Transcript of The Tipflation Trap – Who Eats the Cost?

Welcome to We Fixed It. You're welcome. The show where we take over companies, you come along for the ride, and we try to put them back better than we found them. Tipping. It used to be a simple social contract. You got great service, you left something extra. Now it's a full-blown economic system. Welcome to the Tipping Economy, where customers are subsidizing wages, businesses are trying to survive razor-thin margins, and many workers are relying on tips to make rent or they're in trouble. According to recent payroll data, tips make up about 23% of a restaurant worker's annual income. In some states, it's 30% or higher, far more than a nickel for your troubles. But suddenly, it seems like a tip request is showing up on every single transaction. You buy a cup of coffee, the screen comes up for payment, both you and the barista stand there awkwardly. The question isn't, should we tip anymore? It's, should employers pay less and we make up the difference? If they paid more, if we tipped less, could the hospitality and restaurant industries even survive? Should we all accept that everything just costs 15% to 30% more than it already does?

How do you keep customers from feeling like they're being extorted by an iPad on their way out. Well, Melissa and I are going to try to fix this for everybody. She does not hear this time, so we're one short. We're going to need some help here. But not to worry, joining us today is Mark Moller. Mark brings over four decades of experience in the restaurant and hospitality industries with an extensive background in operations. At his consulting company, The Recipe of Success, Mark and his team help restaurants large and small to improve outcomes, strengthen teams, and create guest experiences that actually feel memorable without burning out staff or eating into profitability. If anyone could help explain the complexities of this situation and how we can strike the right balance, it's got to be Mark. Thanks for joining us, Mark. Well, let's hear more about you and your I appreciate that, Aaron.

Thank you so much for having me here. As you mentioned, four decades. I've been doing this now for 44 years, spent 18 years in corporate America when I said, Okay, that's it. I've had enough. It's time to go on my own. I've been an entrepreneur now for the last 27... Well, I'm in my 27th year, The Recipe of Success. We're a national restaurant consulting company. We play in every level of a restaurant. It doesn't matter the segment either. We focus on operations and training, operations and financial analysis, and new restaurant openings. We've been a part of 400 restaurant openings and more across the United States in the last 29 years. A little bit is my corporate career as well.

Thank you, Mark. We're really glad to have you here. Melissa and I have not opened 400 restaurants between us, so you're going to be our powerhouse on this conversation, and you're going to help us get through this controversial topic about tipping. We're going to need you, so let's get into it. I'm going to give a little bit of background. The United States' tipping culture has deep roots and some unique quirks compared to most other countries. For decades, tipping mostly lived in full-service restaurants, bars, resorts, that thing. But cashless systems and digital payment systems have changed the game. Now, consumers are prompted to leave a tip in coffee shops, pick-up owners, delivery apps, and even retail. The spread is widely called tipflation, and it's fueling real customer fatigue. Part of the tension comes with how compensation works under US law. In many states, employers can pay a tipped minimum home wage as low as $2. 13 an hour federally. I looked into it, it looked way too low, but it's true. Right, Mark? With the expectation that tips make up the rest. Meanwhile, tip screens often calculate suggested tips on the post-tax total, which quietly gives a little boost to what customers are expected to leave.

Plus, you get that screen that can presuggest tips as high as 30%. It's that moment of moral judgment. Was it good service? Great service? Excellent service? What person am I even if I don't tip? Now, workers feel dependent on customers, customers feel squeezed, and the once optional tip starts feeling like a required fee. Then you add the world of service charges, mandatory gratuities, and labor surcharges, and it gets legally and ethically blurry fast, like that extra 4% that's suddenly tacked onto the bill at the end of your meal. Customers often assume these types of charges function like tips, but depending on how they're structured, some fees may be treated as revenue instead of wages. There have been high-profile examples that have made the public more skeptical, including Amazon settlement over driver tips and where they actually went. The bigger reality is customers want transparency, workers want stability, and many businesses say they can't afford higher wages without raising prices enough to lose customers. I believe them because they go under when the economics don't work out. They're probably right. Everyone's stuck. So, Mark, thank you. What are we going to do about all this? We'll get What are the employees and the rest of us, but let's start with the restaurants and the employers.

