No-Tipping Restaurant Model

In an effort to pay cooks a fairer wage and to get around an onerous NY law regarding tip sharing, a restaurateur has moved to a no-tipping model. This reminded me of a post written by CSUF's Dr. Teckchandani about this subject from a couple of years ago.
In an effort to pay cooks a fairer wage and to get around an onerous NY law regarding tip sharing, a restaurateur has moved to a no-tipping model. This reminded me of a post written by CSUF’s Dr. Teckchandani about this subject from a couple of years ago.

A while back, CSUF professor Dr. Atul Teckchandani wrote a piece titled The not-so-surprising failure of no-tipping restaurants and it brought up many points that I thought were pretty interesting. The main thesis of Dr. Teckchandani’s piece was that while there is some data suggesting that restaurants that switch to a no-tipping model experience increases in food and service quality there doesn’t seem to be any demand from customers for this type of change.

This interesting out-of-the-box thinking stuck in my head, somewhat dormant, until I listened to a recent Freakonomics Radio episode titled The No-Tipping Point. This episode hits on a number of things related to a no-tipping model including Dr. Teckchandani’s thesis. In this episode, Stephen Dubner interviewed New York City restaurateur Danny Meyer about why he embraced the no-tipping model at one of his restaurants, The Modern, and what the results have been so far. Here’s the description of the episode:

The restaurant business model is warped: kitchen wages are too low to hire cooks, while diners are put in charge of paying the waitstaff. So what happens if you eliminate tipping, raise menu prices, and redistribute the wealth? New York restaurant maverick Danny Meyer is about to find out.

Without spoiling anything too much, the reason for the switch is because under New York law restaurants cannot share tips between the front of the house and the kitchen. Since that is the case, servers were receiving more compensation than cooks were and it was difficult for Mr. Meyer to recruit and retain quality cooks. In an effort to ameliorate this situation, Mr. Meyer has transitioned one of his restaurants, The Modern, into a no-tipping restaurant so that he can give cooks a raise and, in general, be more fair with compensation.

Here’s one interaction between Mr. Dubner and Mr. Meyer that relates directly to Dr. Teckchandani’s thesis:

DUBNER: Danny, you acknowledge that The Modern benefited from the coverage of its move to Hospitality Included, or no tipping. What about other restaurants that want to try this and won’t get the coverage, which is to say, just about all of them? Maybe especially restaurants that have a less affluent clientele and lower prices. How do you think this will work for them?

MEYER: Well, we’re going to find that out ourselves, because I want you to know, we are those restaurants. Remember, we did not roll this out in all of our restaurants. We only rolled it out at The Modern. And we, just like everybody else, are waiting to see how it goes. So the next restaurant we picked, which is Maialino, does not have the same kind of check average as The Modern has, and also serves breakfast, for example, which The Modern doesn’t serve. So we’re going to see, how does this work in the morning time? How does it work at a very, very active, less expensive bar, with snacks that are open all day? And like all the other restaurants you’re asking about, Maialino is not going to get the same four-month amount of global press coverage that The Modern got. So we’ll find out, but I’m really confident about it.

Maybe this will work, maybe it won’t but the move to a no-tipping model in an effort to pay kitchen workers more (some of these cooks have spent tens of thousands of dollars on their culinary education) does make sense on many levels. But the question still remains whether customers will accept this change or revolt because they no longer feel they have any say in compensating service received or because the up-front prices for menu items are too high.

You should listen to this (and all the others as well) Freakonomics Radio episode or read the transcript; it’s very interesting.


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