The Tipping Point
By raising menu prices and eliminating gratuity, restaurateurs hope they've found the recipe for a better quality of life for staff
At South by Southwest this year, one hot topic at several Interactive panels was Shake Shack proprietor Danny Meyer's recent decision to remove tipping from all his restaurants. Adam Rapoport, editor-in-chief of Bon Appétit, interviewed Meyer about his latest hospitality breakthrough.
"We're still relying on you, the restaurantgoer, to pay the living of our servers," explained Meyer. "There are a whole lot of people who are so confused, so angry about the notion that this might one day change, and there are a lot of people who are just threatened. And we've kicked every one of those beehives over the last few months."
While relying on tips makes a server's wage unpredictable, it's the back of the house workers whose paychecks suffer the most. With the average line cook making $10.73 an hour, Meyer said it's been nearly impossible to find (and keep) cooks for his restaurants in the past three years. Most have been priced out of Manhattan and would rather take a job closer to home, and some even opt to work in the front of the house in order to make enough money to pay back culinary school loans.
This past fall, Meyer tried building the tip into the menu prices at the Modern, his restaurant within the Museum of Modern Art, which enabled him to raise pay rates for the back of the house and guarantee a steady income for the front of the house. In no time, he had acquired a backlog of 150 cooks who wanted to work there, and he's since introduced the program at his Gramercy Park restaurant Maialino as well.
This concept is certainly not without controversy. In another SXSW panel, chef Tyson Cole mused, "It's basically a political question. It's capitalism, socialism, communism, right? In a perfect world, if everyone makes the same exact amount of money, would they all be happy? I don't know." He suggested, instead of eliminating tipping, creating a system where staff can make more money in addition to the tips they earn, rather than the meager hourly wage required for tipped workers.
Since 1991, the corporate restaurant industry has maintained a sub-minimum wage of $2.13 an hour for tipped workers, yielding in a median income of $14,596 a year. RAISE (Restaurants Advancing Industry Standards in Employment), an association of 150 business owners across the country, is working hard to require restaurants to pay all employees at least minimum wage, a step nine states (plus cities like Seattle and Oakland) have already taken.
Johnny Livesay, one of the founders of Austin's Black Star Co-op, is involved with RAISE and its activist parent organization ROC (Restaurant Opportunities Center) United. Black Star was the first restaurant in Austin to pay its workers an hourly living wage, a mission Livesay and co-founder Steven Yarak envisioned as early as 2006, while laying out a plan for the member-owned brewpub.
Now, both front and back of house employees begin at $12 an hour for a 90-day trial period before moving up to $13.10 an hour for the next nine months. After a year of employment, they can opt to follow a leadership track for $16.20 an hour (which comes with more responsibility and a faster pay increase) or stay on the worker track for $15.50 an hour. Additionally, all employees are offered competitive health insurance rates (plus 50% of spouse and family insurance), three and a half weeks of paid vacation, Roth IRA options, paid maternity leave, and Black Star discounts.
"Our labor budget is the highest," says Livesay. "It's insane compared to a normal business and way above industry average because we're actually paying people."
As a result, there's no gap between front and back of house wages, and the kitchen's staff retention is the highest Livesay has ever seen. Three out of six current employees opened the restaurant in 2010, and the average wage is $17 an hour.
In addition to mentoring other restaurants trying to follow a similar model, Livesay and the rest of RAISE are calling on Congress to raise federal industry standards by improving wages, providing affordable health care and paid sick days, offering career advancement opportunities, and more. Meanwhile, the National Restaurant Association (which they refer to as "the other NRA"), a group of corporate lobbyists representing some of the country's largest chain restaurants, is doing everything they can to keep the unlivable tipped minimum wage at $2.13 an hour.
"What the NRA argues is that waiters make great money – why is this a problem? Why is this an issue?" says Livesay. "Yeah, the dudes that are in steak houses, making bank, inflate the numbers so much across the board, but then there are women that work at Denny's and can't afford child care while they're working .... The whole system is built to keep those people down. And then the guys in the back making the steaks perfectly, that they're getting praised for up front, are making like $10 an hour."
Ironically, many of the people voting against wage reform are the same conservatives who are opposed to welfare, Livesay points out. "But they're perpetuating welfare by keeping this one wage super low, creating this entire class of people that have to be on assistance because the laws won't change."
