Tipping Point

Look out for this new trend setting in the hospitality business.  Danny Meyer aka Union Square Hospitality Group is going to phase out tipping at his restaurant empire and raise prices on the menu to compensate.  Its going to be roll out one in which would be directed at protecting help and paying better wages.  Lets see how this goes and if others follow suit in casual establishments. Mr Meyer has always been a trend setter, lets keep a watchful eye on this.

Danny Meyer1 is eliminating all tipping2 at his restaurants and significantly raising prices3 to make up the difference,4 a move that will raise wages,5 save the hospitality industry,6and forever change how diners dine.7

Here’s why it matters ⟶

Big news out of Manhattan: Dining out is about to get turned on its head. Union Square Hospitality Group, the force behind some of New York’s most important restaurants, will announce today that starting in November, it will roll out an across-the-board elimination of tips at every one of its thirteen full-service venues, hand in hand with an across-the-board increase in prices. It’s a radical move — while many individual high-end restaurants have eliminated tipping, this is surely the first time zero-gratuity will be the universal policy for a major American restaurant group — casual restaurants included. Never before have so many diners been faced with such a sea change in how they pay for a full-service meal, and what they are expected to understand a fair price (and a fair wage) to be.

1

Why is Danny Meyer the one doing this?

Danny Meyer, the man whose name is synonymous with the Union Square Hospitality Group, has been a trailblazer from day one: The 57-year-old St. Louis native was an early champion of the casualization of fine dining at Union Square Cafe in the 1980s. In the 1990s, he popularized the split-format restaurant with Gramercy Tavern’s two-in-one: à la carte in the front, set-menu in the back. He completely overhauled the stuffy status quo of museum dining in 2005 with The Modern, inside the Museum of Modern Art.

Danny Meyer

Danny Meyer | Photo: Amelinda B. Lee

It might seem surprising that Meyer is the guy to be doing away with tipping — more than any of those things, he’s best known for his dedication to hospitality above all else, and tipping is a practice that many see as an essential part of that equation. But this isn’t the first time Union Square Hospitality Group has taken a major business cue from social trends, introducing sweeping policies years in advance of everyone else realizing that it’s the right move, even in cases when it’s an imposition to the clientele: Meyer banned smoking at Union Square Cafe over a decade before the city put its restaurant-smoking ban into law. So if Meyer thinks we’d all be better off without tipping, he’s probably got a good reason for it.

This isn’t coming out of the blue. In an installment of Union Square Cafe’s newsletter, a medium more typically reserved for announcing Sunday specials or a chef’s upcoming appearance on Today, Meyer writes that he’d be thrilled to see America switch to a European-style system where menu prices would be all-inclusive. “Because our country has a longstanding tradition where a server’s income is determined by guests’ tips rather than a weekly salary set by the restaurant,” he writes, “we are at a disadvantage when it comes to recognizing and promoting outstanding service.” He goes on:

The American system of tipping is awkward for all parties involved: restaurant patrons are expected to have the expertise to motivate and properly remunerate service professionals; servers are expected to please up to 1,000 different employers (for most of us, one boss is enough!); and restaurateurs surrender their use of compensation as an appropriate tool to reward merit and promote excellence … Imagine, if to prompt better service from your shoe salesman, you had to tip on the cost of your shoes, factoring in your perception of his shoe knowledge and the number of trips he took to the stockroom in search of your size. As a customer, isn’t it less complicated that the service he performs is included in the price of your shoes?

Let us pause to note that this newsletter went out to readers in the fall of 1994.

Twenty years ago, policies like these were decidedly uncommon. New Yorkers might have encountered service charges here and there, usually for large parties, or at a meal at the now-closed Quilted Giraffe, which in the late 1980s introduced an 18 percent service charge, along with a “do not tip” dictum on all guest checks. But a truly comprehensive service-included policy — one that involves no additional line-item on the check but simply a raising of prices across the board — was almost unheard of in this city until 2005, when Thomas Keller introduced the system to his Columbus Circle tasting-menu cathedral, Per Se.

