In 2016, Andrea Borgen was feeling pretty good. She had just eliminated tipping at Barcito, her restaurant in an emerging neighborhood in downtown Los Angeles, promising staff a fair wage and health benefits. Accolades poured in for the then 26-year-old, from a video on ATTN: that garnered 60,000 views, to awards from Eater and Zagat. Sales were increasing, and her staff—consulted every step of the way in her decision—seemed happy with the predictable income and benefits.
Two years later, Borgen’s confidence is wavering. Her L.A. neighborhood is awash in construction, which in the long term will bring more customers, but in the short term has impacted receipts. And as the press has moved on to other stories, social media has become the barometer by which Barcito is measured, sometimes unfavorably, against other restaurants. After raising prices by about 22 percent to eliminate tips, the restaurant got dinged for small portions and high prices on Yelp. Despite the fact that the most expensive dish on Barcito’s menu was a $16 5 oz. short rib, their Google listing showed a price rating of three dollar signs ($$$), up from one ($) in the days before service was included.
“The risk factor I didn’t take into account is the way people perceive the value of the experience,” Borgen says. “So if a sandwich had cost $11 [plus a 20 percent tip] instead of $13, would they have found it more delicious? I think so. That specific piece of fall out is something I have learned over time.”
Service included is a hard road for pioneers, but as restaurateurs struggle with the best way to deal with rising labor costs and fair compensation for the back of the house, everyone is eventually going go this route or disappear, says Amanda Cohen, owner and chef at Manhattan’s Dirt Candy.
“You can get rid of tipping and raise your prices now, or wait until you’re in a hole and try it then,” Cohen says. “Restaurants are making all kinds of desperate moves to keep their menu prices the same while dealing with this reality, but this isn’t something you can put a Band-Aid on. Smart restaurants will get rid of tipping and raise their menu prices. Everyone else will close.”
Those who opt to eliminate tipping have a few major hurdles in front of them. The first is that regulations often punish restaurateurs whose higher prices include service. “The hardest thing is that New York State penalizes restaurants that go no-tipping and rewards restaurants that don’t pay a fair wage and instead play shell games with their payroll,” says Cohen, who notes that her payroll is 20 percent higher, so unemployment insurance is higher. Also, her limited liability insurance goes up because her revenue is 20 percent higher. “This really needs to stop. It’s a basic issue of treating your workers fairly, and people who do that shouldn’t be punished. … Restaurants like mine that pay their staff a living wage on the books are penalized, while restaurants that hide 20 percent of their payroll as tips are rewarded.”
Another issue is that servers very much want to keep the tipping model. It was widely reported that Union Square Hospitality Group lost as much as 40 percent of its front-of-house staff when the company launched its service included policy. A 2016 study by Johnson & Wales mirrored that: 40 percent of all servers questioned said they would quit a restaurant that eliminated tipping, and a whopping 89 percent of tipped employees surveyed saw the idea of eliminating tips unfavorably.
Borgen at Barcito says including the staff in the decision-making at her small restaurant helped her retain staff when she made the change. “Everyone was pretty much on board. … I’m incredibly transparent on a week-to-week basis,” she says, noting that while the volatility of good days and bad days has gone away, front-of-house staff is making about what they made when they worked for tips.
Getting staff on board is one problem—getting customer buy-in is another. With so few restaurants using this model, higher prices or a mandatory service charge added onto the bill don’t sit well with some diners.
That was what Darren McRonald found when he opened The Pullman Kitchen in Santa Rosa, California, in 2014 with a service included model.
“I’d always wanted to attempt to implement ‘service compris’ and figured this was my time to try,” says McRonald, who appreciated the way that model leveled out the difference between server wages and kitchen staff when he worked at Chez Panisse in the 1990s.
“Some people got it and understood what it was meant to do,” McRonald says. “However, many others didn’t understand it and were very vocal about their displeasure with us for taking that power away from them.”
The modest 17 percent tacked on at the bottom of the bill caused some to argue “How dare you?” or complain that they usually tip 20 percent. “We felt that with how extremely competitive the restaurant market is that that was no battle for a newborn restaurant to take on. So we abandoned.”
Despite walking away from the experiment after six months, McRonald still thinks this is the only option. “There will only be two ways to deal with the rising minimum wage,” he says. “Either raise menu prices, which only ultimately benefits the servers thereagain, or add a service charge and distribute the wages more equitably.”
These days, his cooks earn in the $13-$16 range, while servers on a weekend night are making between $50-$60 hour. Under the service charge model, cooks made between $16-$20 and servers $20-$24.
Barcito’s Borgen is staying the course; she doesn’t see another way to survive. As the minimum wage marches toward $15 an hour in California, a state with no separate minimum wage for tipped workers, it’s not just Barcito that will feel the pinch. All of the restaurant’s suppliers will as well, and they will pass those costs on to her.
“I can’t wait for the minimum wage to hit $15 an hour,” Borgen says, noting that will level the playing field for her as other restaurants face escalating costs. “A lot of operators, especially in the midsize category, are trying to figure out how they are going to make it work, because restaurants have been built on the backs of minimum wage workers and there has to be a reckoning.”
Meantime, Borgen has adapted, returning to her initial vision as a neighborhood café/bar with a smaller menu. That $16 short rib is gone. Now the most expensive items are a few $13 sandwiches (including one with the much-loved short rib), and Barcito’s Google price rating has fallen to two dollar signs ($$).
With accolades from the New York Times, and Michelin, Dirt Candy’s Cohen perhaps has a platform to drag diners into her service included model, regardless of social media complaints.
“As a boss, this is the right thing to do,” she says. “I want to pay my servers a living wage because they’re professionals doing a job, not jesters dancing on the floor and hoping that customers will stuff a few bucks in their pockets on the way out the door. As an owner, I want my menu prices to reflect the actual bill, not pretend they’re 20 percent lower and hope by the time the customer gets their bill and calculates the tip they’ll be too tipsy to notice the real cost of their meal.”