Tipping Model vs. ‘Hospitality Included’
What’s the story and how do they differ?
There are restaurants for every taste preference, every type of guest, every type of experience, and every price point. In fact, just in the United States, according to the National Restaurant Association, there are over 1,000,000 restaurant locations. Let that marinate for a moment, 1,000,000 locations. Behind those restaurant locations are over 15,000,000 individuals who work in the restaurant industry. This includes managers, hosts, chefs, bartenders, and servers. As a guest, you enjoy the creations of an intricate system of people and processes working tirelessly to put an incredible plate of food in front of you. After you have enjoyed your meal and await your check, you begin to estimate the bill amount and ask yourself (and the people sharing the meal with you) the big question:
How much should I tip?
There are apps to help you calculate the bill based on a 15, 18, or even 20% tip amount; articles from Business Insider walking you through “how much you should tip in every situation”; and even an in-depth study on American tipping trends conducted by Cornell University School of Hotel Administration professor Michael Lynn. For many servers and bartenders, tips pay for rent, electricity bills, and even student loans. Tips are deeply embedded into dining culture across the United States, but we have to ask ourselves, why? Why are guests expected to pay for their food, drinks, taxes, and 20% more for the service? Shouldn’t the cost of the food cover the service too?
Unfortunately, the economics of the restaurant industry doesn’t allow this to be the case. With increasing food costs, increasing labor costs, and tireless competition, restauranteurs have razor-thin margins. Data from Upserve says that most Full-Service Restaurants (FSRs) average a 3–5% profit margin. That number can vary based on spoilage, a slow season, volatility in food prices, and even a pandemic. Traditionally, restaurants aim to keep their labor costs under 30% of revenues, but that restricts owners’ ability to adequately pay all of their staff. In lieu of this challenge, restaurants adopted a tipping-model that separated staff into two categories: untipped (hourly or salaried) and tipped. Usually, managers, chefs, cooks, and BOH staff are untipped; while servers, bartenders, and hosts are tipped (or tipped out). In this model, untipped staff usually earn minimum wage (or a few dollars per hour more), while tipped staff can earn as little as $3.90/hour. Due to the low hourly wage, there was a push in the industry to shift the cost of the service staff onto the guests in the form of tips.
Today, most servers actually make more than their BOH counterparts consistently. Understandably, this created tension in many work environments and lead to the rise of the ‘hospitality included’ model, coined by Union Square Hospitality Group’s CEO, famed restauranteur, Danny Meyer. ‘Hospitality Included’ (or no-tips) is a model that folds the ‘cost’ of service into the price of the meal. The model is employed in many parts of Europe and Asia as a ‘service charge’. The model helps create equity between all staff members and promotes stability for staff that traditionally relies on tips, but it also increases a burden on managers in terms of bookkeeping and increases the tax burden for restaurants.
The industry, as it often does, has had polarizing views on the tipping v. ‘hospitality included’ model. The overwhelming trend is to stick with tipping but there is a noticeable shift for some restaurants in New York City that are adopting Meyer’s model. For your restaurant, it boils down to a few factors:
- Are the increased labor costs sustainable? Will raising my prices sink my business?
- Am I willing to change my system and upset/alienate some of my service staff?
- Do I value a sense of equity amongst my staff (and will it be perceived as such)?
- Is ‘hospitality included’ compatible to my business?*
*For some restaurants like Eleven Madison Park, Union Square Café, and even McDonalds, ‘hospitality included’ is a more natural fit, but for some of the other 300 hundred restaurants that attempted the new model, they found that the model (and increased prices) lead to too much lost business.
To all future restaurant goers out there, I hope this shared a little insight on tipping culture in the US, the different options for a restaurant, and some inside information. Tipping has a vast history and actually has roots all the way back to slavery. To learn more about, I invite you to read some of the articles below:
The next time you wait for your check or, preferably, order and pay seamlessly through TableTab, think back to everything you know about tipping, and please, tip your servers for their hard work — it makes a big difference.
By Samay Bansal