“Tom and I firmly believed this was the way to go,” Meyer told me last month in a conversation at his Union Square offices. He was referring not to Keller, but to Meyer’s original partner at Gramercy Tavern, Tom Colicchio. “The very first thing that put this into my head was the pain,” Meyer recalled of the duo’s plans to eliminate tipping back in the 1990s. “I’d see nights where waiters were crying because somebody from Europe, where they don’t have a tipping culture, would walk out without leaving a tip.”

Customer response was “overwhelmingly positive,” Meyer said, but when he moved closer to implementing it, the servers — “the same people who were crying on a bad night” — balked. They preferred to work for a commission. “We might have been 21 years too early,” Meyer admitted of his early foray into tip-free hospitality, but he’s going all-in on it now, and he’s not likely to back down. (Colicchio seems to be picking up on whatever zeitgeisty wavelengths Meyer is: The Top Chef head judge made headlines earlier this month when he announced that at his flagship restaurant, Craft, there are no tips allowed during lunch service.)

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2

Why is he eliminating tipping now?

The Modern, Meyer’s most expensive and most visited establishment, serving a steady stream of both the New York power crowd and cultured tourists from all over the world, will be the first USHG restaurant to implement the overall system they’re calling Hospitality Included. Starting in late November, sharp-eyed guests sitting down for dinner will notice four new things over the course of their meal. First, many prices on the menu will be markedly higher than they previously had been. Second, menus will carry a note informing diners of the new policy. Third, the only supplemental charge on the itemized bill will be for sales tax. And fourth, there will be no space on the guest check for leaving a tip — just a line for the diner’s signature.

Of these four, the elimination of the tip line may be Meyer’s most radical move. It’s a pointed choice on his part; if he were to leave room on the check for a tip (as Keller does at Per Se) could be read as a suggestion that additional gratuities are expected, customary, or welcome. For diners who absolutely insist on slipping a little extra to their server, the restaurant won’t prevent the leaving of cash tips, but “we will do whatever we can to strongly dissuade them,” Erin Moran, USHG’s chief cultural officer, told me.

“I’d see nights where waiters were crying because somebody from Europe would walk out without leaving a tip”

The phrasing of the policy’s name is important, too. Thomas Keller’s menus say “Service Included,” but Meyer’s word of choice is a matter of personal philosophy; to him, “hospitality” includes more than service. Meyer considers the front of house staff — the servers, bartenders, and runners who directly interact with diners — to be the diplomats in a much larger body politic. These emissaries are the face of an entire group of individuals providing hospitality, one that includes every member of the restaurant’s staff, from dishwashers to expediters to hosts. To him, “Hospitality included” means this won’t be a semantic game where a tip is just called by another name, and still goes only to the service staff’s bottom line — it means every individual employed by the restaurant benefits.

Under the current gratuity system, not everyone at a restaurant is getting a fair shake. Waiters at full-service New York restaurants can expect a full 20 percent tip on most checks, for a yearly income of $40,000 or more on average — some of the city’s top servers easily clear $100,000 annually. But the problem isn’t what waiters make, it’s what cooks make. A mid-level line cook, even in a high-end kitchen, doesn’t have generous patrons padding her paycheck, and as such is, on average, unlikely to make much more than $35,000 a year.

The fact that the people cooking your food often earn less than the people who serve it is a troublesome issue not just for the cooks themselves, but also for their employers — especially in a high cost-of-living city. “We’ve never faced a shortage of talented cooks like we have this year,” Meyer told me. “We’re in a day and age where there are more talented cooks than there ever have been, but fewer of them who want to live in New York to start a fine dining career.”

The solution to this problem is ostensibly simple: pay cooks more. The time is right. Despite historically low unemployment (which ought to give everyone more power to negotiate better pay), many working class salaries, particularly in the hospitality industry, have remained stagnant since 2008. That unfortunate reality, coupled with federal inaction on raising the minimum wage above $7.25, a rate set in 2009, has fueled a grassroots labor movement across the country. State- and city-mandated minimum wages are increasing, going as high as $15 in Seattle, Los Angeles, and San Francisco. Many private companies are announcing their own minimums: Target and Wal-Mart, the nation’s two largest retailers, have pledged to raise their floor to $9.

Doesn’t that bode well for everyone in the restaurant industry? Not necessarily. In New York, where the minimum wage is scheduled to increase later this year — paving the way for increases that could potentially reach $15 — the biggest raise is scheduled not for restaurant cooks, but rather for waiters.

