239. The No-Tipping Point

Episode Summary

Executive Summary: The episode examines Danny Meyer’s effort to eliminate tipping at The Modern and replace it with “Hospitality Included” pricing. The move is framed as both an economic fix for restaurant labor imbalances and a cultural shift away from the awkward, discriminatory, and unstable American tipping system. Early results suggest higher job applications, lower turnover, and even better profits, though the long-term sustainability and scalability remain uncertain.

Main Topics: Why tipping is structurally flawed (Priority: 5/5): The episode argues that tipping distorts restaurant economics, shifts wage responsibility to customers, and creates an inequitable system where front-of-house workers benefit far more than kitchen staff. Danny Meyer’s philosophy of hospitality (Priority: 5/5): Meyer’s long-standing belief is that restaurants are in the hospitality business, not just the food business, and that customer experience should be less adversarial and more transparent. Wage disparity between front and back of house (Priority: 5/5): The transcript details how tipping-driven compensation has made servers much better paid than cooks, contributing to hiring shortages and resentment in the kitchen. Implementation of Hospitality Included pricing (Priority: 4/5): The Modern raised menu prices and restructured pay so that guests no longer tip separately, while workers receive revised base wages and revenue sharing. Early business outcomes and uncertainty (Priority: 4/5): Initial signs were positive: more applicants, less turnover, and a surprisingly profitable month. But the episode stresses that it is too early to know if the model will work broadly or without publicity boost. Broader industry and social implications (Priority: 4/5): The discussion connects tipping to discrimination, labor market distortions, and possible reform across the restaurant industry if Meyer’s model proves viable.

Key Arguments: Tipping creates two-pocket thinking that hides the real cost of dining and makes compensation feel artificially separate from menu prices. The American tipping system is economically unsustainable because it rewards servers through customer spending while preventing fair redistribution to back-of-house workers. Front-of-house workers benefit from rising menu prices through percentage-based tips, while cooks’ wages remain largely fixed. Restaurants face labor shortages partly because skilled cooks can earn far more in dining rooms than in kitchens under the tipped model. Hospitality Included can preserve total customer spend while allowing restaurants to raise kitchen pay and maintain server income through higher base wages and revenue sharing. Eliminating tipping may improve morale by removing the anxiety and social manipulation associated with earning gratuities. The model may be financially viable because higher menu prices, better recruiting, and lower turnover can offset higher labor costs.

Data Points: Restaurant profit margin: About 7% - Abram Bissell describes how little The Modern earns on each dollar of revenue. Front-of-house salary growth: Over 300% - In the 30 years since Union Square Cafe opened, front-of-house pay rose dramatically. Culinary team salary growth: Mid-20% to early 20% range - Kitchen wages increased only modestly over the same period. Kitchen staffing shortage: 14 cooks short - The Modern was about 50% short of kitchen staff during a difficult period. Average guest gratuity: 21% - Danny Meyer says the Modern’s pre-HI average gratuity was about this level. Kitchen wage floor after HI: $12/hour for lowest-paid jobs; cooks start at $14/hour - New base pay under the Hospitality Included model. Front-of-house base wage after HI: $9/hour - Raised from the tipped minimum wage of $5/hour. Revenue share: A portion of revenues distributed to dining room teams - Added on top of the new base hourly wage for front-of-house staff. Kitchen job applications: Up 270% on average - Reported by Meyer after the HI rollout. Server applicant pool: Up 25% in month one, 100% in month two, 215% in the most recent month - Meyer says the front-of-house applicant pool surged after the change. Turnover: Already down in both categories - Early post-HI staffing retention appeared to improve. Customer bill impact: About the same as before - Union Square said the new price structure would roughly match prior tip-included spending. Profitability: Most profitable December ever - Meyer says December 2015 was the Modern’s most profitable December after HI began. OpenTable ratings: Up about 12% - Meyer claims food and service scores improved after HI. Culinary school program cost: $30,000 for six months - Pamela Vachon explains her culinary education cost. Cooking school pay baseline: Historically $9-$11/hour - Used to illustrate the poor return on investment for culinary graduates.

Pivotal Quotes: "The American menu price structure is completely false, but we've been taught to believe that it's real." — Danny Meyer: Meyer explains why he thinks tipping obscures the true cost of dining. "We were actually co-conspirators in a system that was completely unsustainable." — Danny Meyer: He describes why his restaurants chose to end tipping. "I feel better coming to work." — Waitstaff at The Modern (described by Meyer): Meyer says servers reported improved morale after the switch to Hospitality Included.

Implications: If the model holds, restaurants could reduce labor inequity, improve hiring, and make pricing more transparent. But success may depend on restaurant type, customer base, and whether operational gains outweigh the loss of tipping norms.