Livesay says that change is definitely coming, though it won't be an overnight process. The wage bills being discussed all have seven-year limitations, but the ball is rolling faster than ever with hospitality groups like Danny Meyer's Union Square Hospitality Group and Tom Colicchio's Crafted Hospitality, plus Zingerman's and Joe's Crab Shack, joining forces with RAISE and ROC.
Across the country, independent restaurants are taking matters into their own hands by increasing profitability to pay their workers instead of relying on an antiquated tip system. Livesay admits this is a risky move in an industry where the average profit margin is just 3%. But more and more businesses are proving that it's not only entirely doable, but profitable.
"Industry retention is over 110 percent turnover," says Livesay. "That's insanity! It costs so much money to replace one person, and if you're constantly having to turn people over, that's a horrible quality of life. Instead, people can slip money in their pockets and they can actually go out to eat dinner and contribute to this thing."
At the start of this year, Thai Fresh owner Jam Sanitchat made the decision to raise menu prices by 15-25% in order to do away with tipping and raise employee rates across the board. Since opening with deli-style service in 2008, her counter employees had been making $10 an hour plus tips, which resulted in $16-20 an hour, while the kitchen was stuck at $12-13 an hour.
The tension between front and back of house due to the wage gap was palpable. "Deep inside, I feel like that was keeping them from becoming a team," she says. "They didn't mean to, they just couldn't help it. It was subconscious."
She individually met with each employee, explaining her decision to transition to table service and start everyone at $15 an hour (with incremental raises reaching to $18 and beyond for trainers and shift leaders). While some front of house employees might experience a slight pay cut, she explained, they would now know exactly how much they'd take home from each shift.
"I know people who've left restaurants because they're tired of this tip system, but they've come here because this is what they wanted from the other restaurants that they did not get," says Sanitchat. "They want to know that if they're here, working hard, they're going to make that money no matter what, whether it's slow or if it's busy. It's better overall for their mentality, their attitude."
Now that payroll is 40% of her restaurant's expenses, Sanitchat is closely tracking her profits and working on getting her employees health insurance next, then rolling out paid sick days and vacation time.
"I started them maybe a dollar less than I wanted to but, if it all goes well, I want to give them a raise," says Sanitchat. "I really want them to make good money and stay with me for a long time."
Sanitchat also plans on offering quarterly bonuses for servers who exhibit a superior knowledge of the menu, selling more food and wine. She also encourages her team to save money by conserving water and electricity, using fewer disposables like take-out containers, and working harder so less servers are needed on the floor for each shift.
"They have to think like an owner," says Sanitchat, who worked as a server and hostess for a number of Austin restaurants before starting her own cooking school, then opening Thai Fresh. "If they don't think like us, we'll never succeed together. So I encourage them to both save and sell at the same time."
When M.J. Smith took on the role of general manager at Whip In last year, she also drew upon her past restaurant experience. "I was a line cook at Magnolia for five years, and I lived on turkey sandwiches," she remembers. "It was really hard to exist even then when my rent was $300."
After experience as a corporate trainer for the Alamo Drafthouse and as the co-owner of the North Door, she returned to the restaurant industry and was shocked to learn the kitchen staff was still scraping by on the same meager wages she made as a cook 10 years ago.
She discovered that many of the kitchen employees were stressed and overworked due to juggling two or three other jobs. And with many cooks unable to afford to live Downtown anymore, and unwilling to spend the time and money to travel for such a low-paying job, Smith also noted a major deficit of culinary talent in the neighborhood. "We couldn't find people at $12 or even $13 an hour," she says. "They're not there anymore. I've been here 15 years and I've never seen that."
Amrit Topiwala opened Whip In as a gas station and convenience store with his wife Chandan in 1986. In the last 30 years, the Austin institution has morphed into a brewpub, wine bar, performance venue, and organic restaurant serving Indian cuisine with a Tex-Mex twist. Now, Smith sat down with him to propose some different changes: raising menu prices in order to bring the average kitchen wage up to $15 an hour and guarantee bartenders $20 an hour.
"My boss is 75," Smith says. "It's a big leap of faith to explain to him that investing in people will save us money in the long term, but at 75 he's able to figure that out .... You end up with better service and a better environment. And when you have a healthier environment, you sell more products."
Since they've made the changes, sales are up 7%, and Smith is looking into adding medical coverage in addition to the other benefits offered, such as paid vacation time and continuing education in everything from brewing beer to understanding Obamacare.