A little explanation of how waiters get paid: Most New York servers make per hourly wage set at $5.00. The city’s minimum wage is $8.75, but the five bucks per hour is a legal rate called the “tipped minimum,” an amount employers are allowed to pay as long as gratuities bring up wages to be equal to or greater than the full minimum. That means servers’ paychecks are low — a 40-hour week translates to $800 a month, or $10,000 a year — but tips add up quickly, bringing full-time servers to annual amounts that far outstrip the incomes of their coworkers. A server making $40,000 a year is earning the equivalent of $20 per hour.

So just redistribute the tips, right? No luck. Gratuities are the legal property of a restaurant’s waitstaff, and while tip pools are a legal way to divvy up the night’s proceeds among captains, bussers, and bartenders, owners can’t use so much as a cent of those funds to better compensate cooks and back of house staffers.

Starting in January, the state tipped minimum will go up 50 percent to $7.50. By comparison, the full minimum, the lowest pay earned by cooks, is only going up by twenty-five cents, to an even $9. It’s a move that will surely help out waiters working outside of the radius of the city’s tonier dining rooms, where the tips are more modest, but in many Manhattan and Brooklyn restaurants, it will only exacerbate the pay disparity between the kitchen and the dining room.

This won’t be a semantic game where a tip is just called by another name, and still goes only to the service staff’s bottom line

By ending tipping right now, and paying everyone more equitable hourly rates or salaries, Meyer can avoid almost all of these issues. But that’s not the only reason to terminate the gratuity system, and quickly. Restaurants in New York City are facing all sorts of new margin pressures: new federal regulations make more employees eligible for overtime and a state sick leave law now requires up to 40 hours of paid leave per employee. Most pressingly, a new state wage ordinance guarantees city fast-food workers a minimum wage of $10.50 as of December, which will climb to $15 in three years; this means that if non-fast-food operators don’t raise their employees’ wages, they’ll face the possibility of an exodus of staff to the greener pastures of McDonald’s and Burger King.

(That last possibility is particularly not okay by Danny Meyer. “Fine dining has an obligation to lead fast food in everything,” he said. “Whether it’s how we source ingredients, how we hire, how we train, how we design, how we interact with our communities — we can’t have a situation where we are asking someone to pay $40,000 to go to the Culinary Institute of America to then work for $12.50 per hour, when they could work in fast food for $15.”)

Meyer rejects the notion that expensive regulatory obligations are forcing his hand, though the bureaucratic landscape at the moment is certainly enough to inspire him to, as he put it, “go for the big Kahuna right now.” He relishes the opportunity to challenge the fundamental way that things are done, and hopefully to make things better in a sustainable way. “Let’s not just use this moment to raise prices and keep the system the way it always was,” he said to me, “and then blame the system for this disparity between the kitchen and the server. I hate those Saturday nights where the whole dining room is high-fiving because they just set a record, and they’re counting their shekels, and the kitchen just says, ‘Well boy, did we sweat tonight.’”

Of course, money that goes to somewhere has to come from somewhere. Evening wages out might come at the expense of servers’ take-home pay, the primary reason that the elimination of tipping has historically faced resistance. Most restaurateurs aren’t equipped to face outrage (not to mention outright defections) from waitstaff who stand to earn less overall in exchange for a steadier rate of pay, but Meyer’s not letting the possibility faze him.

“There’s not a more important stakeholder to get right than our staff,” he said. The Hospitality Included program is “absolutely going to be a win for cooks. It’s going to be a win for entry-level managers,” but the servers aren’t getting cut out, either: USHG will be implementing a revenue-share program for dining room staff who had previously been motivated by tips. (More on that below.) “We don’t even hope it’s going to be equal for waiters,” Meyer said. “We hope it’s going to be a win.”

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Are all thirteen New York restaurants changing over at once?

This will take a year to pull off — Meyer needs the time to figure out exactly how to do it right. The scope and scale of Meyer’s plan means that Hospitality Included will go into effect at restaurants of all prices and styles. His thirteen New York restaurants range from fancy set-menu spots like the back room at Gramercy Tavern, to high-volume pizza and barbecue joints like Marta and Blue Smoke, to cocktail bars like Porchlight.

