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The Great Debate: Service Included, or Not?

Mitchell Davis

March 09, 2017

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As part of a special industry briefing at the Charleston Wine & Food Festival last weekend, the James Beard Foundation staged a spirited debate about the viability of abolishing tipping in favor of a “service-included” model. While restaurants grapple with high rents, elevated food costs, rising wages, and other business pressures, there’s mounting pressure from the industry and wider culture to abolish tips in order to combat wage disparities between the front and back of house, as well as to remove the income uncertainty of tipped employees. But even when the desire to change to a service-included model is there, it can be difficult to make it work in a business that operates on a 5 percent margin or less (and that’s in a good year).

Moderated by JBF executive vice president Mitchell Davis, the debate posited the resolution that “without an entirely new restaurant business model, ‘service included’ cannot succeed in its goal of paying all employees a living wage while giving customers the quality of service they want.” Arguing for the resolution, and against abolishing tipping, was Joy Crump, chef/owner of FOODĒ and Mercantile in Fredericksburg, Virginia. FOODĒ opened in 2010 as a service-included restaurant, but switched to a more traditional model several years later after feedback from both diners and employees confirmed it wasn’t working. Arguing against the resolution, asserting we need to switch to a service-included model now, was Sabato Sagaria, chief restaurant officer of Danny Meyer’s Union Square Hospitality Group (USHG), which is championing the service-included model at its restaurants in New York City.

Sagaria noted that he and Crump share the desire to pay their employees well and treat them with dignity and respect. But he affirmed that given rising operating costs, staff shortages, and the other challenges facing the restaurant industry, (“the perfect storm”), as it were, service-included is the only model that is sustainable. “We have to figure it out now or there won’t be a tomorrow,” Sagaria insisted. He underscored that as prices rise on menus and wine lists, the burden of increasing tips falls on the diners in the current model, since they calculate tips based on percentages of the total bill. Offsetting future increases by raising prices to include service today allows restaurants to account for the real cost of wages and hedge against future increases, giving managers more freedom to manipulate the business model and manage their staff as they see fit. Service-included is good for business, good for people, and good for food, Sagaria concluded.

Crump explained that she didn’t disagree, but felt that in her world the priority was just trying to get through the daily grind. Without tipping, her customers felt uncomfortable, the servers felt frustrated, and there was a collective sigh of relief when they went back to the traditional model. “We didn’t have to explain anything, and people could relax,” she said.

In the moderated conversation afterward, both Crump and Sagaria agreed that a policy mandate to include service would help stem the flow of servers to other restaurants. Sagaria explained that there is no one-size-fits-all model and that even within their restaurant groups they employ different modes of implementation of what USHG calls “hospitality included.” Revenue sharing is one way they build commitment, even-out disparities, and motivate employees across the whole enterprise to perform better. Crump countered that to motivate her back-of-house staff, who earn less than her servers, she uses an “alternate currency” of feeling part of a team, providing benefits and time off, encouraging everyone to have a say in the menu and to express creativity.

At the top of the debate, Davis presented findings from a recent paper in the Journal of Customer Research, which concluded that the widely held belief that we tip to reward good service has been proven false in experiments designed to test it. The authors explain that we tip after the service has already been delivered, so there is little consequence on past events. Of the dozen or so factors that contribute to a larger tip, friendliness of the server, a desire to return to the restaurant, the use of credit cards, alcohol consumption, the size of the metropolitan area in which the restaurant is located, and even the weather all had a more profound impact than the quality of service. Crump questioned those findings, drawing on her own observation that if the service is consistently poor, the tips go down.

Some studies estimate that the tipping economy is as large as $44 billion. That represents $44 billion of wages offset by customers. It also represents a large, culturally engrained power dynamic that’s difficult for any one restaurant to change. If we are really committed to finding a way to reduce the wage and power disparity in our restaurants, build continuity and sustainability into the business and employment model, and treat everyone fairly, and we agree that abolishing tipping is the way to do that, it may take the entire industry, and perhaps the entire society, to get behind it.

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Mitchell Davis is executive vice president of the James Beard Foundation. Find him on Twitter and Instagram.