AILSA CHANG, HOST:
In 2015, restaurateur Danny Meyer sets the table for an experiment he decided to eliminate tips and instead raise menu prices at his restaurants. It was a way to bridge the gap in earnings between servers and kitchen staff. It's been about a year since he started this new policy. And we wanted to see how it's going so far. Danny Meyer is CEO of the Union Square Hospitality Group, which is behind high-end restaurants in New York City like Gramercy Tavern and The Modern. He joins us from New York City. Welcome, Danny.
DANNY MEYER: Thank you so much, Ailsa.
CHANG: How did your staff react to these new policies, particularly your servers? Were any of them confused or upset about this?
MEYER: All of our staff members listened very, very carefully when I shared the thing that was non-negotiable for me, which was this. If we're going to be a restaurant organization that believes and says we believe that our guests will never have a better time dining with us, we cannot responsibly preside over an economy that only takes care of tipped employees and does not take care of kitchen employees. And then I asked our staff members - kitchen and dining room - to help me and help our senior leadership team do the math to create a system that would be a winning system for everybody. And people trusted us.
CHANG: But what's the incentive to be the best possible server they can be if you get rid of tips?
MEYER: Well, that incentive has to come from someone internally. I have never, ever subscribed to the notion that it motivates somebody to be friendly to me who otherwise would not have been friendly to me simply because they believe that, in two hours, I'm going to pull more money out of my pocket.
CHANG: Really? That seems like a reality of the restaurant business.
MEYER: I think that's the reality that the tipping system has tried to create. But if you've ever had bad service in a restaurant, then I would argue that the tipping system did not prevent bad service.
CHANG: Well, what about complaints about higher menu prices? Are there customers who are confused about why those prices seem way higher than they used to be?
MEYER: Well, what we decided to do with our program, which we call hospitality included, is that we would give you one price on the menu. So if your chicken costs $28 on the menu, that's the cost. That's going to cover the linen, the flowers, the cook, the reservationist, the server, the wine director, the rent. There's not an additional line on your bill for gratuity. And so it is a jolt when you first see it. But we've not, to my knowledge, lost any guests. As a matter of fact, what we've gotten over this past year is an overwhelmingly strong thumbs-up chorus from our guests.
CHANG: I was going to ask you, have profits been affected at all?
MEYER: Well we've seen an initial dip in every restaurant. And then as our managers learn to operate under a new economy, they tend to come back up. So a great example is The Modern, where we started this. It's a very, very different math if you're a chef and you're used to working towards a certain food-cost percentage. And all of a sudden, that math changes dramatically.
Or, for example, taxes - we're actually paying more taxes right now because tips are not something that you have to include in your sales tax. So in the early stages, this is a very, very challenging thing. And any restaurant that was considering undertaking this, I would say, overcommunicate. Be patient. But it's completely worth it. And I wouldn't go back.
CHANG: Danny Meyer, CEO of the Union Square Hospitality Group, thanks for joining us.
MEYER: Well, It was my pleasure. And thank you.