Is No-Tipping Policy the Service Model of the Future?

When Houston-based Joe’s Crab Shack recently became the first national full-service chain to test a no-tipping policy, it added fuel to the fiery debate over whether this is the service model of the future.

Ray Blanchette, CEO of Joe’s Crab Shack parent company Ignite Restaurant Group, told investors in a conference call that 18 of its 131 units began testing the no-tipping policy in August, but didn’t reveal which locations are testing the policy. The chain also raised servers’ starting minimum wage to $14 an hour from $2.13 (exact pay depends on work performance).

In a statement, the CEO said, “It’s simple, really. We believe that consistently great service should always be included in the menu price, so we are taking the responsibility for paying the service staff.”

“I personally believe tipping is an antiquated model,” Blanchette said. Evidently, he’s not the only one. There’s a growing trend across the country to abandon tipping.

Union Square Hospitality Group, the parent company of 13 prominent New York City restaurants also announced a new no-tipping policy. CEO Danny Meyer explained the decision in a blog post/open letter announcing the change. Significantly, Meyer points out that while “front-of-the-house” staff usually share tips, those who toil in the kitchen do not get a cut of the gratuity, which leads to a discrepancy in wages, especially at pricy establishments.

Meyer’s solution is to add a 10 percent service charge and raise menu prices allows him to better compensate all staff. He’s also hoping the service model will improve recruiting, employee turnover and morale.

“Servers, hosts, bartenders are paid now with higher fixed hourly wages, and it’s expected to result in an improved team atmosphere, a significant reduction in turnover and greater financial security… it’s very different to quit a job where you make, say, $14 an hour than it is to quit a job where you are making $2.25,” Meyers says.

What’s the Tipping Point for Challenger Brands?

What does a no-tipping policy mean for Challenger Brands? It could be a boon to fast casual dining favored by Millennials who prefer an ease of service model. Millennials are also a prime customer target any for Challenger Brand in any segment of food service.

Interestingly, according to a 2014 Harris Poll, Millennials are either not fond of calculating tips, a bit stingy about tipping or, if we want to be less-than-charitable about America’s education system, they can’t calculate percentages.  About 1 in 3 Millennials say they tip less than 15% when dining out. SO switching to a no-tipping model with this age group is a win-win for both customer and restaurateur.

The key to the success of switching to the no-tipping model is in how the concept is presented to customers. As a Challenger Brand, it’s always important to understand your own Lighthouse Brand Identity and to know your target customer.

A no-tipping policy must be couched as a value proposition, rather than a price hike. Ex.: “At Challenger Brand Burgers, great customer service is always free.” Emphasize the speed and ease of not calculating a tip (“Do the math – not tipping is easier!”).

If you choose to adopt a no-tipping policy and adjust menu prices or add a service charge to cover wage increases, ensure you spin your marketing with customer benefit at the forefront.