Risky moves in the restaurant industry are usually confined to the menu. But Union Square Hospitality Group, owner of some of New York’s most renowned eateries, took a bold step last week by announcing it would end tipping. It shows that even a successful business sometimes has to make a radical change to thrive.
Just as New Yorkers were finishing their morning bagel (with a schmear) and second cup of coffee news broke that Danny Meyer was adopting a “no tipping” policy at his restaurants. New York dining will never be the same.
Every business has a sacred cow, a long established practice that can’t be changed. But that’s often where change is most needed. It’s hard to think of a more entrenched practice than tipping in the restaurant business.
Tipping is problematic because tax and employment laws keep many restaurant workers from sharing in gratuities left by patrons. Tipping got in the way of keeping great people, so USHG decided it had to go.
How the group came to the decision is almost at notable as the decision itself. Meyer said it was the result of a “robust conversation” across the entire organization about opportunities for employees to develop and advance.
That suggests the decision to end tipping wasn’t a scheme hatched over a weekend retreat by a small group of executives or an airy recommendation from an outside consultant. It sounds like the process involved a lot of regular employees and the idea took a long time to germinate. And USHG is no mom-and-pop outfit. With 1800 employees, it took real effort to have a meaningful dialogue and consider such a major business change.
That kind of serious, honest, prolonged process simply doesn’t happen in most organizations. It’s expensive and time consuming, but it’s also not part of the culture. Listening to employees is mostly confined to annual performance reviews, town-hall gatherings and the company picnic.
Meyer deserves credit for not only making a bold business decision but for communicating it well. His public announcement was brief, direct and clear. It’s mercifully free of jargon and doesn’t back away from difficult topics.
The move also reflects the competitive pressure in the restaurant business. USHG needed a different approach in order to retain talented staff. The policy puts USHG in a position to retain good people, and it puts pressure on other restaurant groups to follow suit.
Could radical changes be in store for other industries where keeping talent is important?
Ask Wal-Mart. On the same day Danny Meyer announced the end of tipping, the world’s largest retailer reported lower profits, in part because of higher labor costs. Wal-Mart said earlier this year it would raise hourly pay for many of its associates to stem turnover. Wal-Mart may have to start a revolution of its own to meet the challenge of rising wage costs and the growth of online retail, where Amazon dominates.
Or look at Silicon Valley, where the war for talent has employers offering all kinds of benefits, from on-site yoga classes to generous family-leave policies. Of course, adding perks at a software company doesn’t change the compensation structure in as fundamental a way as ending tipping at a restaurant group.
Raising hourly pay or adding benefits aren’t nearly as visible to customers as eliminating gratuities from the bill. And therein lies the other bit of magic in Meyer’s announcement.
Dining has always been a shared endeavor, where customers help create the experience. By ending the obligation to tip, diners are being released from a process that was opaque and riddled with guilt, fear and suspicion. But they are also being invited to support the people in every part of the company who make their remarkable dining experience happen.
A lot of customers will applaud the move to end tipping, not because dining at one of Mr. Meyer’s restaurants will get cheaper (it won’t), but because it is committed to fairness and professional growth for its people.
That’s a good tip for any organization.