What kinds of challenges are they uniquely facing right now?

The challenges are never-ending between competitive wages needing to be paid. You have a lot of people who... We all blame this on the pandemic, because this is where it all really came fast forward. In a quick serve restaurant, Fast Casual, you've got cooks looking to make $22, $23, $24 an hour, where normally they'd be making, okay, I'm in the Northeast, so they're going to be making around $18 an hour. There's that huge swing that now there's an expectation that because the employees went where they would be best compensated during the pandemic, they weren't demandered. Because they weren't in demand, they were able to demand these higher pay rates. We have that. We have all the costs of goods issues. When you have the two worldwide leaders of weak protection at war together, that comes down and affects every aspect of this industry. Rising rents are there as well. There's just so many compounding issues that are going on that restaurant tours, naturally, they're struggling.

I'm so glad you brought up the pandemic because the way I look at it from a consumer's perspective, and I always take a CX perspective and operations perspective to the problem, it's more than just a rude customer's problem. One of the things I think about is that during the pandemic, we, as a community of customers, wanted to support small businesses. We wanted to support our favorite restaurants. We wanted to support the coffee shop down the street where we used to gather as a group. I had no problem adding a tip, so to speak, hoping that I was helping to keep them alive and survive through something like that. But then the pandemic ended and we started coming back to the coffee shops, coming back to the restaurants and coming back. These new fancy point of sale systems, which I love, then had these fixed amounts. I was like, Wait a minute. What happened to 15% as being a pretty good tip? Now that's not even offered. It's 18, to 30, and they're standing there holding the thing, and I don't have great eyesight. I'm old. I'm like, Can I put in a different amount? That looks weird.

People are waiting. All of a sudden, you're paying for things that, yeah, I wanted to do that when I knew that no one was coming into the coffee shop. I did want to give you 25%, and I did give it to you when it was actually I was self-serving myself. But now I'm like, really? I do think that this is an interesting question. I also think to Erin, to your point about the context of the complexity of the situation is it's so unclear all the different fees and who gets what, that that transparency is lost. From a customer perspective, I'm very wary and I'm thinking, is this waitress or is the wait staff actually getting what I'm tipping or are they not? Is it going to the... I'm happy to have it shared with back of house. I'm happy to have it shared with the dishwasher staff, whatever, but it's not clear to me. Where's that money going?

I wanted to start this with righteous indignition as a consumer and a customer. That's how I first thought about this topic is we're squeezed on all fronts. You have inflation, prices are higher, you have shrinkflation, so you're getting less for the same amounts or more. Then you have this, we'll call it a mandatory tipping system, because if you don't tip, you're not playing the game. You're not playing your role in doing what's expected of you. That can add 15, 20, Melissa, like you You had 30% automatically off the bat as a transactional engagement, not as a recognition of service. Now, if you want actually to be appreciative, you tip 40, 50%, I don't even know. But you know what? Your sandwich is suddenly $20, $30. It could be by the time... A $10 sandwich could be $15. That's what we're dealing with. It's like, why do we feel so squeezed? Why do we feel like there's something unnatural about it?

Well, because it is unnatural, especially in the quick serve and the fast casual restaurants. Look, I'm a consumer, too. Yes, I've been in this business a very long time, so I've seen it all. But in this industry, we now have a tipping culture for the industry and not the segments of the industry. You go to a full serve restaurant, you expect to leave a tip. That's the way we were raised, that's the way we grew up. It's natural for us. But when you come to the restaurants, the fast casual, quick serve, you start to wonder, Melissa, to your point, is where's this money even going? Here in Connecticut and a few other states, you are able to share the tip to the back of the house if you're not claiming the tip credit for your taxes. Here in Connecticut, if you are claiming the tip credit If you get back in the house, it doesn't get anything. But here's the other issue then, because the back of the house, if you run it off of an hourly system where I work 40 hours a week, the cashier who does the upfront work and maybe never orders any food is working 20 hours a week, they actually eat less of the pie.

There has to be a manipulation of the system to be fair to the entire staff, because all of a sudden you've got these cooks now that are making more, and the tip is always perceived as it is for the front of house, even though back in the house really does 50% of the work.

