In light of higher minimum wage, restaurants in Seattle are experimenting and while it’s good for some workers, it’s the customers and other workers that will pay the price.
We’ve reported on robots replacing minimum wage workers in fast food joints, but two more ways employers are tackling the higher cost of doing business is to increase prices and eliminate tipping by increasing fees. With no-tipping policies, restaurants add on extra charges that include gratuities. In addition, they are raising the prices of meals.
The benefit of no-tipping policies is that owners and managers can share the added fees with other workers such kitchen staff who don’t get tips along with waiters and waitresses. Some managers say it allows them the flexibility to better reward employees based on length of service and the complexity of their job.
They say it's also less of a bureaucratic headache during tax season to avoid figuring out the reporting requirements on tips.
In addition, some claim that there is a racial bias in tipping that this supposedly would eliminate.
However, customers will see two new, compulsory increases: the prices of their meals and the fees tacked on to their bill. This may drive some to avoid certain restaurants that implement these rules. What good is a no tipping, if you have no customers?
Restaurant owners also risk losing top-notch servers to nearby competition. These workers follow where the best tips take them. If your customer service suffers, even if the food is good, it’s still a recipe for business disaster.
Tipping is ingrained in the American psyche as the New York Times reports, such that it could trigger backlash:
“The tipped culture is still what draws many people into our industry,” said Christin Fernandez, a spokeswoman at the National Restaurant Association. While the association estimates that the median hourly earnings for tipped servers are between $16 and $22, waiters at high-end restaurants can earn much more.
Although the no-tipping idea is generating a lot of discussion, the number of restaurants that have signed on is still tiny, and they tend to cluster near the higher end of the price spectrum.
Most are adopting a wait-and-see attitude.
“We don’t want to jump on the trend,” said Akop Paronyan, the general manager of E&O Kitchen and Bar in San Francisco.
With further mandated wage increases scheduled, Mr. Paronyan said the restaurant does need to be prepared. He is researching a hybrid model, where guests might be charged a mandatory 10 percent service charge and then encouraged to add a 5 percent to 10 percent gratuity.
Brian Keyser, the owner of Casellula restaurant in Midtown Manhattan, would prefer to end tipping but does not think his staff members or his diners are ready to accept it.
Now he must contend with a minimum wage for tipped workers that is rising in New York. That means giving his servers a $2.50-an-hour raise — even if they are already pulling in about $25 an hour in tips. “I have a kitchen full of people making far, far less than that, and I would love to give them that money, but I can’t,” Mr. Keyser said.
When Daniel Patterson first started working as a chef in the early 1980s, he said, labor used to account for about a third of total costs, and owners could enjoy a 10 percent to 20 percent profit. Now, as a partner in five San Francisco Bay Area restaurants, Mr. Patterson says labor costs eat up about 40 percent to 45 percent of the budget. At the same time, rent costs are skyrocketing.
“Even a good restaurant doing a lot of business that’s popular on every level, is bringing 2 percent or 1.5 percent to the bottom line,” he said. “It’s like a not-for-profit.”
Re-educating American diners to understand the added charges and built-in gratuity will need time, time, and more time. Adding charges to our dining bill may be confusing and adds the pressure of not wanting to be seen as miserly by not tipping at a personal standard level or being forced to tip above what one usually does. We are accustomed to flexing our generosity muscle on a micro level and using the tip line as a feedback loop on both our waiter and the overall service of the restaurant.
We don’t fault restaurant owners for adapting their business model to the changing environment driven by government regulations and mandates though. The boogey man is not the restaurant owner or manager but the policymakers who drive these changes from the White House to the State House to the City Hall.
What’s most worrisome will be to track how restaurants compete over the next few years and the next decade – as some of these minimum wages continues to rise until they hit their statutory floors. Most notable from this article is that profit margins are on a strict diet and growing ever more slim.
With rising wages and rising rents in cities like New York and Seattle, restaurant owners are getting squeezed from multiple directions. As their profit margin nears zero, there’s little incentive for a budding entrepreneur with a dream to sacrifice her savings and sanity to start a restaurant. She’s barely able to keep the business afloat and pay back those she may have borrowed from. The same is true for a veteran restaurateur who been in business for decades or a restaurant owners whose family has been operating a local place for generations. In this scenario, it truly becomes a competition for survival.