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No-tipping wave is cresting

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Hopes of ending restaurants’ reliance on tips have dimmed appreciably from a year ago, with research and practical experience showing how bruising a changeover to other forms of server compensation can be. 

The culprit, both the qualitative and anecdotal evidence show, is a pitched resistance from customers. The problem is not a reluctance to surrender whatever incentive a tip might provide for good service, as many had expected, and much more a matter of sticker shock. Even if the all-inclusive price is less than what a customer might have paid for an entree plus a gratuity, the reaction isn’t positive.

“People can’t get their minds around the notion of a $24 hamburger,” says Patrick Connolly, who tried and discarded all-inclusive pricing at his Rider in Brooklyn. Unlike many converts to no tipping, the chef-owner’s establishment opened with a no-gratuities policy instead of switching.

“All the results were actually good,” he says. “The servers were making their money. The guests whom we were getting feedback from didn’t seem to mind it. Some preferred it.

“Where I ran into a problem with it was so much of our business was walk-ins,” he continues. “If we started a day with 20 reservations, we would end the day with double or triple that [volume].”

Passersby would look at the posted menu and then walk away. “People’s brains aren’t programmed to see a $24 hamburger and think, ‘Oh, perfect! Let’s go there!’”
says Connolly.

Customers’ resistance to all-inclusive pricing is reflected in research from American Express, which found that 63% percent of consumers do not want to stop tipping.

That preference was demonstrated when Rider switched to tips, dropping its prices roughly by 20%. With all-inclusive pricing, patrons were paying an average of $44. “It went to about $55 per head—without gratuity,” said Connolly. “It was like people felt freer to let it rip, so to speak.”

Even the standout success with no tipping, New York City’s Union Square Hospitality Group, has learned how difficult it can be to present an all-in-one price the public will accept.

“It takes us about three to four months to do all the modeling and the analytics, to do some mock pricing,” says Sabato Sagaria, chief restaurant officer for USHG. Before the switch, “every time you put a new menu item on the board, you had a gut feeling about price. Now you have to rebuild an entire new menu.”
 
Yet the group is dedicated to what it calls Hospitality Included. Eight of the company’s 13 restaurants are now using that model, with about 1,067 employees involved.

“The overall complexity, that was the biggest unknown,” said Sagaria. “We were focused on how it would affect employees. Once we transitioned, we didn’t know what to expect. It was really learning as we go.”

The big payback—tempering an imbalance between the compensation of front-of-house and back-of-house employees—remains a key object. Recently a number of restaurants in Boston and Duo in the Denver area adopted a new model: tipping, but with a surcharge tacked onto guest tabs for the kitchen staff. 

Hopes of alleviating the income disparities between dining room and kitchen staffs—and the kitchen recruitment difficulties it poses—prompted many full-service restaurants to follow USHG’s lead. Last year, 18% of restaurants participating in AmEx’s survey of the trade said they were discontinuing tips, and another 29% indicated that they planned to do so. 

In AmEx’s more recent canvass, the number of no-tipping establishments and would-be converters dropped to 15%. Still, high-profile operations continue to give the no-gratuities model a try. Blue Hill at Stone Barns, the Barber brothers' highly regarded restaurant in the suburbs of New York City, recently added a 20% "administrative fee" and dropped the tipping line on its credit card slips. The move, which pushed the cost of the restaurant's tasting menu above $300, came after the establishment and its sister operation in New York City settled a tip-related lawsuit for $2 million. 

Gabe Stulman, one of the first New York City operators to follow USHG’s lead, scrapped his program after a few months because of customers’ reaction to the higher prices. Ditto for Canary in Dallas; William Oliver’s Publick House in Fort Collins, Colo.; BaoBao Dumpling House in Portland, Maine; and Le Pigeon and Little Bird in Portland, Ore.

Connolly remains enthusiastic about tipping, but acknowledges that a reset in guest thinking is needed. “If tomorrow, customers’ brains were reprogrammed to think a $24 burger or a $16 avocado toast were normal, yeah, I’d go back,” he says.

His contention is born out by the AmEx research. Fourteen percent of full-service restaurants would scrap tipping if their competitors would, in effect changing the game across the board, according to the data.

It also indicated that millennials and Gen Xers are not as enamored of tipping as older consumers are.

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