Thursday, August 30, 2018

"Restaurant King" Meyer Is Right About War On Tips

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Danny Meyer, New York's "Restaurant King" - was right to abolish tipping at his restaurants.

What is it about the American yen to give tips? Tips for haircuts, cab rides, for wait staff at restaurants?  Hell, even Starbucks has a "tip jar"! What? People can't just work for a straight wage now, everyone is expected to subsidize as more and more have their hands out?  We have hard working people, who may put in numerous long hours each week at everything from construction, to teaching, to landscaping and even sanitation service jobs - who then want to just eat out once - but are expected to subsidize the meager wages of the wait staff. Oh,  and do it to an expected level of 20 percent now regarded as standard in most restaurant transactions.

By way of example, I stopped at Village Inn yesterday at lunchtime after going to see the 50th anniversary re-release of '2001- A Space Odyssey' at the nearby IMAX Theater. (Janice declined having seen the film 4 times, this was my 13th time - first in IMAX.).  I ordered a 6 oz. sirloin steak plus a garden salad side.  Normally, in any such transaction the waitress starts off with a 20 percent potential tip but this is subject to incremental deductions, i.e. after each miscue.  

If the gratuity was already built into the tab this sort of discretionary "deductionism" wouldn't be necessary, but here in the US of A it is, on account of the weasel wage system.  Anyway, a number of errors were made with my order including: the waitress forgetting to bring out the garden salad to start, a fruit salad served with the steak instead of mashed potatoes,  no gravy on the latter when they did appear, diet coke served in a too small glass - with too much ice.  The total bill came to $15.67, and I used a 20 % off coupon to reduce the total to $12.53.   I then entered my card to pay and selected the option of "18%"  on that amount - translating to a $2.25 tip.    Of  course, the "good" tipper is supposed to leave his or her tip based on the original total not the lesser amount - after the coupon deduction. But given the waitress' errors I reckoned she earned no more than $2.25 or  14.4 % on the original bill total.

Again, in Europe this game wouldn't have to be played and the customer  wouldn't be put in position of a would-be "Scrooge"   for dinging the poor, underpaid server for not performing at 100%.

Industry experts estimate that about $45 billion in tips are given each year. In May 2012, the U.S. Bureau of Labor Statistics showed the median hourly wage for restaurant servers was $8.92, including tips. And a 2012 PayScale survey found that waiters made 58 percent of their income from tips.  To be frank, this is absurd.

Tipping may be an outmoded and unfair way of paying someone — and there is a small amount of industry buzz about whether restaurant workers should be salaried, or tips built into the check   Now, we learned (WSJ Exchange, Aug. 25-26, p. B1) NY restaurant king  Danny Meyer may have solved the issue by abolishing the outmoded practice which most Europeans have long since retired.

After all, when we dined for lunch at the Panorama Restaurant in Salzburg in May, 2013, e.g.
Panorama Terrasse

Signs on the premises abounded with words 'No tipping!'

Signs abounded saying 'No Tipping". The gratuity was built into the tab so one didn't have to think twice about it.  End result? Patrons weren't wrestling with how much the service was worth (it was docked at a steady 18%) and wait staff didn't have to wonder if they'd be "stiffed".

Flash forward now to Danny Meyer whose restaurants (according to the WSJ piece) "rolled out its 'hospitality included' strategy in the fall of 2015" - informing his assorted wait staffs that while a handful of NYC restaurants had phased out tipping no major operator had adopted a blanket policy. So he would be the first.

Things were shaky at first, how could they not be in a tip-programmed society?  But Meyer thought "customers were sophisticated enough to look beyond the higher prices he'd have to charge", i.e. to incorporate the gratuities - the same way we found at Salzberg's Panorama Restaurant.  To that end, Meyer's team would have to figure out how to keep tipped employees from losing income, while bidding his investors to "sit tight".   As he later admitted "I think the real answer is we knew we were flying by the seat of our pants and had absolutely not idea."

Ultimately, when the strategy emerged three years ago several things were noted:

-  A revenue -sharing plan for dining room workers didn't always make up for lost tips

- Many legacy staffers quit

- Turnover rates spiked

At the same time:

"Many diners seemed thrilled to stop calculating tips but others couldn't compute the math behind the rising prices."

Well, how about a remedial course in arithmetic?     After all,  the Austrians we met in Salzburg didn't seem to need such math.    Incredibly, and even more an indictment of the American provincials, "a few confused patrons continued leaving cash on the table".

Meanwhile, "losing a federal tax break for restaurants based on the tip income its employees report cost his company $1 million a year."

Ouch! But this is what one gets when the whole system is geared to tips. There is no place for the bold innovator, the changeling.

What to do? Well, Danny Meyer "launched a public campaign to urge other restaurants to join him." (His restaurants included Shake Shack and Gramercy Tavern)


"While some owners thanked him for jumping on the grenade on tips, few followed suit. A citywide downturn in lunch business and competition from online delivery made them skittish about raising prices."

Thus Meyer arrived at the reluctant conclusion he had to go it alone.  It paid off. Two years after Meyer's no tipping plan was to be fully implemented, "13 restaurants adopted it with two left to go.  Meyer's cooks "received fat raises and overall retention and service metrics have improved."

Also, restaurants that adopted the program early have stabilized financially.  More reinforcement for the decision arrived after mandated minimum wage increases force tip-taking competitors to raise prices.

Why be against tips in the first place? Meyer points out in the WSJ Exchange piece that the problem with tips is the implication  "that someone would only be nice to you if they expect a generous tip".  Which sounds more like extortion. My view is you only get a generous, e.g. 20 percent tip, IF you deliver.   In an ideal world restaurant staff are compensated by merit. Success then is a satisfied customer who not only returns but spreads his satisfaction by word of mouth.

Of course, there are other problems with tipping apart from implied extortion.. Five years ago on a Freakonomics podcast host Stephen Dubner asked Cornell University professor Michael Lynn, who has written dozens of academic papers on tipping, what he would change about the practice.

'You know,' Lynn replied. 'I think I would outlaw it.'

According to Lynn, there was enough race and gender disparity in how much servers get tipped (blond women more, blacks less) so that "it's an ethically dubious way of rewarding workers."

Maybe the best way to get the system to initiate change - given too few Danny Meyers-  would be for Joe Q. Public to cease all tipping forthwith. Nothing, Not one red cent. Not one thin dime. Then what? There will be only two choices when the staff rise up in rebellion (unless they are zombies) : the restaurants will all have to close down - they will claim they "can't pay actual wages" etc. (which is horse pockey) OR, they will start paying salaries to staff as is done in Europe - where wait staff are professionals and are treated as such.

In the meantime, yeah, I will live with the U.S. tip culture, but still only award tips in relation to performance. 

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