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No Tipping, Please

The no tipping policy of some restaurants is creating a stir
Arnold Klein
Arnold Klein

Since Danny Meyer’s announcement about his no-tipping policy, restaurateurs around the country have been sitting up and taking notice.  One week prior, Adam Hebert and Nathan Sears, two young entrepreneurs and partners in Das Radler in Chicago’s trendy Logan Square neighborhood had quietly made the same decision.  Nationally, it went unnoticed.  In Chicago, it caused heads to turn and phones to ring.

The decision came from months of talks and long, hard look at their labor costs’ impact on the restaurant’s bottom line profits.  Hebert, the front-of-the-house-guy, eyed options from the servers’ perspective while Sears, the chef, was more concerned about his fellow back-of-the-house team.
“Our goal was to find ways to handle high labor costs while still staying competitive,” Hebert says.  “We found our tip average to be 22.7 percent.  Roughly translated, for every $1 million spent in our restaurant, $227,000 in cash was being spent in our restaurant for which we had no control.  In any other business, that would be a standout on the financials.  In this industry it’s business as usual.   The basic rules of business don’t apply.  And that just doesn’t make sense.”
A number of concerns immediately surfaced prior to moving forward with a no-tipping policy.  On the downside, would they lose servers who were instrumental to their operation?  On the upside, would the finances significantly change to the point that they could put more money in the pockets of the kitchen staff?  And, equally important, what would diners’ response be?  And, ultimately, the bottom line was whether Das Radler would achieve its goal of financial stability and growth.
Hebert began evaluating the servers’ earnings.  “Ironically, we discovered the servers who were not our top servers were making the most per hour.  They were working Fridays and Saturdays.  Our top wait staff were working weekends and weekdays, too.”  The combination of working both days ‘dragged down” their per hour wage.  “I began to wonder about what was driving their motivation,” he admits.

As someone who had worked both front and back of the house, Sears knew first-hand that great servers make big money. His main focus, however, was his staff’s ability to take home what he considers to be a living wage. 
“Most kitchen staff have to work two jobs in order to make enough money to earn a living wage.  If I could provide a way for my guys to not work too much, stay focused, keep their brain power here, they’ll be more dedicated when they’re working here,” he explains.
Sears speaks from experience.  He recalls working two jobs while attending school.  He put in 70 hour weeks.  “I have a lead cook. I know he was working two jobs.  I asked if I combine salaries so that he can work just for me, would that work.  Now he’s dedicated.  He’s excited about working here.”
Hebert was surprised to find that his servers embraced the no-tipping policy.  They wanted to participate more in the operations. They volunteered to do extra tasks.  They asked about transitioning into management positions.

“There is a totally different feeling among our employees now.  They’re no longer looking at what they make each night.  They want to be more engaged and participate more. It’s the biggest change in ease of management that I’ve ever seen.”
Sears waited a while before breaking the news to his kitchen staff.  While they were unaware that some servers were pulling down up to $1400 in tips in a good week, their focus was less about the servers and more about the impact the increased salaries would make on their lives. 
“The change allows us to pay our staff more.  There’s no more stress about hours.  From a purely unselfish standpoint, our staff is more likely to stay now. There’s no need to retrain people for positions.  They know what their paycheck will be. They can budget anticipating they’re being compensated for a 30-hour work week.”
From a broader perspective the financial consistency, knowing ‘the nut’ gives Hebert and Sears a realistic picture of their business’ financials. It enables them to create projections and to better equip themselves for the eventual highs and lows.

Since implementing the no-tipping policy, Das Radler’s labor costs have dropped as much as 20 percent in a good week being offset by the additional 18 percent service charge.  Prior to the policy change, in order to hit a break event point, they would have to cut staff and make management work harder.  “I know half way through the week if I’m making money and if we’re crushing it,” Hebert says. “Because of the nature of the business, there are weeks when we were up 30 percent or down 50 percent.  There was no constant revenue stream.  Now we know what it takes to operate this business. We’re running it like any other business.  The truth is, something is wrong with the tipping system.  A server’s job is a service job and yet some are making six figures. They’re making more per week than the owners, in some cases.  But if we can’t pay the cooks, if the food isn’t well-prepared, if the kitchen isn’t running efficiently, if dishes are seasoned improperly, it will impact the dining experience way more than a bad waiter.  The wait staff should not be making twice as much,” Sears says.
Tremaine Atkinson, Co-Founder and Head Distiller of Chicago’s CH Distillery agrees.  After hearing Hebert discuss his no-tipping policy at a recent Board Meeting of Chicago Independents (an organization of the City’s top eating and drinking establishments), Atkinson wanted to hear more and arranged a face-to-face with Hebert. 
“From a business standpoint, this provides full control over what people are getting paid,” Atkinson explains.  “We control what our staff makes, not the customer. We have the ability to reward people for doing a good job at all times.”

While he was somewhat apprehensive about breaking the news to his staff and had numerous conversations with them, their response was overwhelmingly positive.  Atkinson attributes their acceptance of the policy in part to the fact that many work part time and are excited to know exactly what will be in their paychecks.  Yet it was their universal acceptance and attitude that he found the most rewarding.

“They all said they don’t give good service for tips.  They give it because of pride in what they do.  What the no-tipping policy accomplishes is a means for taking the financial pressure off.”  CH introduced its no tipping policy on December 1. CH Distillery is so committed to its no tipping policy that credit card receipts will be presented sans tip line.  “I think it’s almost criminal to have the tip line there when you’re promoting no-tipping,” he says acknowledging that if amounts above the 18 percent service charge are received, CH Distillery will pool the money and have a big party.
Hebert and Sears say that they’ll pool the money, too.  They talk about spending it on training or possibly offering paid vacations.  For now, they’re excited to be on top of Das Radler’s financials and making plans for this week’s second anniversary celebration.

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