Reaching the Tipping Point

April 17, 2017
By: Restaurant Inc. Magazine

Is America’s tipping system broken? Or does it just seem that way?

Before we can answer that, let’s throw out a few more questions igniting this long-time debate that’s picked up serious heat in the last year. In a society that values personal initiative and hard work, is tipping by individual server the only way to motivate staff? Conversely, since we are constantly trying to level the playing field and guarantee wage equity for all, is tip pooling the best way to make it happen? Or maybe it’s time to completely quash the tip discussion and go European with a living wage and health benefits for wait staff. And one more: do we all need to agree? Almost $40 billion dollars is left on the table each year, so in the interest of fair play and fair pay, we checked in with industry experts, owners and one operator who is helping forge a new path.

Traditional tipping, based on individual serving stations, has been the American way for decades (see Tipping through Time, below), and its supporters maintain it still works best. “I think people want to remain in control of their tipping,” says Jason Kaplan, CEO of JK Consulting, an international restaurant-consulting firm based in New York. “I understand why the no-tipping model works in Europe, but we have a very different culture in the U.S. Customers want the opportunity to leave an amazing tip, and you’re taking that away by building in an automatic service fee. In addition, the price of food has risen exponentially, and customers may not differentiate that higher prices on the menu are due to that, and not just built-in fees.”

For servers, says Kaplan, it’s all about the incentive. “Once you automatically add on the gratuity, there’s no motivation to improve or educate. You just don’t care as much as when you have to work for it on an individual basis.”

Chef Brian Bishop at Bluegrass, a casually upscale restaurant in suburban Chicago, agrees. “You’re disempowering your servers if you don’t allow guests to tip based on the quality of individual service. We’ve moved well beyond the 15 percent gratuity. Many diners tip as much as 25 to 30 percent, which creates a real motivator.”

We found that all the great owners and chefs focused on their teams, and put a lot of effort into making sure they were fairly treated on every level.

At three Michelin-starred Grace restaurant, General Manager Michael Muser confirms: “I don’t like telling people what to tip and I don’t think guests appreciate it either.” However, the traditional method of dividing a room into stations has its own set of issues, according to Muser. “Each waiter then manages his tables as if it’s his own little restaurant. That puts pressure on the waiter to upsell and be very aggressive, sell as much food and wine as he can to increase his sales, and maximize his tips. I waited tables for a big part of my career, and it’s almost like gambling … you can have big days and you can have zero days.” Instead, Grace uses a pool system in which all gratuities are combined at the end of each night, and tips divided based on points — the captain or lead server receives five points; back waiter, four points; sommeliers 3.5 points; food runners, three points.

“Everyone who has direct contact with guests is involved,” says Muser. The system’s been in place since Grace opened at the end of 2012, fueled by the star power of Executive Chef/Owner Curtis Duffy. “This eliminates the issues that can come with stations, such as who gets the coveted, large, 10-guest parties. That puts the hostess in power to grant it to her favorites, and leads to much grousing among staff. With a pooling system, I staff as necessary to make sure guests are serviced appropriately,” he says. “There’s opportunity to progress from a food runner to a captain, and everyone works really hard. The point system works really well here, and gives everyone a more consistent lifestyle.”

Not everyone’s a fan, however. Restaurant consultant Brandon O’Dell who’s helped numerous foodservice operations become profitable over the last two decades, believes pooling discourages individual effort. “The most talented service staff end up supplementing pay for the less talented ones,” he asserts. “Turnover is reduced, but this method may actually be more effective for people that least deserve it, and discourages those that are most helpful.”

Kaplan agrees: “Remember in school when you’d be paired up for group projects, and there were always those one or two people who wouldn’t pull their weight, but everyone received the same grade? That’s what this is like!” On the other hand, he says, the table flipping issues become moot, and Kaplan agrees pooled tips can work better in restaurant groups that are able to offer more extensive training to their employees; Bishop says it’s the fairest method of compensation for banquets and buffets.

