Goodbye to Restaurant Tips (2016 Apr)

by Barry A. Liebling

Even if you go to restaurants very frequently tipping can make you feel uncomfortable. There is always the burden of calculating the correct amount. After you decide what percent you want to give the server it takes time and effort to do the arithmetic. Of course, you don’t want to tip too little (especially if you enjoyed the meal and like the server), but you try to avoid tipping too much (Was I acting foolishly? What will they expect from me next time?). And if you pay attention to how much you spend you note (after doing more arithmetic) what the total cost of the meal was – including the tip.

It appears that the custom of tipping persists precisely because it is a custom, an entrenched habit – as opposed to a policy that benefits customers, food servers, and restaurant owners. Recently, some recusant restauranteurs have decided to eliminate tipping entirely. Danny
Meyer, founder of Shake Shack and CEO of the Union Square Hospitality Group, has spoken out against the antiquated practice and is converting his businesses to no-tipping eateries.

Suppose you were starting a restaurant from scratch. There are no customs and traditions in place. What policy with respect to tipping would be better? Should you take the well-worn path and stay with conventional tipping, or would you be better off doing away with it? The short answer is “eschew tipping.”

Let’s consider the issue from the customer, server, and owner perspectives.

Customers who eat at a no tipping restaurant will have more time and cognitive space to enjoy their meal. They will be free from the annoying task of figuring out how much extra money to add to the bill. And other things being equal, eliminating a burden translates into a more pleasant experience.

Customers will not be on the hook to be the benefactor of an underpaid food server, because the server will (if the owner is smart) have a higher base salary. Furthermore, the server (if management has sensible policies in place) will be appropriately motivated to be productive and friendly.

Of course, most customers will reflexively (and correctly) expect that the prices printed on the menu will go up. That is true – but not necessarily disadvantageous to the diner. There are natural limits to how much the establishment can charge that will put brakes on the increase. Savvy diners will quickly recognize how the total price compares to that of a restaurant with the conventional tip policy (and less alert customers will eventually catch on). If the bill is no higher the customer will be pleased. And if the price is too high, customers may decide not to return.

What about food servers? Their base salary will go up (and there will be additional opportunities for added income) to compensate for the lost tips. If the owner has good policies in place the role of the server will, in general, be upgraded. Servers will be less like indentured servants at the mercy of capricious or thoughtless diners and more like professionals who are part of the management team.

In the traditional restaurant the server might have interests that conflict with the owner. Doing what it takes to get a larger tip may (or may not) be good for the bottom line of the business. Eliminating tips reduces the incidence of split loyalties.

Of course, the owner of the restaurant – the person who gets to decide what the policy of the business will be – is the key player in the no-tipping scenario. What would change for the better as far as the proprietor is concerned?

First, owners would have the potential for developing a more trusting and productive relationship with the employees. In the tipping system the boss sets the food servers’ wages, but the employees know that the more significant factor in personal income is customer tips. If tipping is eliminated the proprietor has an opportunity to establish incentives that more closely align the interests of food servers with that of the business. For example, the owner of a restaurant where tipping is eliminated can pay food servers a commission on the customer’s bill. Furthermore, the magnitude of the commission can be adjusted upward for serving dishes that are more profitable to the dining establishment. This is exactly parallel to how clothing stores pay their sales people – where tipping does not come into the picture at all.

Most important from the owner perspective is that no-tipping dining when handled properly will lead to more business and higher profits. Customers are likely to prefer a restaurant where they do not have to deal with tips. And once diners have a choice between the old traditional eateries and the new no-tipping establishments changes in spending will be easy to detect. It is plausible that the small number of no-tipping restaurants will grow, and the old-fashioned establishments will reconsider how they compensate their servers.

To mangle a Victor Hugo quote, restaurant tipping is a weak idea whose time has passed.

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