Introducing a service-included format to casual, à la carte venues — restaurants where walk-ins and menu browsers, put off by the elevated prices necessary in order to pay the waitstaff a full hourly wage, could simply choose a cheaper spot down the street — is a hugely ambitious undertaking. When Daniel Patterson tried out a service-included pricing model at his casual, à la carte San Francisco restaurant, Aster, his customers weren’t interested, and he quickly reversed course. Even Thomas Keller, champion of service included, relies on the standard American tipping protocol at his casual bistro mini-chain, Bouchon.

the modern

The Modern | Photo: USHG

The other groundbreaking thing is the sheer volume of risk Meyer is exposing himself to. He risks scaring off consumers through significantly higher prices. He risks scaring off service staff by changing the way they make money. He’ll end up paying higher credit card processing fees because of the higher prices. He’ll have to renegotiate with landlords who calculate his restaurants’ rent based on a percentage of topline revenue. (This kind of arrangement is standard practice, and it means that the real estate suits could reap a windfall simply as a result of higher prices — without greater sales.) And he’ll say goodbye to the FICA credit, part of a law that gives restaurants huge breaks for “paying” waiters in tips, which for a group of USHG’s size translates to $1 million to $1.5 million in annual tax credits.

On top of everything else, Meyer seeks to keep a stable bottom line for USHG, with the hopes of not alienating its investors and stakeholders. That’s why he is, for now, taking this one restaurant at a time, and the Modern goes first for tactical reasons. It’s a perfect guinea pig thanks to the restaurant’s three distinct spaces, serving three distinct groups of diners: an à la carte bar room serving moderately priced small plates, a fancy back room for prix-fixe affairs, and a private dining area for larger parties and corporate events. How guests react to higher prices in each of those formats will let Meyer tweak the implementation of Hospitality Included across his empire.

After the system’s two month trial run at The Modern, the USHG team will spend January analyzing how it went, and — according to Sabato Sagaria, the group’s chief restaurant officer — will use the data to inform the changeover for its second tipless restaurant in February. Sagaria said that he’s hoping to make “good progress” on further switchovers in the first half of the year, with the possibility of multiple restaurants going at once (Blue Smoke, he pointed out, has two locations, so it would make sense to push both simultaneously). Union Square Cafe is closing its current location in December and reopening a few blocks away; fittingly for the first restaurant Meyer ever opened and the namesake of his restaurant group, the plan is for its new incarnation to be the first USHG opening to debut with Hospitality Included baked right in. If all goes to plan, all thirteen USHG restaurants will be fully tipless by the end of 2016.

Meyer surely hopes that the quick switchover to Hospitality Included will help dampen the impact of waitstaff defections by creating a critical mass of restaurants employing the policy. But in keeping with his character, the rapid changeover also seems likely to help when it comes to keeping customers happy — it’s a way of contextualizing his restaurants’ noticeable price increases without scaring diners off. The idea is that a hike in the price of carbonara pizza at Marta will be easier to swallow if Blue Smoke’s baby back ribs go up by a similar proportion shortly thereafter. The more familiar consumers become with dealing with tipless venues, especially on the casual side, the more comfortable they’ll be with the higher prices required to make the system work.

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Just how high will menu prices go?

In an ideal world, eliminating tipping would be an easy matter of moving money from one bucket to another, with restaurants simply having to raise menu prices by 15 to 20 percent to make up for what patrons would have left as a gratuity. But it’s likely that USHG’s prices will go up even higher. “The average person is going to do the math and say I was going to pay A plus B anyway,” Meyer explained of his reasoning. “In our case, it’s going to be A plus B plus C, because in addition to the 20 percent you would’ve tipped, 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. So it’s riskier, what we’re trying to do.”

“We don’t even hope it’s going to be equal for waiters, we hope it’s going to be a win”

Exactly how much more patrons will be asked to pay beyond a standard tip amount — the C in Meyer’s equation — remains to be seen. The original plan at USHG was to implement average price increases on menus of 30 to 35 percent, a number that reflects an imminent increase of wages for all front of house employees, from the tipped minimum of $5 per hour to at least $9. Base pay for cooks and other non-tipped employees will also go up, righting Meyer’s so-called “labor of wrong” (not to mention competing with the new fast food minimum). The group will also eventually raise the pay of their salaried employees, managers and sous chefs who are often promoted up from wage-based positions, and who under the current system can sometimes see their total take-home pay decrease from their previous hourly jobs, due to no longer being eligible for overtime.

