Lessons From a No-Tipping Restaurant

Our recent podcast about tipping mentioned a San Diego restaurant, the Linkery, that adopted a strict no-tipping policy. The Linkery has since closed its doors, but owner Jay Porter (who was featured in the podcast) has been writing about the effects of a no-tipping policy. Here’s Part 1 and Part 2 of his blog posts. A summary of his takeaways:

1) Due to poorly cohering laws in many Western U.S. states, using a service charge has typically been the only legal way for a restaurant business to balance wages between servers, bartenders, cooks, and dishwashers. That’s why restaurants like Chez Panisse instituted such a [service charge] policy. Subsequent court decisions in the Western U.S. have opened up the possibility that other arrangements are legal, but the service charge is still the safest model.

2) Because tips cannot legally, in most cases, be controlled by the employer, they are typically distributed (or not distributed, as the case may be) according to a social compact between the employees. That social compact is either unenforced or enforced through social means, like ostracization. In either event, the systems for both acquiring and distributing tips are easily gamed by members of the compact who are intent on doing so.

3) The Linkery’s most transgressive act was not in implementing a service charge. Our most transgressive act was refusing to allow our guests to pay our servers anything more beyond the service charge — this is where the angry came out. A certain small number of very vocal men (and it was always men) resented that we were not letting them try to exercise additional control over our team members. This was true even though compelling research has shown that servers do not adjust quality of service as a result of tips; instead the idea that the restaurant was not offering our servers up as objects of control, was heresy. For these people, the primary service they wanted from the restaurant was the opportunity to pay for favors from the server — much like the patron at a strip club pays the club for the opportunity to dangle bills in front a dancer for individual attention. The idea that a restaurant could legitimately want to be in a different business than a strip club, was not an idea these guests could countenance. Thus, I was ever subject to witty takedowns like you are a douche, along with other well-thought-out gems.

4) Our ability to make sure team members in all parts of the house were taken care of, and to remove tip-related squabbling from our business, gave us a huge competitive advantage in the marketplace; this in turn allowed us to serve a much higher quality of food and take lower margins on it. Basically, it was because of the much-lower-friction monetary flow through the company that we were able to survive as a true, deep farm-to-table restaurant in San Diego for so many years. Other operators in town, fully aware of how tips poison restaurants, knew we were enjoying an edge. Some of our colleagues resented this, and lashed out in some ways, including that of telling local journalists and bloggers that we were lying about the food we were serving. I assume that this is because those restaurants couldn’t serve the kind of food we did and still take tips, because tips are so wasteful. And if they couldn’t do it, than they assumed/said we weren’t doing it.

5) Once established, the tipless/service charge model made us more successful in every dimension. Having a sister restaurant that used the traditional model was helpful in evaluating this — at our second restaurant, for instance, we could never achieve a consistently high quality of service. We believed the block came from the sense that, once the guest delivers a tip, the quality of service has been validated — even though studies clearly show that, across a large sample, guests tip basically the same regardless of quality of service. Meanwhile, our revenue was always higher at the tipless restaurant, I think because quality of food and service were both better due to the more consistent pay system (which at the Linkery was much closer to that of a normal, non-hospitality business than that of most restaurants, where server pay varies with a lot of randomness). With higher revenue and a more consistent pay system, our retention was better. This continued to be a “virtuous circle” of benefits we saw from having a tipless/service charge model. On a personal level, it was much more fun to work with the non-tipped team; in that environment it was easier to build a focus on doing great, worthwhile work, and doing it well, when those thoughts weren’t being interrupted every couple minutes by a guest deciding how much to pay a team member for their last few minutes of services rendered.

(HT: Michael Jones)

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  1. bob says:

    I like it. I think more restaurants should consider this. The pay difference is a great result of switching to no tips. Employees have a more predictable salary, have less to worry about when it comes to money, can work to get a raise, and I believe this leads to more productive servers and the “experiment” shows it leads to better service. I always wondered why restaurants could get away with terrible wages and use tips to try and make up the difference. Now I wonder why restaurants allowed themselves to get into this hole.

