Is Tipping A Broken Business Model

[Boges]

Here's what I don't get, in my city, many of the pizza joints use a local delivery service. That delivery service charges customers roughly $7 for delivery. If I'm ordering a $20 pizza and paying a 35% delivery charge, do I still tip the driver? I usually give them about $3 to round it out, but we're talking $10 for delivery between the fee + tip. Needless to say, I only ever have things delivered when we've got people over and don't want to go out. I always pick things up otherwise.

edit to add: That $7 fee goes to the delivery company, not the driver directly.

I don't believe 15% is customary for a delivery person. I generally avoid businesses that charge for delivery. I'll just pick it up myself if that's the case.

[overthere]

He will raise menu prices by 18% to cover this cost.

Wages are only part of the profit equation. His labour costs (or so he says) will be higher than his competitors, but his real estate and food costs won't change. That business model will increase profit, while he gets to pretend to be a champion of the working man. Nicely done!

Oh, and his servers will make less and some of them will make much less. That means they'll go work somewhere else. Hmmm.

[overthere]

This particular restaurant is in Parksville so I would imagine they will hire talented locals who want security and want to stay and live in the area. Parksville is a small town. I can see in large urban cities like Vancouver where good servers can make more. This model may not be appropriate for all situations.

The key word in this post is 'Parksville'. Ever been there?

The avergae age there is 'deceased'. It's a town packed with very, very old people from somewhere else. They don't tip anyway.

[WestCoastRunner]

The key word in this post is 'Parksville'. Ever been there?

The avergae age there is 'deceased'. It's a town packed with very, very old people from somewhere else. They don't tip anyway.

Yes, I have been there. I live on the west coast. So, no tipping is a good idea then? Not sure what your point is?

[Wilber]

Wages are only part of the profit equation. His labour costs (or so he says) will be higher than his competitors, but his real estate and food costs won't change. That business model will increase profit, while he gets to pretend to be a champion of the working man. Nicely done!

Oh, and his servers will make less and some of them will make much less. That means they'll go work somewhere else. Hmmm.

He was on a radio talk show today. He says pay will be based on how well the business does and employees will have access to the financial statements if they sign a confidentiality agreement. He says it will help correct the imbalance between front and back of the house earnings. Sounds like he wants to replace tipping with a form of profit sharing and make the employees more a part of the business, rather than just hired help.. Quite a gamble when you consider the failure rate of restaurants and it will be interesting to see he makes it.

[WestCoastRunner]

He was on a radio talk show today. He says pay will be based on how well the business does and employees will have access to the financial statements if they sign a confidentiality agreement. He says it will help correct the imbalance between front and back of the house earnings. Sounds like he wants to replace tipping with a form of profit sharing and make the employees more a part of the business, rather than just hired help.. Quite a gamble when you consider the failure rate of restaurants and it will be interesting to see he makes it.

That sounds like an innovative idea to me.

[monty16]

In the US the gameplan is to pay workers a couple of bucks an hour and hope that the workers get tips. And Mexico goes one step further. It relies on workers to pack bags at grocery stores for nothing and hopefully they'll get a few pesos out of it.

If there's a kickback to the plan of the V.I. restaurant then it will be from greedy capitalists who feel threatened that the status quo will be interrupted.

[Wilber]

It will be interesting. Most servers in big tip places like Cactus Club or Moxies aren't in it for the long haul, it is just a cash cow enroute to another destination and that's OK. This might be a good thing in a place like Parksville where someone is looking for long term employment with some benefits.

[jbg]

Research that I've read suggests otherwise. Tips are not an accurate measure of server performance.

Tips aren't perfect but they're better than the alternative. Usually they're somewhat of a measure of performance. It is very hard for an owner to personally observe all transactions between a server and a patron.

[overthere]

Not sure what your point is?

My point is that servers in Parksville are unlikely to get any tips from the large number of elderly people in Parksville anyway.

The elderly are notoriously poor tippers, right up there with Germans and Australians.

I already said that once, what is it you don't understand?

[overthere]

He was on a radio talk show today. He says pay will be based on how well the business does and employees will have access to the financial statements if they sign a confidentiality agreement. He says it will help correct the imbalance between front and back of the house earnings. Sounds like he wants to replace tipping with a form of profit sharing and make the employees more a part of the business, rather than just hired help.. Quite a gamble when you consider the failure rate of restaurants and it will be interesting to see he makes it.

I find it unlikely that he cares much about any imbalance between front and back of house earnings, other than the usual need to retain employees in both.. What his major concern will be is profitability. Personally, I would be very reluctant to believe any books at first glance, they are incredibly easy to manipulate.

What you described is not profit sharing.

The staff are paid wages, there is no mention of bonus or shares in the business. I would not expect there would be, unless the employees are as preapred to take wage cuts in lean times as they would expect more money in good times in niormal profit sharing schemes.

[MiddleClassCentrist]

Perhaps you have a study to back that up but that's not how I see tipping.

I'll give a tip even if I don't have a great experience. Largely it isn't even the waiter's fault. If there is a problem with the waitstaff, generally you make a big deal about it. Like, say they forget to submit your order or bring you the wrong food. I'm looking for a manager to complain too. The tip isn't something they should even worry about.

They'll know if I'm unhappy with their service. On the other hand I will tip more if the waitstaff is exceptional.

http://www.marketwatch.com/story/tipping-doesnt-reward-good-behavior-1301325538049

[Boges]

http://www.marketwatch.com/story/tipping-doesnt-reward-good-behavior-1301325538049

That story indicates people do give tips if staff make you feel good or comfortable. Flirting can certainly be classified as good service. I know I'm more likely to give a good tip to someone who cuts my hair if they talk to me and take an interest in me.

