The Agenda with Steve Paikin (Audio) - Can No-Tip Restaurants Really Succeed?

Episode Date: November 14, 2024

As tipping creeps into more and more of our transactions, some restaurants have bucked the trend and ended the practice all together. It means higher prices on the menus and more costs for the restaurants' owners, but they say it is a better and more fair way to treat their employees. How are these eateries faring in a time when the industry is already struggling with rising costs, labour shortages and shifting consumer habits?See omnystudio.com/listener for privacy information.

Typically in Ontario, hospitality professionals, especially servers, are paid a minimum wage and are expected to be compensated on top of that with tips. Hi, David Neinstein, owner of Bark Smokehouse in Toronto. I always wanted to create a model that eliminated the need for tips. I didn't think it was fair for the public. I didn't think it was fair for the staff. Barbecue was a food I always loved and and at the time I opened the restaurant, I didn't think that there was enough of it in Toronto,

and I really wanted to introduce the cuisine to the city. For years we ran in a traditional method of tipping, and I've been wanting to make the change for years, having lived in Europe and experienced a tip-free culture. A lot of people ask the reason why, and it's because this is a profession like any other, and we would like to be treated like the skilled professionals we are.

Most people working in a lot of fields don't require tips to even out their paychecks. Whether you're a bus driver, you're working at a retail store, you're a city worker, no one gets tips. So why should it be different for this industry? In the lead up to making the shift to a tip-free system, we consulted with experts in the field,

both in the hospitality field and in the accounting field, and we spent a lot of resources communicating to both our staff and the public that this would be coming so that when we did the actual shift it wouldn't be so hard on the landing. Hi my name is Corey Mintz. I'm a food writer, reporter, consultant, and author of The Next Supper, The End of Restaurants as We Knew Them, and What Comes Next. I've dedicated a lot of my career to researching this and to working like with David Neidstein here at Barck and my first question with him was why? You know because you have to be passionate to make that change because it's swimming hard upstream. The industry, consumer expectations and the government are all set up to

enforce the tipping culture, to make that the norm. And to do it any other way is so much work and a challenge to everyone else's expectations and it even costs you more. You've got to pay payroll tax on the increased wages. So if you're going to do it, it has to be because you actually want to help change this industry and run your business in a better way that holistically takes care of all the people working in it. I probably started thinking about tips when I worked in restaurants as a cook

and in high-end restaurants, I did the math and realized that on salary, I earned less than minimum wage. And I saw a server in the kitchen one day counting money like this, and another more senior server came around and admonished him and said, we never count money in front of the cooks. And I asked him why and he said, we know we earn double what you do,

we don't need to rub it in. So the dynamic where a server might earn double what a cook earns is not universal, but it's fairly common in the nicer, fancier restaurants. I see tips as revenue and says, we're allocating this primarily to one group of workers who are going to be treated and compensated very differently from another group of workers,

even though the business needs these two groups of employees to work together as a team. I would love to see every restaurant treating the people working there fairly, and paying everybody a living wage. I don't know if that's possible with tips ingrained the way they are, and distributed the way they traditionally have been. It seems like once every 10 years, there's a movement towards getting away from tipping, which starts from restaurateurs frustrated that they don't control their revenue,

that they can't actually unify their team to work together because of how differently they're treated and they're being compensated, and they decide to experiment with some form of no-tipping. Currently, the number of restaurants across North America are using a no-tipping service fee, service included model account for probably a maximum of 1% of the industry. We started no-tipping in 2015 and was successful implemented till 2017 It was called the Indian Street Food Company. Nobody was doing the no tipping in in Canada. My name is Sehman Bhagwani

I own the Amaya group of restaurants We're at bar go in Toronto downtown. I started in in Europe. So I was so used to the culture of You know no tipping there. When I came to Canada, I noticed that the servers all depend on tips more than the quality of income in the restaurants. I wanted to see how I could make a change there. I remember the first day I opened the restaurant, there was a lot of media out there. I remember the first day I opened the restaurant there was a lot of you know media out there because it had not happened before there was a lot of attention there and and the

restaurant started filling very quickly because of this. I think also when people were coming in they were very confused with should we tip should we tip, even though we as soon as they walked in we told them there's no tipping in the restaurant. Took some time to understand myself first. It was hard because when I started doing it, people who used to work in the restaurant, actually the courier service probably or who were used to normal tipping style decided to leave. And I had no idea how I would make this work without them. It's how you're going to maintain it was becoming harder.

I realized it while I was doing it how much the staff were involved into it. And eventually when we started doing the taxes there, I realized that CRA thought this was an income for the restaurant which is coming. So they taxed me there, they taxed on payroll taxes. So on both sides, I got taxed on it as giving it out to the staff. So that's where it became a little messy in doing it.

I had sold the company in 2017, and the new owners who took over actually stopped the no-tipping policy there. I am planning to open a new restaurant in the Yorkville area where I'm planning to, again, start no-tipping out there. If the money is coming in, I think it should be distributed equally. That's what I feel.

You're counting, are you ready to note? We were finally able to make the change in May of 2022. And to do so, I decided to create a new minimum wage at this restaurant, which was 22.50 an hour, meaning the entry level wage of any employee would be that. When we made the shift, we increased prices by roughly 30 percent even though the average tip is roughly 20 percent. The extra administrative costs, the benefit packages, all the extra costs that we incur as a business really led us to

need to increase to 30 percent and we thought there was going to be sticker shock but I'm happy to say that we received very minimal complaints from our guests as they were introduced to the new prices. Do you like tipping? I do. If I'm receiving tips, then I also tip well if I'm going to a restaurant as a guest.

