13 NYC Restaurants Will Eliminate Tipping While Charging Up to 25% More for Food

Does Danny Meyer's "Hospitality Included" plan mark the beginning of the end of tipping?
waitress refusing tip

Fine dining is about to be flipped on its head.

Danny Meyer, founder of Shake Shack and CEO of Union Square Hospitality Group (USHG), recently announced that in November, the 13 restaurants under USHG will start to roll out a no-tipping policy. His "Hospitality Included" policy will first be implemented at The Modern, and then put in place at the other restaurants over the course of the next year.

Meyer plans to have all 13 restaurants operating completely tipless by the end of 2016. But at what cost? It turns out that menu prices across the board are set to increase by 21% to 25%. However, pricing strategies are still in the drafting process, and Meyer himself has noted that not everything on every menu will increase by the same percentage.

Focus on Your Meal, Not Your Calculations

There's plenty of speculation about the effect such a huge move will have on the industry in general, and on USHG's restaurants specifically.

The biggest anticipated benefits are ones that might not be obvious to those outside the food service industry. A no-tipping policy will theoretically free servers from the concern they will be stiffed. (Anyone who has worked as a server knows tips usually depend mostly on the disposition of the customer, not on the service provided.) At the same time, customers can enjoy their meals and focus on more important things — like their dates. Not to mention avoiding the potentially complicated math problem at the end of the meal.

New Prices Will Include More Than Gratuity

Sticker shock is definitely a concern. Many customers might not be aware that the higher food prices will translate into a bill that's about the same as they would have paid before. But Meyer isn't just tacking on a tip — he's also planning to factor in a little extra that will go a long way toward eliminating what has historically been a pretty hefty wage gap between kitchen staff and front-of-house employees. He knows it's more risky than just adding on a gratuity, but as he tells Eater, "we're also trying to right what has been a labor of wrong, and that's going to cost a couple more points on top of that."

"We're also trying to right what has been a labor of wrong, and that's going to cost a couple more points on top of that."

Forbes contributor Micah Solomon points out a possible downside, though. "If you're employing a waitstaff that you've selected without care, trained only minimally, and [often left unsupervised], you may need to continue to depend on your customers to keep them honest, because nobody else is."

But What if Service Is Bad?

This also raises another question: What about bad service? With current tipping policies, unless you're part of the 56% who tend to tip even if they receive terrible service, you aren't going to want to shell out extra money in that situation. For those that see the ability to tip as a way to wield power, Meyer's Hospitality Included philosophy is a serious detriment. Some diners will always prefer to reward an excellent experience with a healthy tip. They could also wish to let their server know by way of a $1.83 tip on a $100+ bill that the attention they received was subpar — at least, in their opinion.

When gratuity is included in menu prices, some are inevitably going to feel that they do not have a way of voicing that opinion. Although I'm sure Yelp is always willing to hear them out.

Meyer Has Been a Trailblazer Before, So His Philosophy Could Spread

Meyer has been a leader in the dining industry for decades: He supported the move to a casual fine dining scene in the '80s, and helped to pioneer the split-format restaurant (pre fixe in one dining room, a la carte in another) in the '90s at his own Gramercy Tavern. He is not unaccustomed to making big moves. He set a precedent against smoking in restaurants by having his Union Square Cafe go smokeless long before New York City banned restaurant smoking officially.

Meyer's actions carry a lot of weight. Where he leads, others naturally want to follow. He's been against tipping since the early '90s, writing in 1994 that the "American system of tipping is awkward for all parties involved." So is anyone really surprised that Union Square Hospitality Group is the first firm to implement such a sweeping no-tip policy?

With such a highly influential figure at the helm, it's likely that over the course of the next year or two, restaurateurs everywhere will take a cue from Meyer. Depending on his success with this venture, many of your own local restaurants could reveal similar trends even sooner.

No-Tipping Has Worked for Others... And Failed for Some

So has this kind of move ever worked? Yes... and no. Packhouse Meats in Newport, Kentucky opened in January 2014, and right out of the gate it employed an unusual menu (all-meatball) and a no-tipping policy. Owner Bob Conway noted that it wasn't an easy start: Packhouse Meats was ripped apart in Yelp reviews, with people accusing the restaurant of taking advantage of employees. Conway made it clear he did it to protect the servers, taking the "whim of the customers" out of the equation by providing reasonable compensation to servers based on sales.

Bar Marco in Pittsburgh also takes a unique approach. In addition to doing away with tipping, Founder Bobby Fry has instituted policies that include giving every employee at Bar Marco a base salary of $35,000 (plus bonuses based on the restaurant's profits, health care from date of hire, 500 shares in the business, and paid vacation. The move had some very unexpected results: After one month, revenue exceeded expectations by 26%, and overhead costs dropped 8%. After two months, the restaurant had tripled its profits.

One month after Bar Marco did away with tipping, revenue exceeded expectations by 26%. After two months, the restaurant had tripled its profits.

Not everybody sees those kinds of successes, though. Mark Bodenstein, chef and owner of Nuvo At Greenup in Covington, Kentucky, tried to implement a no-tipping policy earlier this year, but dropped the policy after many customer complaints. Similarly, Aster, a relatively new restaurant located in San Francisco, experienced similar reactions. They did away with that system after only a few months of sticker-shocked customers.

So what do you think, readers? Is a no-tipping policy something you want to see in more restaurants? Or do you prefer being able to compensate your servers based on their performance? Sound off in the comments below!