It's the service industry for a reason.

[Wilber]

I find it unlikely that he cares much about any imbalance between front and back of house earnings, other than the usual need to retain employees in both.. What his major concern will be is profitability. Personally, I would be very reluctant to believe any books at first glance, they are incredibly easy to manipulate.

What you described is not profit sharing.

The staff are paid wages, there is no mention of bonus or shares in the business. I would not expect there would be, unless the employees are as preapred to take wage cuts in lean times as they would expect more money in good times in niormal profit sharing schemes.

In an interview I heard he did say that wages would be tied to profits. I think an employees first concern should be profits. No profit, no job. I don't see anything wrong with making employees more a part of the business rather than independent contractors looking after No1. Why is it the restaurant industry is the only one to rely on such a model?

[cybercoma]

Do the employees control the expenses? Do they make decisions about the business's revenue streams? Marketing? Hours of operation? The employees don't control the profits. They have some effect on it, but profits can easily be manipulated by the owner.

[Boges]

Another issue that isn't really addressed by banning tips is the idea of an hourly wage vs tips during peak periods.

Under a salaried model you make the same when the restaurant is empty and when it is packed. A good server would want the peak demand periods because that's when the most extra money can be made. Where's the incentive for taking the peak shifts if you make the same money regardless.

Also, I'm sure servers won't be keen on having every cent they make subject to taxation. We're fooling ourselves if we think servers actually claim the cash tips they receive.

[cybercoma]

Most people don't choose their shifts at other jobs, I don't see why the same couldn't apply here.

[overthere]

In an interview I heard he did say that wages would be tied to profits. I think an employees first concern should be profits. No profit, no job. I don't see anything wrong with making employees more a part of the business rather than independent contractors looking after No1. Why is it the restaurant industry is the only one to rely on such a model?

I see. So the premise of this thread, that he was going to eliminate tips and guarantee to pay his staff more per hour than the norm was just a lie?

Because you cannot have it both ways.

If the profit sharing promise is true, there would have to be wage cuts when there are no profits.

Personally, I doubt that many staff in this income bracket can afford that risk.

[Wilber]

I see. So the premise of this thread, that he was going to eliminate tips and guarantee to pay his staff more per hour than the norm was just a lie?

Because you cannot have it both ways.

If the profit sharing promise is true, there would have to be wage cuts when there are no profits.

Personally, I doubt that many staff in this income bracket can afford that risk.

I don't know whether the business model will work or not. It doesn't matter if you are a tipped or slaried employee, if the revenue isn't there, you won't have a job.

[Wilber]

Do the employees control the expenses? Do they make decisions about the business's revenue streams? Marketing? Hours of operation? The employees don't control the profits. They have some effect on it, but profits can easily be manipulated by the owner.

It doesn't matter how the employees are paid, if the market isn't there or the product isn't good enough, the business and its jobs won't be there very long. I don't see how paying his employees a salary that is double what they would normally make and providing benefits no one else in the industry gets is taking advantage of them. Maybe he wants long term committed employees and sees this as a way of doing it. It might also appeal to people who would like to live in a place like Parksville where employment opportunities are limited.

Of course he has more control, not only does he stand to lose his job but his investment as well.

Edited May 14, 2014 by Wilber

[Bryan]

Looks like this model did not work. The owner found customers didn't like it,

http://www.vancouversun.com/news/metro/Vancouver+Island+restaurateur+regretfully+ends+policy/10140961/story.html?__federated=1

Owner David Jones said the restaurant has decided to scrap its no-tipping policy in favour of a traditional restaurant model as a result of customer demand.

"When we listen to our locals, the majority want to have a say in whether or not they tip on good service or poor service, on good food or bad food," he said. "They want to have a say. . . . They feel like we have taken their freedom away.

...and it was costing him too much money:

http://news.nationalpost.com/2014/09/16/hotels-tip-the-housekeeper-campaign-draws-ire-from-a-public-suffering-tipping-fatigue/

it was no match for payroll taxes and the rising cost of food, Mr. Jones said. “It really costs you 40%-50%” more, he said. It was unsustainable and so he abandoned the practice on Aug. 21.

[jbg]

Looks like this model did not work. The owner found customers didn't like it,

http://www.vancouversun.com/news/metro/Vancouver+Island+restaurateur+regretfully+ends+policy/10140961/story.html?__federated=1

...and it was costing him too much money:

http://news.nationalpost.com/2014/09/16/hotels-tip-the-housekeeper-campaign-draws-ire-from-a-public-suffering-tipping-fatigue/

What a shock! Not.

[Boges]

There would have to be a complete culture change for it to work. People are used to tipping in North America.

Speaking of Tipping.

http://www.foxnews.com/travel/2014/09/17/marriott-tipping-envelopes-for-maids-backfires-with-customers/

So having a clean room is a frill now? I may tip at a resort or if I'm staying at a certain place but not if I'm staying one or two nights.

[Guest]

I always tip the housekeeping in hotels.

The tragedy is, I rarely let them in to my room, and when I do, I clean up first!

[Boges]

I always tip the housekeeping in hotels.

The tragedy is, I rarely let them in to my room, and when I do, I clean up first!

Gotta wonder what the $100+ you're spending for a room goes to if not for someone to ensure that it's clean.

Edited September 19, 2014 by Boges