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  2. Timster says:

    For those who wonder how the community felt about their policy, and not just the owner, maybe try looking at their Yelp review. http://www.yelp.com/biz/the-linkery-san-diego It was pretty much universally hated.

    The staff didn’t care about service because they were getting the tip/service charge regardless. Add to that, that the food was overpriced and soon made to look pretty mediocre by the other restaurants in the area, and you can see why The Linkery Shut down.

    Jay Porter may think that he was the Messiah when it came to the San Diego food scene, but the results show something different. San Francisco is welcome to him.

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    • Oliver H says:

      Funny how France is considered the pinnacle of gastronomy and the number one tourist destination in the world, yet French restaurants usually have on their menus “service compris” – “service included”.

      The truth is that the notion of financial incentives is a typical economist view based on the belief that people care for nothing but money. Nowhere is that notion more disastrous than in the service sector. It completely ignores the passions of the people involved. No financial incentive will turn someone who hates people into a great service personality, while someone who burns for ensuring others have a great time can easily feel demotivated by a low base salary, feeling there is little recognition for their work by their superiors.

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  3. Steve Seamans says:

    If the resteraunt was successful, why isn’t it still in business? Hopefully that will be addressed. The downturn in the economy didn’t take down all the other resteraunts. If it was a better working model, I would expect the previous owner could have found a buyer. If it was closed due to the landlord deciding to utilize it for other purposes, I would think you could move a successful business model to another location.

    As for me, I prefer the tip model. However, I do not frequent strip clubs and find the comparison both an interesting alternate point of view and ridiculous.

    -Steve

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  4. Caleb B says:

    Higher prices and no tipping will reduce the pay of waiters. Owners will pocket the difference and only pay minimum wage. Guaranteed.

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    • Oliver H says:

      You miss that owners have a strong interest in having motivated employees so that the customers have a good experience.

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    • ERLW says:

      Caleb, I think there’s a typo in your post. It should say “Not guaranteed”. This is Freakonomics; I don’t think it is right to deal with sweeping absolutes unless you have the statistics to back it up.

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  5. Pauline @ Make Money Your Way says:

    Interesting that the guests are angry about not tipping. In France, 15% service charge is included in the price but most waiters make minimum wage, whether they bill more or less than their wage. It is frustrating as a waiter in a popular place when you work a lot, and see your patron pocket the 15% but it is fair that from the cook to the waiter everyone makes the same money. People rarely tip on top, you can expect $1 or $2 occasionally, even for a $100 meal.

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  6. Kris says:

    So you go with a friend to a restaurant. Your friend orders a hamburger with fries, a salad, and iced tea. You order an appetizer, a steak with mashed potatoes and vegetables and a glass of wine. The server brings your wine and the glass of tea. They then bring your appetizer and your friend’s salad. Finally, you get your plate with your steak, potatoes and veggies, and your friend get their burger and fries. The server provided you both with identical amount of effort, of ‘service’. Your friend’s bill: $9. Your’s: $24. For the identical service, you’re expected to reward the server with more than double the tip of your friend. Tipping could not possibly a stupider monetary transaction. More American exceptionalism.

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  7. Oliver H says:

    An interesting text on perception of service quality:

    http://www.myparistrips.com/frenchcultureandcustoms.html

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  8. stewart says:

    Most customers hate the tipping system, I certainly do. Service charge is almost as bad, I want to pay what it says on the menu without having to do math. But what can be done about it? I try to eat at restaurants that are buffet, self serve, etc as much as possible but even these places usually hit you for tips for bringing even an ice tea with your meal. That leaves just fast food and eating at home. What we really need to do to break the cycle is a Federal law that the minimum wage laws apply to all workers and restaurants are not excepted, and also to have the minimum wage raised to a living wage.

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    • Joe says:

      Stewart. Most customers like the tipping system. But most customers can do math in their head. Stayat fast food places. You should also tip at Buffets also. Cheapskate.

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