So You Want To Be A Waiter

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Why tipping?

Why do Americans tip when most of the rest of the world has given up the practice or has never embraced it?

The main reason might not be the one that you immediately think of. Yes, we Americans are generous spirits in general. Yes, America has tended to unbundle many of the benefits that other workers in other parts of the world have, and American workers tend to have to do some things on their own that governments or companies have to take care of, like health care, and many governments have standardized wages for certain classes of employment, etc. And, there’s the old, “It’s always been done that way”.

Well, the most relevant answer is economic. The entire restaurant business is based on tipping. You have to go back to the beginning of a restaurant to see the whole picture (and all of this leaves the whole current “financial crisis” aside). Let’s say that I’m a would-be restaurateur.  I can’t just go to a bank and get a business loan for it as my wife might be able to do with her dream of an antique shop. It’s almost impossible to get a loan from a bank that finances a new restaurant. That’s because the failure rate of new restaurants is a staggering 60%  in 5 years.  25% of them either close or change hands in the first year!

http://www.businessweek.com/smallbiz/content/apr2007/sb20070416_296932.htm

So, with this reluctance of traditional banks to loan money (and it’s almost as hard to get a SBA loan when you’re starting off), a would-be restaurateur either has to use personal capital, partners, investors or a combination of all three (most likely). It’s pretty hard to raise enough money using these methods so start-up capital is usually just enough to get the business off the ground. And this is where tipping comes in. Because the guest provides much of the payroll, this allows some breathing room in the critical first couple of years. Also, because tipping has become de regueur. It has become the basis for establishing the menu prices of items (payroll being a significant component of valuing the price of your rib-eye).

If the failure rate of restaurants is so high, wouldn’t this indicate that tipping is a bad system? Not really. It gives more people the chance to open a restaurant and attempt to be a success. Sure, there are plenty of weak sisters that give it a go, but because of their own ineptness, just can’t make it work. I don’t think people understand what slim margins restaurants operate under. People think that a bustling restaurant is printing money. While there’s a lot of money going in, there’s a lot of money going out as well. Tipping allows lots of new restaurants to have a chance and this means a vibrant competition and a large amount of choice for the consumer.

And this is the reason why changing the system would be very difficult. The consumer would have to accept higher menu prices and polling indicates that they aren’t interested in this even if the prices would simply equal the old price plus some standardized tip like the 15 – 20% that they are likely to be leaving now. One recent poll indicated that 94% of people preferred to determine their own service charge (read tip)

 http://www.usatoday.com/travel/news/2005-08-25-tipping_x.htm 

and others have come up with 25% of people wanting to change the system  

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=681143#349641  (click on the download button to get the study).

I think Dr. Michael Lynn did a poll where he found something like 80% of people wanted to keep things the same (although I can’t find the link at the moment). I suspect that the true total is somewhere between these two extremes). 

Also, the metrics of a restaurant would be altered significantly. This doesn’t mean it can’t be done. Thomas Keller (Per Se and The French Laundry) and Alice Waters (Chez Panisse) have famously dropped tipping and The Linkery,  a California free-standing neighborhood restaurant has done it. Even some NYC restaurants seem to be trying to sneak autograts illegally through the system lately (NY has regulations on the application of an automatic service charge). However, these are pretty unusual cases. You’re already going to pay some of the highest prices for dining out in the country with Keller, Waters has the clout and following to be able to impose her will on the restaurant, and The Linkery has an owner with a strong opinion and a strong neighborhood presence where the changeover can be explained to patrons more readily. the mass market would have a very hard time overturning Americans’ approval of leaving tips. After all, how many industries are there where you can pay what you think the service that you are receiving is worth?

We’ll be addressing the pros and cons of tipping in future posts. We’ll be addressing some of the points that nay-sayers of the tipping system use to advocate the elimination of the tip.

But I thought I’d lay the groundwork and bring up the most basic rationale for tipping – the economic underpinning of a restaurant. After all, few people think of it in those terms. If they ever think about the economics of a restaurant when it comes to tipping, it’s always, “Why shouldn’t restaurants pay a full wage? Why do I have to pay their employees? Every other business has to pay their employees”! Well, now you have part of the answer.

Stay tuned in the coming months for more discussion about tipping.

One response to “Why tipping?

  1. foodserviceninja May 19, 2009 at 12:13 pm

    Point in fact Per Se charges you r a SERVICE CHARGE in place of a grat which means its a cost of the meal thus you cant refuse to pay it. He did this so he could take income from his servers and redistribute it to his cooks. Yes its for the front of the house a royal ass screwing over by going from significant tip share to the mother of all tip shares.

    Only place its worse or as bad is a chain of Brazilian Steakhouse Texas De Brazil where the servers are glorified order takers they stay at the tables and keep driinks full. Gauchos bring to table side skewers of care and carve it off for diners. Anything from kitchen is run to the server. Last I hear their tip out was 42%.

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