be raised by 21% (the average tip in NYC) and that increase will be used to increase cook wages by $2 an hour and increase the server’s minimum wage from $2.13 an hour to $9 an hour.
— Before implementing the new system, there were various round table discussions where all employees were invited, plus there is an online forum where the employees can submit questions, concerns and suggestions - anonymously or otherwise. Meyer essentially said, 'we are moving to this new system, but we want to know how we can make this work for you, our employees.'
— Right now at their restaurant North End Grill, there are more Culinary Institute of America graduates working in the dining room than in the kitchen, because if the fact that they can’t make enough money to afford student loans and the cost of NYC living. Meyer wants to change this dynamic.
— There is no line for gratuity when a customer pays with a credit card. USHG calls this 'hospitality included’. The restaurant group doesn’t encourage additional gratuity (i.e. leaving cash on the table), but if a customer chooses to do so, that money is collected and put into a pool and distributed amongst the formerly tipped employees.
— There will be a profit sharing system for FOH workers that was suggested by the staff when Danny and his leadership team asked for feedback before implementation. This provides the ‘sales’ incentive that tipped employees have grown accustomed to. This profit-sharing system will be based on the number of hours an employee works, but not which shift an employees works. For example, a six hour Monday morning shift is equal to a Friday night shift, which means that seasoned servers don’t have to work prime weekend shifts to earn the income they are used to.
— There are talks of implementing merit based raises for FOH employees, which means a veteran server or bartender who has consistently performed, will be rewarded for their job - this hasn’t been implemented, as the roll-out is still in such an infancy phase.
— There are also additional talks of profit sharing that will be based on each individual restaurant’s reviews and will reward the FOH staff based on positive customer feedback. This will be based on in-house comment cards and online platforms.
— Initial feedback from service staff and customers say that they the transaction part of the process is far more gratifying, as customers are able to better appreciate good service, because they can see that the service provided wasn’t contrived or based on the server’s desire for a good tip. At the same time, it’s easy for servers to attach their self worth to gratuity received - essentially, this provides for a much more authentic interaction.
— For any employees that aren’t on board, Meyer states that he understands the concern, but feels FOH wages will remain the same or increase 75% of the time. For an employees that are still unable to buy into the new system, Meyer says they will do their best to find them work at other restaurants/groups, in hopes of finding them employment that they will be happy with.
— AND, to remind you of the opening lines of this article — the first month that USHG implemented this new system at the Modern, they saw their highest month of revenue in the history of the restaurant. Meyer did say that some of that was most likely due to the buzz surrounding this bold attempt to shift the industry standard — I guess we’ll see what happens in the coming days, months and years.
Sources Include: Meyer’s TALK last week at SXSW, from an article written in Eater, and from a conversation I had with Richard Corraine, one of Danny Meyer’s partners to USHG.
WHAT DO YOU THINK?