Mark, when you're talking about QSR or fast casual, or part of the reason that it feels unnatural, I think, is that you're used to tipping after the fact. If we got excellent service or a great meal, or even if you're doing it transactionally as an engagement Okay, everyone tips. It feels more like a closure. But when you're tipping upfront at the counter, especially, this happened to be this week, where someone's standing over you and they're watching you and you're judging them and they're judging you. You haven't even gotten your service yet. Does that impact what happens next? Do they make your food slower? Do they make it fast? You know what I mean? It feels less natural to do something premature as a pre-evaluation of service rather than after the That's a good point because I think that lends into the digital prompt psychology, the behavior that is being...

They're nudging us. Those point of sales systems are nudging us into that behavior. A survey recently, a 2024 Toast survey, found that 65% of consumers add a tip when prompted, even for self-service. In these situations that we're talking about where you're doing fast food, whatever it might be, Simply because the tablet, that's what it says on there. Like I was saying, it doesn't offer you... If it was self-service, I used to tip much less. I might tip 10% instead of 15%, which was the norm at the time. It creates that moment of social friction because like you said, Erin, people are standing there waiting. It's confusing for us because this isn't the psychology of tipping that we're used to, where you tip for service after the fact. You're tipping before you even received your food or your drinks. What if they're wrong? What if they're not even right? You've already tipped them. What's the point there? Again, I feel like there's a lot of psychology behind it, and it's really transformed the way we all think about things, because it's interesting to think about a coffee shop, for example, putting a tip thing on here when you're standing there waiting.

They're not necessarily doing the full service thing. But if they were just to raise their price a little bit, that's going to cause a problem for us. Because we don't want to see those types of margin optics where they're having to raise their prices, like Mark has mentioned, all the things that have to be paid for. We don't want to see that. We're not willing to pay 525 for a coffee. We're willing to pay 475, but then we tip them. It's a weird dilemma that we're in.

But Mark, isn't that just a shell game?

Well, it is, but it's one that's been self-created. Here's the other thing. Melissa just mentioned only 65% of the people are using the tip upfront. Really, if it's a 20% tip, just for math purposes, somebody's getting 13% of that. Is it the average person then when you go across the entire customer base that's coming into that day or that week or that year. The question comes down to, how do we change that? Which I guess is part of what this conversation is about. Listen, I have to be honest with you. Obviously, doing this a long time, I feel now all of a sudden, even I feel obligated in the fast casual quick serve to tip. But here's what I do. What I do is I tip in cash at the end of my meal. If I'm taking food out, I'm sorry, and I probably shouldn't be saying this, but I probably don't tip unless it's a place where I always go and today I just happen to be going out. But I want to know that everything was done right to Melissa's point, and probably the majority of the country's point. Why tip up front?

I still feel obligated to tip. I will always tip. But I will tell you that I now tip in cash. It's one of the few reasons why I actually carry cash.

Yeah, that's a good way to go about it. If you remember to carry cash around, you have to retrain yourself and recondition yourself. But we're getting reconditioned to the automatic reflex of tipping to the point where if I went to buy a Coke at a vending machine and it said, Leave a tip for our distribution driver, I probably would just do it, right? But I like your idea of tipping after the fact. If more restaurants. That became more of the social contract. But it's just not. There would be a lot of unlearning to do to get to that point.

Well, it's because these systems are preset this way. I got to be honest with you, most of the owner operators or managers don't even touch that. It's coming from toast. It's coming from a square or the other point of sales system. We preset it. We've seen that this works really well for the industry. Just go with it, leave it alone. It's done in training. It's an afterthought until you actually have to now go out to your to either your restaurant or somebody else and actually experience it yourself.

Yeah, I'm with you, but we're so conditioned. A couple of weeks ago, I went to a place and it said we're a gratuity-free environment, which means don't tip our staff, which just felt It's strange. It's so contrary to a common experience now.