Clearly, no approach is without its pros and cons, so maybe we should just abolish tipping altogether. Cornell University professor Dr. Michael Lynn, who’s authored more than 50 papers on the topic, is a strong proponent, for a number of important reasons. His research has shown it’s discriminatory (black servers are tipped less by all races) and not at all effective in improving the dining experience. The correlation between great service and better tips is “astonishingly low,” he said in a 2013 Freakonomics podcast. Listening to that show at Bar Marco in Pittsburgh was owner Bobby Fry, heading into the third year of his popular establishment. Very conscious of the industry’s spotty record of success, Lynn’s findings made an impact on his path forward … his tipping point, so to speak.

“That started the process of thinking about why so many restaurants fail within the first few years, and how the successful ones survive,” remembers Fry. “We found that all the great owners and chefs focused on their teams, and put a lot of effort into making sure they were fairly treated on every level. The key was also to eliminate part-time workers, and treat it like the profession it is — with full-time hours, a sustainable salary, benefits and vacation.”

Instead of less-than-minimum wage buttressed by the often random generosity of customers, Fry established a base salary of $35,000, two days and one night off a week, 10 paid vacation days a year, healthcare benefits and an ownership stake in the company. Compare that to the median amount spent on each full-time employee in 2014, as reported by the National Restaurant Association: $18,876 a year, including benefits, at restaurants where the average check runs from $15 to $24.99 per customer. No wonder Fry received more than 120 applications for a single open position earlier this year. Gratuities were eliminated, no longer necessary under the new system, and Fry fully embraces the change.

“Our staff has been with us from the beginning, and we wanted to put something in place that allows us to all work together to keep costs down and stay profitable,” says Fry. “For us, it was all about investing in our people.”

Menu prices will be somewhat higher, he says, but won’t fully compensate them for the costs involved. “We’re not adding a service charge, and we want to get that message across clearly,” he says. Instead, they’re adding a greater variety of high-quality menu items and giving people more food for their money. Cutting costs will result from breaking down whole animals in the kitchen, and buying vegetables from local farms in bulk and preserving them to use year round.

Customers are really excited about the concept, reveals Fry, having already tried it out with the restaurant’s special fixed-price wine pairing dinners. “Our diners loved the experience.” He’s confident that it’s the right model, at the right time, and not just for Bar Marco. “We’re not a really expensive place for the most part, so it can really work for many restaurants.”

And in terms of customer satisfaction, he believes it resonates across the board. “Tipping’s so habitual that people leave one even if they’re dissatisfied with the service, but they’ll never come back. If the bad service is included in the price, however, they’re much more likely to speak up and we have the opportunity to make it right and keep that customer,” says Fry.

O’Dell, among others, doesn’t see the no-tipping approach as a good business model for the average restaurant, believing it decreases profits for the owner, and lessens the incentive for top servers. “You also have to raise prices and that gives other restaurants a competitive advantage,” he says.

So, no easy answers here. As Muser succinctly concludes: “At the end of the day, all of them have their moment, and all of them have their flaws.”

THE 20% SOLUTION: A Look at the Current State of Tipping

  • North America is the only place where 18 to 20 percent restaurant tips are expected; Europe includes a service charge, usually around 15 percent; no tips are given in Japan and China.
  • More than 9 out of 10 Americans agree that tips should be given at casual dining restaurants and family-style eateries.
  • Since 2012, 22 percent of Americans increased their tipping, citing increased awareness of how restaurant staff are paid.
  • 40 percent of consumers say they would give the same tip if they ordered and paid by tabletop tablet instead of directly to the server, while 45 percent would reduce their tip.
  • Younger consumers differ: 41 percent would reduce their tip via tablet, 34 percent would keep it the same, 26 percent would actually increase their tip.

Source: Technomic, Inc.

  • Author: Mindy Kolof
  • Posted: August 11, 2015


JK Consulting is a New York-based international restaurant & hospitality consulting firm. We specialize in restaurant & bar openings along with turnaround programs. Our expertise is in developing highly effective operational systems, management procedures, hospitality services, staff training, beverage, menu and mystery shopping programs.
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