Danny Meyer To Banish Tipping And Raise Prices At His N.Y. Restaurants

Oct 14, 2015
Originally published on November 2, 2015 1:53 pm

In mid-November, diners at the New York restaurants Gramercy Tavern and The Modern may notice something new on their menus: higher prices, across the board.

Why? Because the man in charge of those and 11 other celebrated eateries is doing away with tipping. Danny Meyer, the CEO of Union Square Hospitality Group (he also founded Shake Shack), says tipping is actually a big problem for his industry.

"I think that restaurant patrons have unwittingly believed that they could, if they wanted to, use their tip to punish bad service, and/or to praise great service," Meyer tells All Things Considered's Kelly McEvers. "What that's done over the years has actually been quite the opposite, because the average American restaurant-goer leaves the exact same tip, irrespective of the service they receive. And unfortunately, none of those tips that you leave in a restaurant may be shared with the full team, i.e. the cooks, the dishwashers, the prep cooks, the butchers, etc."

But it might not be easy to bridge that gap between what the servers make and what the dishwashers make. Meyer says that since he started in the restaurant business 30 years ago, he's seen "something fascinating and completely unfair: Waiters' income in a fine-dining restaurant has gone up well over 200 percent."

That's happened for two reasons: "Menu prices have gone up, and the average tip that people leave has actually gone up from around 15 percent in 1985 to about 21 percent today."

Meanwhile, Meyer says, workers at the back of the house who don't get tipped have seen their hourly wage go up only 22 to 25 percent.

"So by incorporating everything in the menu prices, and therefore having it be the restaurant's responsibility to pay everybody a fair wage, we think we have the opportunity to make a great place to work for everybody — not just servers, but also for our cooks," he says.

Meyer says he hopes it'll also solve the problem of servers having to take a pay cut of about 25 percent if they want to move up and become managers. "We're going to change that," he says.

Of course, this sea change in how his restaurants are run will result in higher menu prices. How much? Meyer says, "When you get your bill, it should look just about exactly as it would have if you had left your gratuity in the old days."

That means he will try to keep prices on par with a 21 percent tip — what diners have been adding on average lately.

This strategy could also help fine-dining restaurants in expensive cities like New York City hold on to cooks who now might find even better opportunities at fast-food restaurants, Meyer says.

"We've never faced a labor shortage the way we have right now," he says. "The fast-food industry is by law going to be raising its minimum wage to $15 an hour. So why would you tell your parents, 'Gee, please help me pay the bills for a culinary education so I can make less than that in a white-tablecloth restaurant.' "

Will other restaurants follow?

"There's a huge number of colleagues in our industry who will be watching very, very closely," says Meyer. "We felt a responsibility to go first, and we're proud to do it because it's the right thing to do. And I really think you're going to see this happen all over the country."

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Transcript

KELLY MCEVERS, HOST:

People going to upscale restaurants in New York City, like The Modern or Gramercy Tavern, might soon notice something new on their menus - higher prices. That's because the man in charge of those restaurants and a bunch of other well-known eateries is doing away with tipping. Danny Meyer is the CEO of Union Square Hospitality Group, and I asked him why.

DANNY MEYER: I think that restaurant patrons have unwittingly believed that they could, if they wanted to, use their tip to punish bad service and/or to praise great service. What that's done over the years has actually been quite the opposite because the average American restaurant-goer leaves the exact same tip irrespective of the service they receive. And unfortunately, none of those tips that you leave in a restaurant may be shared with the full team - i.e. the cooks, the dishwashers, the prep cooks, the butchers, et cetera.

MCEVERS: So how do you plan to sort of bridge that gap between what servers make and cooks make by doing away with tipping?

MEYER: Well, over the past 30 years since I've been a restaurateur, we've seen something kind of fascinating and completely unfair. Waiters' income in a fine-dining restaurant has gone up well over 200% - two reason. Menu prices have gone up, and the average tip that people leave has actually gone up from around 15 percent in 1985 to about 21 percent today. Meanwhile, back of house workers who don't have the opportunity to share in tips have seen their hourly wage go up no more than about 22 to 25 percent.

So by incorporating everything in the menu prices and therefore having it be the restaurant's responsibility to pay everybody a fair wage, we think we have the opportunity to make a great place to work for everybody, not just servers but also for our cooks and even for our entry-level managers.

I don't know if most people are aware, but if you're going to be a waiter who wants to grow your career, your profession in the restaurant business and you want to become a manager, which is the likely next step, you actually have to take a 25 percent cut, and that's kind of untenable for most people. We're going to change that.

MCEVERS: How much are menu prices going to go up, then? I mean, are we talking the 15 or 20 percent that's not going to be paid in tips now?

MEYER: Our hope is that when you get your credit card bill at the end of the month and you look at the amount you paid - and we will be launching this at our restaurant The Modern at the Museum of Modern Art in mid-November. But when you get your bill, it should look just about exactly as it would of if you had left your gratuity in the old days.

MCEVERS: Are you saying that you really want to hold firm to no higher than 20 percent increase?

MEYER: The average tip that people leave in our restaurants is 21 percent, and we're going to try as hard as we can to keep our prices in that realm.

MCEVERS: And one of the motivations behind this - right? - is that it's hard to hire cooks in cities like New York City where the cost of living is high, no?

MEYER: We've never faced a labor shortage the way we have right now, and especially if you're in New York City. It's no longer necessary to have to work in a fine-dining restaurant when, all of a sudden, we see that the fast food industry, by law, is going to be raising its minimum wage to $15 an hour. So why would you tell your parents, gee, please help me pay the bills for a culinary education so I can make less than that in a white-tablecloth restaurant?

MCEVERS: Do you think other restaurants will follow?

MEYER: Well, I really hope they will. I think that there's a number - huge number - of colleagues in our industry who will be watching very, very closely. We felt a responsibility to go first, and we're proud to do it because it's the right thing to do. And I really think you're going to see this happen all over the country.

MCEVERS: That's Danny Meyer. He's the CEO of Union Square Hospitality Group. Thank you so much.

MEYER: Thank you very much. Transcript provided by NPR, Copyright NPR.