October 29, 2015

How Tips Included Pricing Will Change U.S. Hospitality

How Tips Included Pricing Will Change U.S. Hospitality

The recent decision by New York restaurant legend Danny Meyer to remove tipping progressively from his hospitality empire, by increasing menu prices by 20% is brassy!  
This idea is called service INCLUDED pricing!

Should the idea take hold in America, the reverberations will carry through to 2021 where U.S. minimum hourly wage rates are set to rise to US$15 per hour.
In the meantime most developed countries, America excepted, serve staff are paid higher comparable wages as service is included in menu pricing!
The habit of U.S. hospitality operators to pay minimum or below minimum wages is notorious; yet strangely it’s the guest who’s then forced to shoulder the added costs for service, the very same service that’s included in menu pricing in every other part of the world.

A visit to a restaurant and/or bar now in the U.S., guests will see internationally comparable menu (exchange rate adjusted) pricing with the noted exception a further obligation to pay a   15-20% tip.
The hugely competitive US market is home to some of the CHEAPEST produce, protein and beverage costs in the world. Yet, in other markets with far higher input costs and similar U.S. menu prices, these operators pay staff higher wages. The arising thought: why then do U.S. operators demand increased menu pricing to pay staff better?

The answer without question is WASTE!
Tips under the current U.S. system give rise to alcohol, food and other waste/carelessness, with businesses accepting operational tolerances that the same business in another country would never allow! Free pouring generous amounts of excess alcohol to keep guests on side, is a great example of this!

Average Free Pouring Bar in the U.S. | Überbartools™

The average free pouring bar in the U.S. will typically suffer higher amounts of wasted profits (increased costs) caused by over-portioned alcohol serves actioned by staff looking for customer tips.
At the moment waste at the level we see in the U.S. will force operators to look very closely at every aspect of business costs given the countdown to 2021 hourly rate increases.
Today’s empowered, activist consumers are unlikely to accept blanket menu price increases to cover increased staff wages, the same wages that should be now paid by operators.
If consumers start to buck higher menu pricing then U.S. operators must quickly find innovative ways to save money, by driving down operational costs.
Increased hospitality staff wages in the U.S. long term will be a win for everyone – it may take time for the new reality to play out however, rest assured U.S. hospitality will change for ever!

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