Julie Ramhold
Senior Staff Writer/Consumer Analyst

Julie's work has been featured on CNBC, GoBankingRates, Kiplinger, Marketwatch, Money, The New York Times, Real Simple, US News, WaPo, WSJ, Yahoo!, and more. She's extolled the virtues of DealNews in interviews with Cheddar TV, GMA, various podcasts, and affiliates across the United States, plus one in Canada.
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Also, I'd question their idea of "appropriate compensation" to the servers. How much an hour? One place did salary, which is nice, but you know most places would do hourly. Will they match 15-20 an hour or more?

I'm just skeptical because I know how most chains work and this is different than these smaller, more upscale places that were mentioned in the articles.

Example- the place I work at now boasted about extending healthcare benefits to us by lowering the required minimum hours, thus increasing the chances of getting benefits since most people didn't average the required hours.

Cue to later in the year, they've gotten anal about hours and cut back to the point where a majority of the servers aren't making the hours to get benefits. ...funny how that works. The company I work for isn't that bad either, but even THEY'RE pulling the stunts that most places do. It's the illusion of employee benefits! It's always about their bottom line and the servers are just cogs to get it.
The reactions of the customers to the sticker shock is funny, tbh. You constantly hear people whining about having to tip, and this is what would happen if you didn't have to- the cost of everything in the restaurant goes up to compensate. I don't think a majority of the ignorant masses realize how little their servers get paid in some states...

Overall, while I get the gist of this idea, I don't think it'll do well. Either there's backlash from the customers over cost, or the servers will get screwed because anyone who works restaurants knows that corporate/the ownership will find some way to pocket the extra and STILL pay their servers like crap/limit benefits. Not every restaurant has scruples like the dude in Pittsburgh. Remember, this is the same industry who got rid of auto grat because the IRS was holding them accountable for actually claiming THEIR taxes correctly. The IRS was trying to help us out and the industry gave them the finger and took away our auto grat.
When I walk into a restaurant, the tip percentage that I'm expecting to pay is at 15%. It stays there for good, friendly, cheerful service.

If the service is superb and noteworthy, it can go up by 5%.

If the service is less than average, it can go down; if the service is surly and neglectful, it can go down by as much as 20%. Yes, that's right - I will leave a NEGATIVE tip on the check, which I have done twice in my life. Once, the management disputed my ability to do that; I gave them the choice of accepting what I had determined was fair, or having me simply walk out on the check on the basis that I had not received what was commonly accepted - i.e., at least minimal service - for the price charged. (They accepted the deduction.)
What a concept -- restaurant management would have to actually manage their employees like any other business does.
Greg the Gruesome
@Slaz5: I don't see why you link the movement to raise the minimum wage to ending the practice of tipping.
This will mostly fail, though it might succeed in pocket markets (with consistently well- and micro-managed restaurants AND great food, a rare combo), but generally it will fail. First, it faces the sticker-price fallacy, which similarly caused StubHub to give up on no-fee pricing.

Second, service (and top servers) will suffer. One of the things I liked most about being a waiter was the correlation between how well I did (and how much I hustled) and my pay. No, it wasn't perfect for any given customer, but it was clear in aggregate most nights. Like many, I usually tip at least 15%, so bad servers may miss my signals, but most good service gets 18-20, exceptional service gets 25+. In the long run, good servers who consistently earn 20+ will avoid flat-fee restaurants, choosing to bet on themselves, and service will suffer.

Oh, and yes, Europe doesn't tip much. Perhaps by coincidence, service in many European restaurants is so-so to terrible compared to American standards.
India A. (DealNews)
Well said @Al-in-SoCal & @jonathan_gleich. Gotta agree with you too @Slaz5.
Not sure what people expect. The servers are getting raises because of this.
That money has to come from somewhere, and higher prices it is. This is what you get when you have huge movements on social media whining for a living wage. HIGHER PRICES. Once these ridiculous minimum wages are in effect nationwide, you'll see it everywhere, not just restaurants. Higher wages, companies going out of business. Some of your favorite local establishments probably will be gone. All because some burger flippers decided they deserve $15 per hour at ole McD's.
I think there should be a 'review' scale on the check / where you can mark your experience, and the server can't 'bury' the bad reviews, I can see servers marking up blank ones, but maybe some electronic way of doing it.

When the tip in included, the service suffers

Bar Marco - probably the exception to the rule. I would hate to see restaurants slash tipping raise prices - simply money that goes into the owner's coffers rather than providing living wage / raises.

My partner is a server at a pretty decent place and brings in close to $150 / 200 a night. That said, the owner quite fairly enforces a tip-out policy where he must give up at least 30 percent to others on the team. He has no problem and usually gives more to especially helpful team members.

It's a whole financial ecosystem they must replace - and more than likely those downstream (bussers, etc) don't claim their tips - so that is another built-in negative of doing away with that as everything on your check is taxed (yes I know they are "supposed to").
Lindsay Sakraida (DealNews)
In Europe, service is included in the price, and if you felt the service was especially good, you could leave a few extra dollars (euros) on the table.
India A. (DealNews)
Having spent quality time as a server, bartender, and server manager, I am not sure how I feel about this. I especially like what Bar Marco in Pittsburgh did for their employees, but not everyone can do something like that. I can see both sides and see the positives and the negatives. For me personally I really enjoy leaving a large tip for excellent service and a small one for poor service (yes I am in that 56% that tips no matter what, I was a server once after all). I guess we will all have to wait and see what happens, makes me nervous for the food service industry though.
The idea of having the option of paying someone for the work they do only exists in restaurants and it's awful for those on the other side of the table. You don't get to tell the mechanic that he had a shitty attitude so you're not paying. You don't get to tell the doctor that service was slow, so you're not paying. The same should be true of someone who brings you what you're asking for.