Is it time to end tipping in restaurants?

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I always tip 20% at restaurants. The math is easy and I knew a lot of friends in college who waited tables, did not make much money and were not always treated with respect. When I have felt like I couldn’t afford to pay a 20% tip, it meant I couldn’t afford to eat out.

Whether we should ban tipping has become the subject of an active discussion in recent times, especially after celebrated New York City restaurateur, Danny Meyer, eliminated tipping from some of his restaurants and increased the price of his entrees instead.

This debate is a vital prism through which we look at income inequality, the interaction between wealth and work and implications of tipping on businesses and the economy.

A CNN panel revealed several downsides to tipping.

Tipping creates a lack of price transparency, according to New York Times writer, Zora O’Neill. She points out that while our consumer culture encourages us to partake based on price, costs  are one of the most opaque aspects of our economic life:

  • Our job offers make us feel richer than we are by listing our salary without subtracting various federal, state and city taxes.
  • Likewise, store prices in most U.S. states do not account for sales tax and have a level of misinformation baked in (99 cent ending, for example)
  • When we visit doctors or hospitals, we consume their services without a clear idea about their real cost, not that we would usually bargain while in discomfort anyway.

Similarly, food prices on the menu often blind us to a sticker shock that arrives when we add taxes and the tip to the bill.

There is also an element of awkwardness to the entire tipping experience.

Tipping also creates a power asymmetry. Since the consumer knows that they will be paying the server extra in lieu of the service, it opens the door to possible abuse and harassment:

  • According to Saru Jayaraman, director of the Food Labor Research Center at the University of California, Berkeley, 7% of American women work in restaurants, but 30% of sexual harassment complaints from women come from the restaurant industry.
  • Studies by Cornell professor, Michael Lynn, have shown that waitresses with larger breasts, smaller body sizes and blond hair tend to earn higher tips than other waitresses.
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This power asymmetry is one reason why, as Andre Meyer, from the City University of London points out, servers often have to create a contrived sense of camaraderie with their customers. It is unseemly that someone who brings you an expensive entree to eat has to depend on you feeling sufficiently validated and affirmed to feed their family.

While for many of us one boss is one boss too many, your average server has to consider every customer sitting at every table they wait on as a potential boss. Each customer tips the server based on the quality of the food, the speed at which it is cooked, the presentation and several other factors the server has no control over.

All of this could force servers to perceive their interests as being different from those of the restaurant and the customer:

  • Servers could offer free drinks to curry favor with customers in pursuit of a tip, thereby hurting the restaurant bottom line.
  • Conversely, servers could softly pressure customers towards expensive drinks so as to run up the bill and consequently the tip.
  • Servers compete ruthlessly for Saturday night shifts, when tips run high, but many chafe at weekday lunch shifts.

 

It was against this background that the “end tipping” movement caught steam. The goal was to have tips baked into the costs of entrees so customers knew what the entire dining experience cost and servers were rewarded without depending on the whims of their customers.

 

In reality, the outcomes have varied.

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Restaurants that have ended tipping and raised prices have had to make adjustments to soften the sticker-shock:

  • Dino Lavorini, the director of operations at the Modern, did not raise prices for certain items like a cup of coffee, bar snack, etc. but raised them by 20% for wine.
  • When Huertas, a Spanish small-plates restaurant, raised the cost of the octopus plate from $16 to $21, management decided to add a tentacle. The extra limb cost about a dollar, but the more substantial dish eased the sting of the $5 price increase.
  • What makes this more complicated is that, as the New York Times points out, restaurants pay taxes on their revenue, but not on income from tips. When the tip is folded into the price of the meal, the restaurant’s taxable income rises.

Adjustments like these are easier for restaurants in big cities and with established clienteles.

It is not just restaurants that find these adjustments tricky:

  • In some instances, bartenders and servers have quit once they got wage increases in lieu of tips, believing that they could do better at establishments that allow tipping.
  • Example: In 2015, San Francisco’s Bar Agricole and Trou Normand eliminated tipping and paid the staff higher hourly wages across the board. Over the next ten months, the restaurants saw 70% of its servers quit since their hourly wage ended up dropping from $35-$45 per hour to $20-$35.
  • Customers who like the “no tip” model in theory often dislike it in practice since they worry that restaurants will use the model to raise prices exorbitantly.
  • Example: The Per Se restaurant in NYC charges $250-$1,400 more for its wines than its rivals for the exact same bottles. Per Se has banned tips while its rivals have not. It is unlikely that the entire price difference goes toward tips.
  • Additionally, 81% of restaurant-going adults oppose abolishing tips; they say tipping helps hold restaurant staff accountable, and that replacing tips with a built-in surcharge will remove servers’ incentives for providing good service.
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This could explain why many restaurants have struggled to make the “no tipping” model work.

According to the New York Times, restaurateurs David Chang, Tom Colicchio and Gabe Stulman all found it unworkable in the small-scale experiments they tried. “We continue to be supportive of the no-tipping movement,” Mr. Colicchio said, “but we’ve heard from our customers and team that they just aren’t ready for it yet.”

A few restaurants in Portland, OR, another city with a strong food culture, have had to revert back to tipping after their experiments to end tipping did not work out financially.

 

The upshot here is that small moves like raising the price of food so as to pay someone a living wage gets complicated when tried out in real markets. Given the diversity of the American experience in food services, it is unclear whether a uniform policy would work across the different genres and markets that make up the restaurant industry.

You could chew on that thought at home, but if you do so at a restaurant, please tip 20%. It is the right thing to do.

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