As the restaurant industry struggles to attract new employees due to the national minimum wage for tipped employees, some big names in the business are trying new methods to increase applications and keep customers happy.
Danny Meyer, a New York restaurateur and the founder of Shake Shack, mandated in November of last year that his sit down restaurants would do away with tipping. The reasoning, he explained Friday during a South by Southwest talk with food magazine Bon Appetit’s Adam Rapoport, was in part influenced by his experiences with Shake Shack.
The chain, which opened two locations in Austin within the last year, pays its employees a minimum of $12 per hour and doesn’t allow a tip jar. Meyer said employees at the burger chain are happy and that happiness leads to return customers due to good service and good food.
Meyer, realizing his New York restaurants were having difficulty staffing the kitchen due to people not making enough to pay their bills, had to sell his stakeholders on the idea of abolishing tipping on the food and charging more for meals as ‘Hospitality Included.’ That also meant selling the staff.
“If you come to one of our restaurants, and you get the perception that our staff members do like this, you’re not going to like coming to our restaurants,” Meyer said.
As for the rest of the investors in his company, they expressed concern about raising prices and customers choosing one of the thousands of other options.
“This is what we had to convince [them], if you do the right thing you end up being more profitable,” Meyer said. “In any business with high turnover, quality and consistency go down and your number of repeat customers goes down.”
Employees also get a weekly revenue share, which keeps the inherent ‘competition’ aspect of being a restaurant worker alive.
Meyer is rolling the experiment out to his 13 restaurants slowly. So far, it seems to be working. He said his company has raised his cook’s hourly rate by $2 an hour. That change has made a deficit of 14 cooks balloon to a backlog of 150 who want to work.
Meyer is not the first to eliminate tipping. He is, however, one of the first major players in major restaurant groups in a major city to do it.
“It’s not a mission we have to believe everyone should do this,” he said. “It’s a mission we had to save our business.”
When questioned about if the move would work in a bar setting, where the bartender is traditionally known to favor those that tip well, Meyer said it could and would eliminate that bias.
“What if the bartender would pay attention to you, instead of saying that’s money and that isn’t money? There’s a huge amount of sexism and racism and other ‘ism’s’ that determine who gets paid attention to.”
Jae Kim, the founder of Austin’s own Chi’Lantro was in the audience and expressed to Meyer that he would like to move his restaurants in the no-tipping direction but was worried about it hurting his business. Meyer told him making the move was a leap of faith.
As for customers, Meyer said the majority of them have been on board with the change. Ninety-five percent of them pay with a credit card and there are no gratuity lines on receipts.
He said the restaurant still takes in a small amount, usually around 1.5 percent of the tab, in tips from cash paying customers. That is still divvied up among the servers.
Meyer said there have been concerns from people who viewed tipping as a way to punish a server for bad service. He’s not sweating it.
“I don’t miss those customers. The other 80 percent, they’re going, ‘do you realize how hard this is to not be able to leave a big tip as a way to say thank you.’”
Meyer said servers have told him they just want to hear ‘thank you.’