Now that Whip In is offering a competitive wage, Smith has built a strong kitchen team – many with a fine-dining background. "I've got a guy in there who's trained at French Laundry!" says Smith. "We were able to hire those caliber cooks because they can't get that wage in the fancy spots. So we ended up with this crew with so much experience. And they're excited about food. They come up with all new ideas whereas, before, they'd just wanted to do the bare minimum and get the hell out of here and go to their next job. So that's huge."
When Paige and Josh Kaner opened Pieous in 2013, they weighed the benefits of hiring servers for the standard $2.13 an hour in order to lower overhead costs of their start-up.
"But we thought that it would be much better to pay that person more so they'd have a vested interest in making certain that the guest experience was great," says Josh. So instead they developed a mutually beneficial pay structure that every employee participates in, making between $19 and $26 an hour, depending on the day's sales.
"We're all paid the same amount, like a commune," says Josh. "Our dishwasher makes as much as our chef and he's just as incentivized to get the plates clean as the chef is to get the pizzas cooked."
As a result, they've cultivated a happy, hardworking team where everyone pulls equal weight in a fast-moving environment – including the owners. You may find Josh taking drink orders on a busy Friday night, but you can bet he'll be back baking at 4am. And Paige is just as likely to be expediting orders as she is wiping up a spill.
"We started this because this is our passion, and we want this to feel like our home," says Paige, who recalls the constant stress and drama in her time working as a server through law school. "We take a lot of care in who we hire, and we put in the time training them, too. They are an extension of our family as well, and however they treat a customer is an extension of how we treat our customers. We want people to be happy."
"We tell all of our new hires that the restaurant's like a wagon wheel and the employees are the spokes," says Josh. "And no spoke is more important than the other; if one breaks, the wheel's not turning properly. So our chef and dishwasher are on equal footing. The chef gets respect and the dishwasher gets respect; we're all working hard."
Of course, the restaurants that have raised prices and eliminated tipping have experienced a degree of customer resistance.
"We have trained an entire restaurant-going public to believe that the menu price is the whole thing and it is not," Meyer told the audience at his SXSW panel. "People think that the tip comes out of a different pocket. Even though, when they get their credit card bill at the end of the month, there's one big price."
However, the response he's received has been generally positive. "The only complaints we've gotten are from people my age and older who are angry and say, 'How dare you take away my right to punish my server?'" says Meyer. "And I don't really miss those customers, honestly."
"The customers never had control," says Livesay. "They just thought they had control. At the end of the day, the restaurant can still fire that person or not. It wasn't like they were controlling their job – they're just controlling a supplemental part of their income that's, unfortunately, extremely important for their ability to have a well-balanced life."
In lieu of grading service with currency, Meyer provides a comment card at the end of each meal for diners to rate their experience. "A GM is in a much better place to know whether a server deserves a merit raise than a hundred different diners," he says.
Beyond eliminating the tip system, there are other ways around improving industry standards. Restaurateurs are beginning to think outside the box and doing things like eliminating front of house staff entirely. San Antonio chef Andrew Weissman has done just that at his casual outdoor gastropub concept, the Luxury. Food is delivered by the back of house staff, who earn a living wage plus tips (which adds up to $20-24 an hour).
He's currently brainstorming even more ways to eliminate front of house service entirely at his other restaurants. "We've been kicking around ideas on how we can pay people better and still offer that same level of expectation or service without actually having someone serving them tableside," he says.
Eric Earthman introduced a similar concept when he opened Counter 3. Five. VII in Austin last year. There are actually no servers at the restaurant; instead, diners choose from three different tasting menus, each with an added 18% service charge, and they interact directly with chefs from their place at the counter.
"We developed a no-tipping model to cut out the middleman and present a fully chef-driven experience," says Earthman, whose chefs are all salaried employees with paid time off, a model rarely seen in the service industry. "Everything I have done to break the mold of traditional restaurant operations is to provide better compensation and quality of life for employees while simultaneously delivering the best guest experience possible."
No matter what route is taken, Livesay advises independent restaurants begin coming up with a plan of action in an industry that's inevitably changing. "It's about taking a step back, being good business owners, and seeing how they can increase their profitability in order to pay for the increase in wages that's going to be necessary as the system changes. Because if the whole industry starts to go this way over the next 20 years, people are going to be left behind."