No Tipping Pioneer Danny Meyer Explains Why It’s ‘the Right Thing to Do’

Tray with receipt and cash
Tray with receipt and cash --- Image by © John Smith/Corbis
John Smith—Corbis

Tipping is, by and large, the chief source of income for servers in the restaurant industry. So why is Danny Meyer, founder of the Shake Shack (SHAK) chain and CEO of Union Square Hospitality Group, trying to end the practice?

Despite what critics might say, he insists he’s not looking to negatively impact the wallets of the people who work at his restaurants, which include Union Square Cafe, Gramercy Tavern, The Modern, Cafe 2 and Terrace 5 at New York’s Museum of Modern Art (MoMA), and Maialino, In fact, he says, he’s trying to boost them.

“We’re relying on you – the restaurant goer – to pay the living of our servers,” he told an assembly at the South by Southwest interactive, film and music festival. “We felt the obligation to lead on this. We’re not the first to do this, but we’re the first restaurant group in a major media city to say we’re committed to this.”

In the coming year, tipping will not be allowed at any Union Square Hospitality Group restaurant, says Meyer. It was rolled out at The Modern in November, and in December,the restaurant’s profit “was dramatically higher than any other December we’ve had,” probably because people wanted to check out the new policy in practice, he says. He didn’t say whether this trend line has continued.

But he says through working carefully with his staff, he thinks he’s found a way to ensure his workers make more – and customers are happier.

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Restaurateur Danny MeyerPhotograph by Slaven Vlasic — Getty Images
Photograph by Slaven Vlasic — Getty Images

One of the goals of the program was to increase the take-home income of line cooks, he says. In New York, at present, cooks are not allowed to take part in the tip pool (a common restaurant practice industry where all servers pool their tips and split them evenly). To bring about some parity, he automatically raised those salaries across the board by $2 per hour.

Part of the idea behind that, he says, was to engender loyalty among the kitchen staff, making the quality of the food consistent for regular customers.

“We were losing cooks,” he says. “If someone waved an hourly rate that was 25 cents higher than we were paying – even if the cook loved the chef – they would jump ship because that adds up, especially with overtime. … At The Modern, we were 14 cooks down (out of a staff of 60). Now we have a backlog of 150 cooks who want to work there.”

Other employees, including waiters, waitresses and people in the coat check room, got a raise also – of $1.50 per hour.

While the policy is currently rolling out in Meyer’s high-end restaurants, it actually got its start at the popular, but decidedly lower brow, Shake Shack chain.

“The inspiration from this came from Shake Shack,” he says. “There’s no tip jar there. I said ‘if a place, charging $6 for a burger, can do this, why can’t a place with an average $60 check do this?’”

Communication with the staff has been critical – and resulted in some good ideas, says Meyer. Servers, for instance, told Meyer they enjoyed being salespeople for certain menu items – and now earn a 13.5% share of the restaurant’s topline revenue on certain items.

Prices, of course, have gone up at the restaurants – Lobster sausage at The Modern jumped from $33 to $44 and king crab fritters with avocado and lime went up $1 to are $18 – but hopefully not enough, he says, that it will scare people away. And to help with that, Meyer’s trying to emphasize that the total cost of the meal, in many cases, will ultimately be lower, since people tend to compartmentalize tips in their mind and not factor it into the final cost of the meal.

“The only way we can make this work is if you believe, as I do, that if you do the right thing ,you actually end up being more profitable,” he says. “It’s a big leap of faith. How do you tell an investor – and in the case of Shake Shack, it’s a public company – ‘we believe we’re going to make more money by having a higher labor cost. I just believe that you get better employees who want to stay longer – and that brings you a higher revenue because you have happier customers.”

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