The not-so-surprising failure of no-tipping restaurants

To Tip or not to Tip?
It looks like they answered that question.

Bruce Buschel, who ran a well-respected restaurant in the Hamptons and documented his experience in an excellent collection of posts, says that the hardest part of running a restaurant is “getting the food from the chef to the guest in a timely and polite fashion by a timely and polite staff.”

This comment struck me because most restaurants don’t seem to spend much effort in tackling this issue. Most use the same policy of low hourly wages that are supplemented by tips. The premise is that tips will help incentivize servers to deliver higher levels of service. But this has been disproven in multiple studies. Moreover, while everyone working at the restaurant plays a role in making it a positive experience for the patron, only the serving staff receives tips. What about the people in the kitchen cooking the food? Arguably, a restaurant with lousy food and excellent service is not a place most would frequent again.

If tips don’t effectively motivate servers, and only make it harder for the restaurant staff to work as a team, why not try something else? It turns out there is an alternative: the no-tipping restaurant. It works like this: either the restaurant raises prices for its items and refuses tips, or the restaurant includes a standard service charge on every bill. And there is some evidence that it works quite well. Evidence by one restaurateur who owned both a no-tipping restaurant and one that allowed tips found that the no-tipping restaurant had higher food quality, service, and revenues than its tipping counterpart.

Despite this success and the fact that tipping is rare or considered disrespectful in some other countries, few restaurants in the United States have adopted or plan to adopt a no-tipping policy. It seems that the biggest barrier to changing the tip system is not the restaurant staff, but the patrons themselves. They want a say in their server’s level of performance and often do not appreciate being deprived of that ability.

The failure of the no-tipping restaurant could have been predicted with the Business Model Canvas (a tool I’ve talked about before that serves as a great way to create, examine and refine business models). Using the canvas’s terminology, the fundamental flaw with the no-tipping restaurant is that it changed the relationship that customers had with the restaurant in a manner that conflicted with the type of relationship they wanted to have. Customers wanted to have the ability to tip and have a say in their level of service. It was irrelevant that the level of service did not actually improve. Customers wanted to be able to tip and preferred to take their business elsewhere if they were not allowed to do so.

Use the canvas! It is one of those great tools that is simple yet powerful. And if you are like me and would have preferred to have more no-tipping restaurants because you can’t keep track of who to tip and how much, you may find this post useful.

The preceding was a post from Dr. Atul Teckchandani, one of the great professors teaching Entrepreneurship at CSUF.

[image: Filination]

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