This is the second installment in our series on the implications of tip elimination. In Part I, we looked at some original research we conducted regarding the attitudes of tipped servers and managers toward this potential change. In Part II, we will apply existing research and information, our own original research, and lessons learned from the passage of at least some time to assess the implications of eliminating the tipped wage.
Here are a few questions we investigated and our sometimes surprising conclusions.
QUESTION: Does the tip amount have anything to do with service quality?
CONCLUSION: Maybe the amount doesn’t … but tipping might.
In theory, employees working for a gratuity do their best, motivated by the prospect of a large gratuity at the end of the meal.
In practice, the size of a tip has less to do with the quality of service provided and more to do with the size of the bill. In his research, Cornell Professor Mike Lynn concludes that customers are reluctant to leave anything less than the normal 20 percent gratuity for fear of social disapproval, perhaps at the hands of fellow diners or even service staff. One could conclude then that a gratuity unlikely to fluctuate is unlikely to motivate.
However, servers don’t seem to feel this is the case. Nearly half of our respondents suggested the quality of service they would provide would diminish if they were not working for tips. Only 3 percent anticipated improving the level of service provided if not working for tips. Contrary to the study cited above, many tipped servers do seem motivated by the belief that their compensation is tied directly to the quality of their efforts.
QUESTION: Do tips make it hard for managers to manage?
CONCLUSION: Most managers don’t think so.
Restaurateur Danny Meyer astutely opines that the direct transaction between the customer and the service provider leaves no place for the manager. He claims that eliminating tips puts the manager between these two parties, allowing them to incent and reward excellent performance through pay increases, bonuses, and promotions. Meyer is confident that his managers will be better at this than his customers.
We asked managers for their opinion on the elimination of the tipped wage. Nearly three quarters of our respondents had an unfavorable opinion of such a move.
Restaurant Business magazine reports a similar result in research conducted on their behalf by Technomic. Seventy-five percent of managers in that survey consider tipping to be an effective means of compensating servers.
QUESTION: Do service charges work?
CONCLUSION: Customers don’t like them.
High-profile operators like Thomas Keller and Alice Waters have eliminated tipping at their restaurants and have instead instituted mandatory service charges. There’s been extensive research on consumer attitudes toward service charges, and they conclude that customers don’t like them (Zagat, for example, reports that 80 percent of consumers dislike these charges).
Regardless of their unwillingness to tip less than the norm or not at all, customers feel a sense of transactional power where tipping is involved. Mandatory service charges result in the opposite feeling — mandatory means customers have no choice and thus are made to feel powerless.
Most people would give their first born to eat at Keller’s The French Laundry, so being made to pay a service charge is probably not that big a deal. It is a big deal everywhere else.
QUESTION: How have consumers reacted to higher menu prices?
CONCLUSION: Well … that depends.
The kinds of increases in menu prices instituted by Danny Meyer would result in sticker shock for most customers at most bars and restaurants. This is not likely to be the case at the Union Square Eateries where customers are drawn by quality and therefore exhibit little or no sensitivity to price.
Maybe you run an operation like this, but more likely you don’t. You do a nice job, but still need to provide a value proposition for your patrons. How would they react to your prices increasing by 20 percent across the board when you eliminate tipping — especially if none of your competitors do the same?
This was the experience at Joe’s Crab Shack. Their no-tipping experiment resulted in higher labor costs and a reduction in customer traffic by as much as 10 percent. Parent company Ignite Restaurant Group has abandoned the no-tipping experiment at 14 of 18 restaurants. Price sensitivity may not exist in some corners of the industry, but it certainly exists in most.
In the last installment of this series, we will look at how servers are likely to react to this trend, plus give our overall conclusion to the study. Don’t miss it!
The authors wish to acknowledge the support and guidance of Robert Gable, EdD, and Felice Billups, EdD, at the Center for Research and Evaluation at Johnson & Wales University and Kristen Santoro and Ashley Garceau of Nightclub & Bar.
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