A 35 percent increase is huge. It would mean, for example, that Maialino’s famed devil’s chicken would jump over $10, from $29 to $39.10, not an insignificant amount in the eyes of a price-discriminating diner. At a leadership retreat in September, USHG executives started to worry that such a major price hike right off the bat might not be the savviest way to welcome guests along for this new style of dining. So, even though one of the goals of Hospitality Included is to keep the bottom line stable, there’s a new plan in place, one that keeps overall price increases in a range Sabado Sagaria described as “closer to 20 percent.” He hopes to achieve this through maximizing efficiency, while still maintaining the wage increases baked into the original 30 to 35 percent price increase model. It’s an ambitious plan; keep an eye out for how long the Modern keeps two layers of white linen on its tables.

Pricing is still in the drafting phases for November’s rollout of Hospitality Included, but a general increase of 21 to 25 percent increase is planned, which on the tasting menu translates to something in the ballpark of $170. That’s a lot, but in a city where some of the more celebrated tasting menus start at $195 — before tip — it’s still a solid value. The cost of dinner in the Modern’s more formal dining room has already gone up this year, to $118 for four courses and $138 for the tasting menu, and Dino Lavorini, USHG’s director of operations at the Museum of Modern Art, said guests have been “gracious” about the increases.

Of course, not every item on every menu will go up by the same percentage. “We’re going to have to be highly strategic,” Meyer said on the subject of raising prices, noting that he’d have to keep certain commodity items closer to their original numbers. Sagaria chimed in: “We don’t want to see someone get sticker shock from seeing an $8 cup of coffee.” They’re also hoping that diners will remember that under the old system, they themselves would have tacked on a tip of 20 percent or more, so the true price increase — assuming the USHG team succeeds in finding all those magical efficiencies — will likely be under 10 percent. When I asked whether the Modern might have to take a loss in the beginning, Lavorini answered circumloquaciously in the affirmative. “If it means it’s challenging, short-term, for our investors, then we need to have that conversation,” he said. “And that’s the conversation that’s happening right now, I believe.”

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What kind of paychecks are USHG employees likely to see?

Restaurants are notorious for staff churn, plus there’s that whole cook shortage hurting kitchen headcount, but Danny Meyer wants people in his organization to stick around. “We’re constantly burning through people,” said Ashley Campbell, USHG’s chief financial officer. Average employee tenure at the group’s restaurants is comparable, anecdotally, to industry standards: most stay less than a year, with some leaving in as little as three months.  “We’re short staffed,” she said. “We’re working our people too hard. We’ve got to get ahead ahead of this. And the way to get ahead of this is to compete in a way that maybe some of our peers aren’t.”

That way is by paying people more, especially people in the kitchens. When a USHG restaurant converts to Hospitality Included, its back of house employees will earn no less than $11/hour, with the floor increasing to stay ahead of the New York fast food minimum as it incrementally grows to $15 by 2018. And that’s just the rate for kitchen support staff; cooks will start at $14/hour. “What we’re hoping is that increasing wages will act as a magnet towards recruiting, towards getting the right talent in our kitchens, and then stabilizing the back of the house, so we can give the gift of a regular schedule,” Campbell said. “I know that our back of house team members really do want to work over 40 hours, but they don’t want to work 70 hours either.” To that end, many of the positions will be on schedules of 50-55 hours per week, with the hours over 40 earning time-and-a-half.

Meanwhile, dining room staff — waiters, bussers, bartenders, and sommeliers — will start at $9 per hour, the full New York minimum wage. This seems meager in contrast to other no-tipping restaurants, like Ivar’s Salmon House in Seattle, where everyone makes $15 per hour, or Dirt Candy in New York, where servers start at $25. But USHG’s lower hourly rate has a simple explanation: all staffers who are currently tipped will see their base income fortified by a revenue share program. While Sagaria couldn’t, at press time, specify anticipated totals for front of house pay ranges, he did say that he’s aiming to have those positions take home at least as much as they did under the old system; he said that his modeling shows 79 percent of the dining room will see their pay increase under Hospitality Included. Just in case, USHG will insure service staff pay for the first twelve weeks of Hospitality Included at any of his restaurants, guaranteeing that monthly payouts will be at least equivalent to those of the same month the previous year.

