Tag Archives: how restaurant owners can increase sales

A world without tips

I am still incredibly grateful for my recent guest post on tipping.  It inspired my response that discussed the economics of tipping.  It also raised a few other interesting points that I am now learning are common misconceptions about restaurants.  For people who have never worked in a restaurant, these misconceptions can easily be mistaken as facts.  Upon further consideration they may not be wise to pursue.  One interesting idea that she raised in the post was raising the wages paid to server by restaurants to replace tipping.  While on the surface it seems quite logical, it would have a disastrous impact on the industry.

Restaurants are operated on incredibly thin profit margins.  As discussed in a previous post, large corporate restaurant chains are extremely susceptible to anything that affects their stock prices. With a huge spike in the cost of labor, restaurant stock prices would crumble.  Independent restaurant owners struggling to stay afloat would shutter.  Consumers would lose choices.  A vast majority of restaurants would survive this initial wave, but be forced into the next step.

The remaining restaurants would set a wage for servers considerably lower than what the servers make now.  Professional servers with years of experience would have to settle for the new rate or venture into a new career field.  Between servers quitting and terminations, restaurants would reduce the size of their server staff by about a third.  Servers who worked four table sections before would now be required to work six tables for less money.  This would reduce the damage to the restaurant’s bottom line, but also drastically reduce the quality of service that was provided to guests.

Even reducing the number of servers would not compensate for the server wage tripling or quadrupling.  The restaurant’s only alternative would be to pass the cost along to the consumer.  A fair amount of profit will also be included in this price spike.  This will be allowed because restaurant prices are based upon the comparative value to a competitor, not the cost of the food or labor.  As the consumers recognize that they are paying more and receiving less service, they will cut back on their dining expenditures.  This leads to more restaurants closing and more employees out of work.

The remaining restaurants will face less competition and the consumers will have fewer choices.  When this occurs, the remaining restaurants have less incentive to keep menu prices low.  With fewer serving jobs available, server wages would stagnate and then fall.  The industry will digress to where it stood generations ago.  Fine dining for special occasions and the wealthy, diners for the rest of us.  Eating out becomes a greater luxury and the experience is far less enjoyable.

Now some may argue that restaurants would never cut server pay to the extent that they did not provide a livable wage.  I would argue that they in fact have already followed this path, but in a way most guests never see.  If we look at the hard truths of the restaurant industry, we can already see that this has happened in one area.  What has happened in the kitchen is a precursor to what would happen to servers in a world without tips.

There was a time only a few decades ago when you could raise a family on a cook’s wage.  A cook could be mentored by a chef for years and eventually run a kitchen of his own.  As line cook, he could still make a livable wage.  Chefs were the highest paid people in the restaurant because they were the primary reason for the guests to select the restaurant.  They ran the kitchen, designed the menu, and were often the face of the restaurant.

When corporate and multi-unit restaurants began popping up around the country, this began to change.  Instead of a chef designing the menu for their restaurant, a chef designed the menu for the chain.  As the number of restaurants grew the number of chefs actually declined.  This made operating the restaurant far cheaper and lowered the price to the guest.  In order to compete new restaurants skipped the chef’s salary and paid for a consultant to design their menus.  This was still a more friendly option than the common alternative of hiring a chef to write the menu and train the staff only to fire them six months later.

Companies then began mass-producing their sauces or buying them from outside sources.  This completed the transition.  It is only logical to pay someone less to reheat a sauce than to make it from scratch.  This meant fewer skilled positions available in the kitchen.  The chefs that remained were subject to pay freezes and lack of opportunities elsewhere.  When they left, line cooks replaced them had far less experience and were paid a far lower wage.  Those promoted line cooks were replaced by people willing to work for less money.  This pattern continued until the starting wage in a kitchen was reduced to a national average of less than ten dollars an hour.  Young, single men and people who were not born here now fill most of the jobs.

Further proof of this comes from the hotel industry.  Service charges at hotels often run over twenty percent.  This allows for the hotel to keep as much as eight percent of this “tip” for themselves.  They can keep the prices lower on their banquet menus knowing that this extra profit is built in.  The servers receive the same percent on the lower prices.  The hotel makes the extra profit and none of it trickles down to the servers.

I know that tipping seems like an annoyance.  It truly is better for the guest and the server for the current system to be maintained.  In no way should any of this be construed as an argument against forcing restaurants to pay a decent wage to servers.  Restaurant owners and their lobbying groups are at work all across the country arguing that the server wage should be lowered from its sub minimum wage level.  Paying the server directly through tips means more of the money ends up in the servers pockets and less to the restaurant owners.  This means more incentive to provide the service the guest expects.

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