So 20% minimum, I feel like that's the base. Plus, I feel like this job is very, very laborious job. You have to be on your feet all the time. So the base pay does not do justice to that. And this is the makhan chavi. So my name is Hardik Gulshan, and I work as a server in this restaurant called Bargoa. The tips you make helps you maintain a lifestyle better

than if I was just working a minimum wage job. Say if I was making $1,000 just based on the minimum wage, with tips I can make almost double or at least like $1700 with tips. So I feel like that extra $700 or the extra $1000 is a big, big part of how I live my life covering my necessary expenses and unnecessary expenses as well. I'm Julia. I'm a server at Park Smokehouse. I've been here for three months. I've been working in the service industry for about five years in some server position roles in Toronto and some outside of Toronto. Tips are a huge selling point for when you're looking to get a job in the

service industry. Like that's one of the main factors that you'll talk about in your interview and what that tip system looks like if it's divided in certain ways with front of house, back of house. So when I applied here and I saw that it was a full wage system that definitely piqued my interest and I wanted to know more about that since I had never worked in that kind of environment before. I remember when I was preparing for my interview and I read a few articles about Dave and the no tip system and the way he spoke about it in terms of it just creating such a supportive work environment between co-workers, front of house, back of house, it seemed really appealing to me

and was something I wanted to learn more about. I was definitely concerned I would make less money if I gave up tips. And I haven't done the exact calculations comparatively to say last summer working at a restaurant that did have a tip system. But I would say just the difference in the work environment, the fact that it's much less toxic here, everybody really supports each other. And so it's a lot more consistent to have a set wage and to know what my shifts are going to be like every single day of the week, that it doesn't matter what section

I have, what shift I have, who I'm working with, that it'll be a good shift. When I'm not serving, I have another job. I work as a drawing and painting instructor for kids and adults. Working as an art teacher I definitely need the time to prep for those lessons so having a set schedule where I know the exact hours that I'm gonna work is really important because then I can set aside solid chunks of time to work on my art. I do think more restaurants should move to a no tipping system and I find that whenever I present a bill to the customer they're

pleasantly surprised if they haven't already realized that this is a no tipping restaurant. Sometimes they even though it's written on the menu they don't even really clue in but it's yeah I think refreshing for everyone involved that they're not responsible for paying for somebody's livelihood or financial security. I've heard from a number of restaurants around the country who have been interested in hearing about our experience. It's been more than two years since we introduced this model and there's no going back for us. Unfortunately not a lot of them have ended up going through with the process

as there are a number of challenges that make it very difficult to make that transition. So the restaurant industry as a whole in Toronto in particular has been extremely challenged since COVID and it has yet to recover. Business is definitely down I could say anecdotally across the board by at least 25-30 percent, costs are up 25-30 percent, labour is up, everything's up, all the wrong stats are going in the directions we don't want them to go in and so it's a very challenging time for this industry. We are generally losing money week to week.

There are some weeks where we're doing okay, but it's a lot better than it was just post-COVID. But we're slowly getting out of a hole as businesses starting to increase and ticket prices are starting to go up. But I think it'll be another year before we actually start to see black on the regular. If we eliminated the no tip model, our administrative costs would go down, our general labor prices would go down significantly, and we would probably be making a lot more money.

No matter what happens in the financial setting, I'm not interested in moving back to a tipping model. I'm truly against it. I'm opposed to the practice in principle. Restaurants have been the central preoccupation of my adult life. I'm being a cook, restaurant critic, food reporter. Now, what's so special to me about restaurants,

in addition to I'm gonna try something delicious or amazing I've never eaten before, but it's an opportunity for someone me at my economic class to experience what it's like to be a wealthy person for one night. For the cost of $50 or $75, I can live like Vin Diesel probably lives every day. Someone asking me what I'd like to eat and cooking that food for me and carrying away a crumb lest it settle on the table. That's a pretty special thing.

If a guest comes into the restaurant and I'm giving them food, that's not just part of the job it settle on the table. That's a pretty special thing. If a guest comes into the restaurant and I'm giving them food, that's not just part of the job that gets me the tips. It's an experience. It's how I talk to them, how I make them feel while they're in the restaurant. You know, if you come into the restaurant, it's my job to make you feel like a king.

And if you do not feel like that, then I wouldn't expect a tip from you. The tipping model is always going to be desirable and attractive to restaurants because it helps hide and suppress menu prices. You can pretend the actual cost of the diner is lower than it really is. To really see tips being abolished and everyone move towards a full wage model, whatever you want to call it, you'd need to see a sea change of political will or industry change and the industry is not one that changes

overnight. There's no demand from customers. Customers love tipping even though they hate it. There may be times where I wish I still got tips where I feel like I've really gone above and beyond and maybe the table hasn't exactly recognized it in a way that I felt that I needed to receive. But also overall I feel more valued and it's kind of nice I think for everyone involved that it doesn't feel like it's on the customer to provide me with some sort of living wage and to have a living wage is already kind of a problematic sentence in itself. Like, we should all be able to have health insurance and pay our rent and take care of ourselves mentally and physically.

And so I think having it written on the menu that we don't accept tips, that we have a higher wage, lets people know that this is worth, that it is skilled labor, and we are good at what we do and we deserve the pay that we get.