If I had a restaurant, it would fail (Part 2)

This is a follow up to my post in May 2014 titled “If I had a restaurant…I would build the 20% service fee into the prices.” (Clicky clicky. It opens in a new window.)

Obviously I wasn’t the only one to think tipping is the work of the devil. Over the past two years several restaurants in several cities have experimented with tips built into the prices. Turns out: it doesn’t work. An SF restaurant owner, Thad Vogler introduced no-tipping at his two restaurants and now he’s reverting back to tipping.

It appears after he raised his prices with 20%, his servers’ true wages dropped from $35-45 to $20-35 an hour. It also appears that due to also increased taxes he would have to hike the menu’s prices around 40% to maintain the same wages for his staff. On the note of true wages: needless to say servers’ declared and true wages are entirely different. Now that servers had to tax on their income their true wages dropped, and according to Thad 70% of them have left over the 10 months of no-tipping.

I’m guessing a sudden price increase of 20% (let alone 40%) in San Fran wasn’t a viable option, given the variety and availability of restaurants in the city. Too bad. Another large city’s restaurant owner, Danny Meyer, announced getting rid of tips in 13 of his restaurants in NYC. Let us see if Danny can make it happen.

My takeaway is that no-tipping takes two to tango. As a DBA I pay taxes, healthcare and all that after my income – roughly 30% of my income goes to deductions after everything considered. Such is life. Most servers however are accustomed to declaring only a portion of their tips, keeping an un-taxed chunk. Restaurant owners also prefer that solution since they are not obligated to pay several deductions associated with their employees’ true income. So, from their standpoint: you’re taking home $100, and suddenly someone says: “You can take home $100 on a good night and maybe $30 on a bad night, but none of that is guaranteed. Or you can take home guaranteed $50 on both nights. Which one would you prefer?”

Apparently more servers would prefer the higher, but not guaranteed $$$.

Conclusion: so far no-tipping business model in restaurants is not viable.