Eliminating Tips Pays Off

When legendary restaurateur Danny Meyer announced in late 2015 that he would do away with tipping and raise menu prices to include fairer wages, shockwaves rippled through the restaurant industry. Many wondered whether the U.S. was ready for such a drastic change in dining culture.

Turns out, Meyer made a good leap of faith—not tipping pays. In a recent Freakonomics podcast, Meyer said that in recent months, his restaurant, The Modern, witnessed a dramatically higher profit.

“We knew we would ultimately be more profitable by doing the right thing because we would have less turnover, we would have more applicants and better products that more people would want to come try,” Meyer said.

Meyer’s “Hospitality Included” program includes higher menu prices that account for raising both back of house and front of house wages. Manager salaries went up to $50,000 and cooks made $2 more per hour when the program was put in place. In addition, the restaurant completely eliminated tipping. The cost for a four course tasting menu rose 9 percent to $152 and the fee for a full tasting rose to $182—an increase of 11% when compared to the previous no-tip-included pricing.

This new structure seems to be working out, and diners are flocking to the restaurant—Meyer reported a 270 percent increase in kitchen staff applications and fewer turnovers of staff since The Modern went tipping inclusive.

The tides continue to turn against traditional tipping—back in November, Joe’s Crab Shack became the first major American chain to eliminate tipping from restaurants. But while the ultimate benefits from this new form of tipping remains to be see, Meyer and a growing group of restaurateurs firmly believe that “Hospitality Included” models will soon be the future of the industry.

“I’m really confident about it. We’ve already seen some really compelling statistics that this model works, and other restaurants are already clamoring to be next,” Meyer said.