The accounting period for each restaurant’s revenue share is expected to vary depending on its circumstances. At the Modern, revenue share is expected to be calculated not on a nightly basis, but on a weekly one, in an effort to halt “shift-chasing” — servers vying for the highest-income work hours — so that waiters working a sleepy midday lunch will still benefit from the spoils of a busy Saturday night. Sagaria stresses that USHG will emphasize transparency when it comes to explaining the revenue share portion of any given paycheck: employees will receive daily updates on the restaurant’s overall financial performance, as well as training on understanding what he describes as “the financial aspects of the business, which is now directly tied to their compensation.”

The group is also devising a plan for kitchen staff to share in the spoils of a big night, but that will likely come later down the line. “Ultimately, we do want to get to a place where we can include our entire team in some type of revenue share program,” Sagaria said. “However, with the complexity of this rollout, we don’t have a timeline for when or how that will take place.”

Salaried employees, including managers and sous-chefs, will see a pay increase, but not right away. USHG’s long-term plan for raising their overall compensation seems likely to mean shifting to a model involving a base salary and a variable component tied to operating profit, with a salary floor of at minimum $50,400, soon to be the federal threshold for overtime pay exemption — the amount an employee is no longer required to be paid time-and-a-half for weekly hours worked beyond 40.

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How is all this going to save the hospitality industry?

“Think about the opportunity to innovate,” Meyer told me. “There’s not too many more ways I know to roast a chicken, or sous vide a chicken, or do whatever you’re supposed to do to a chicken. But fundamentally, the cost of going out to a fine dining restaurant is false. I feel that the prices on menus, for a restaurant that’s really trying to offer good value, don’t accurately express the true picture of what it costs for the people to make that happen.”

marta

Marta | Photo: Daniel Krieger

The expression of that true picture, Meyer believes, requires the end of tipping. And this is where I’ll inject myself into this conversation: I agree with him. Tipping is wrong. It hurts waiters. It hurts cooks. It hurts restaurants. It’s a policy wherein the employer (the customer) calculates the bulk of what an employee (the waiter) makes, often after consuming multiple alcoholic beverages. (Imagine if your boss decided on your salary after two martinis!) Tipping is, in short, what’s holding back the American hospitality industry. Consider how hard it will be to find good cooks in New York come January, when the tipped minimum increase will cause waiter pay to rise even farther beyond kitchen pay, a disparity that will only grow if the tip credit in New York is (rightly) abolished in the coming years.

This is surely one of the things that Danny Meyer will be happiest to see change. Under the current system of tipping, a wait captain who’s been on the floor at Gramercy Tavern for three months makes about as much as a captain with 10 years’ experience; under Hospitality Included, pay will reflect things like experience and seniority. “I get to give merit raises based on what kind of job I think you’re doing,” Meyer said of the future of USHG. “And I have all kinds of ways to make those judgments now that I’m your boss, and John Q public is not your boss.”

Other restaurateurs will surely be keeping a close eye on whether Meyer’s plan works, especially in an à la carte environment. If it’s successful, expect to see more restaurants and restaurant groups shifting to a similar mode — restaurants that don’t make the switch will feel the squeeze in their own kitchens. Come late 2016, when all thirteen of USHG’s establishments are tip-free, all will be able to recruit cooks at a significantly higher rate of pay (and quality of life) than non-tipped restaurants will be able to offer. To compete in hiring, the only option a restaurant will have is to shift to a similar model.

Ultimately, it’s a question of reaching critical mass. As more and more restaurants make the switch, fewer and fewer cooks will be open to settling for the indignities of the old system. (Not to mention more and more consumers will be used to the higher list prices.) The race to the top for restaurant worker wages will continue until it hits a tipping point, after which point nothing will ever be the same again.

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Are diners going to be okay with this?

