Danny Meyer, CEO of Union Square Hospitality Group, is considered an industry leader and is taking a bold step in his higher-end NYC restaurants like Gramercy Tavern. He is raising menu prices and also eliminating the expectation that the customer will leave a tip. The service charges (meant to be shared among both servers, cooks and others) will be reflected in the higher prices. The question (discussed at RetailWire) is simple: Will it work?
If Mr. Meyer raises prices by, say, 20% but no longer expects customers to leave a 20% tip, will they see any big difference in the tab? Probably not. But American diners are trained to acknowledge good or excellent service and may find it hard not to leave some extra cash on the table. Even in European restaurants where a service charge is included, I usually “round up” anyway.
The economics are interesting, because it’s clear that the “back of the house” workers — from chefs to dishwashers — are short-changed by the current system. At the same time, Meyer may need to raise “front of the house” wages significantly to offset the loss of servers’ tip income. I’m sure there will be a shakedown cruise at USHG restaurants before the new model is widely adopted.