Meyer understands that asking guests to go along with the happy dreamscape of his new pricing regime won’t be easy. In our conversation, he framed the challenge historically, noting that his diners stuck with him 25 years ago when he raised menu prices to buy farmer’s market vegetables, and again when he raised menu prices to cover responsibly raised beef. “Now we’re going to ask you to understand that taking care of people is just as important as animals and plants and all the other stuff,” he said. He’s counting on well-paid workers becoming as attractive to virtue-minded diners as well-treated chickens. He’s counting on “fair labor practices” becoming the next “organic.” He’s counting on higher prices to spur consumer demand, rather than eliminate it.

“We’re trying to right what has been a labor of wrong. It’s riskier, what we’re trying to do.”

Will fewer diners eat at USHG restaurants once the prices jump up? “It’s nearly impossible to predict human behavior,” Ashley Campbell said. “But reality tells me there will be attrition. We’re not going to know until we rip this band-aid off.” One thing she hopes will help is the goodwill of “guests who want to be part of this journey, and who believe in the social responsibility. The attraction of those guests could help offset the attrition of others.”

But Meyer thinks the real key to winning over his customers to Hospitality Included could be technology. He explained to me that diners will be facing two new sets of costs, not just the monetary burden of higher prices, but also a social and psychological cost: the loss of the tip as a tool to exercise power and control. He imagines a customer complaining: “I no longer believe I have a sword to punish a waiter with, or a pat on the back to praise with.”

The way he sees it, the solution to this problem might be to divorce the transactional moment entirely away from the dining experience. He cited Uber as a model of a company that introduced a culture of both tip-free payments and open customer feedback to an industry where previously — much like restaurants — there was little of either. He mused on the idea of a system where diners still could share their opinion on the service and the meal, but it would be communicated through a more precise language than cash: “What if we could retain the consumer’s ability to praise or punish or just remark, and make it a fun game? Then I think we could actually accelerate the sense that this is the future, and we didn’t take away your ability to remark about the experience in real time.”

Meyer has no plans to create this interface himself; instead, he’s hoping that whoever ends up being the dominant player in what he calls the “wild west” of mobile payments will help speak to his needs. And of course, since he’s Danny Meyer, it all really comes back to making service better. An online feedback system, he points out, “would give us all kinds of data. Today, if you leave a bad tip, I probably don’t even know about it.” But with mobile payments and experience-specific feedback, “I can follow up and say ‘Help us get better,’ or ‘Let me refund some of your money.’”

“Let’s not just raise prices and keep the system the way it always was, and then blame the system for this disparity between the kitchen and the server”

Of course, Meyer is aware that this wild, ambitious, utterly game-changing plan might simply not work. His servers might leave, or his customers might all disappear. Sitting in his office six floors above Union Square on a sunny fall day, the air conditioner whirring at full blast, he recalled of one of his most famous flops: the decision to change all the french fries at Shake Shack (which is no longer part of USHG) from frozen crinkle cuts to fresh potatoes cut with straight sides. There was vicious customer blowback, and the old fries were reinstated.

“We were so sure we were right,” Meyer said. “I think we believed as firmly that we were right about potatoes as we do now about eliminating tipping. But what if the worst way of taking care of people is eliminating tipping, because then no one comes to your restaurant anymore?” He’s trying to avoid that, naturally. “We think that the more of our restaurants we do this with, the safer it will be for all of them. And we think the more of the restaurants we change over, the more courage, hopefully, that will create for other restaurants to join in, which would then turn this into a virtuous cycle.”

The cycle does seem likely to be virtuous. Dropping tips in favor of all-inclusive pricing and fair, merit-based wages means nothing but good things for everyone, from the dishwasher on her first day of the job to the neighborhood regular stopping in for his weekly glass of Barolo at the bar. And if it works, it won’t just get better for Danny Meyer’s restaurants — it’ll get better for every restaurant, and every customer, and every employee. If it works.

“I don’t have a crystal ball. We could be dead wrong on this thing,” said Meyer, looking me in the eye across the table. It’s true, he could be wrong. But french fries aside, he usually isn’t.

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Ryan Sutton is Eater New York’s chief restaurant critic.
Editor: Helen Rosner
Designer: Kelsey Scherer
Special thanks: Josh Laincz

Eater Video: The argument for fair wages