Well, that's an owner or a team that says, We can go ahead and pay our people correct. They're going to give you great service no matter what. We're going to give you great food. We're on top of it. We're doing the training. Really, employees are looking to be trained. They want to understand what their roles are. If you're paying them a fair wage, then they don't need the tip in certain environments. There are environments that, yes, we are always going to say that we need to have it, but this is a culture that started thousands of years ago. We have to make sure that we are... Listen, I love gratuity-free. When you can. In a fast casual, quick serve, again, I shouldn't be saying this, but I will, it should not be expected. What are we going to do because of the rest of the margins? The rest of the margins are thin Also because a lot of restaurateurs don't have the training that they need in order to run the highly successful restaurants. They could be successful, but I'm talking highly. Take a margin from 15% to 20% at the end of the day, and that's a huge number.

Absolutely. When I saw the gratuity free, number one, it made me feel like I was doing something wrong. We just pay and leave. But number two, it made me question either, what are your margins? I started thinking like the owner-operator. Or what's your subsidy? Is someone else, do you have someone else backing you? How can you pull this off when other places can't? I had a lot of questions.

Well, I think it ends up being operationally, you need to have total pay transparency fee transparency. Move to posting those fair price menus with no tipping and clear wage statements, talking about how they actually do that. I like it. It's like a Instead of saying no tipping, it's all included. So that you're feeling that from a consumer perspective, you're still feeling taken care of. Then it gets back to where tipping was really not this automatic subsidy of a person's wage. It was more going above and beyond. To Mark's point, if you go to a place that you know that you don't need to... It's already built in into the menu price, it's already built into the sandwich price, you don't have to. But something they went above and beyond for you based on whatever, then you could leave them an extra tip. That's actually something that is emotionally makes you feel good because it's actually what it's all about is gratitude. I But I agree, Erin, that because it's so convoluted and it's very hard to understand where the money is actually going, I think that's really something that's important. I appreciate we have a local restaurant that is fairly pricey, and they actually have in there that they add a gratuity, it's like 5% or something, and they tell you exactly what that covers.

They say, Any other on on top of that is not necessary. If you would like to, great. But this is what we already cover. The bus people, we already cover the hostess stand. We already cover all of that. I really appreciate understanding that so that you can feel like the tipping component is really customized to your experience. But I do feel that we have a problem in today's world where I also feel bullied. Sometimes I don't want to leave a tip because I'm just grabbing a coffee to go, but everybody's standing there and the screen comes up and I feel like I can't not pick one of those. They make It's so hard to find the no tip. It's like somewhere weird. It's very obvious that you're picking something that's not on the screen.

Well, Mark, you're saying the tipping, it comes preconfigured in the software and the owners and franchises don't necessarily have a say in it, but they're not pushing back on it, right?

No, of course not, because they're being sold on the fact that this is a great way of attracting great people, because we're going to have a tip-forward culture mentality. Then if somebody can make an extra $3, $5, $10 an hour. In fact, there's a franchisee out there that I happen to know who guarantees a certain amount. They'll pay them under minimum wage, but they're going to guarantee them I think it's a $3 tip. Because of that, now you're actually at or just above minimum wage. But most people don't know that, but they still accept gratuity. It's still set up that way. It's a way of them to attract better people, but at the same time, it actually can hurt them in the long run, because if you don't make the minimum with that guaranteed tip, now all of a sudden, the restaurant, the company is paying out anyway.

Yeah. I want to say that the point of sales systems and technology are helpful for the businesses. I did ask someone at a local brewery, I went in, grabbed some already canned beer to go, and the screen came up. She said to me as I was checking out, she's like, Don't, because I just grabbed the cans of beer and then I was swiping my card. I'm like, Oh, are you sure? Then I knew we were having this conversation today. I asked her, I said, Can I ask you about this tipping system that you have here, right? She said, Of course. I said, So do you actually get the tips? She said, she thought that was funny that I asked that question. She goes, Yes, but we split them with whoever's on staff at the time. When I came in, they had just opened. It was not a busy time at all. I mean, it was just her. I said, Okay, so explain to me how that works, because if you're working, like Mark, to your point, an eight-hour shift versus somebody comes in for 2 hours, whatever. She said, Our point of sale system is so accurate that it bases it on the tips that come in during the time that you're there.

She's like, I'm actually getting to work the really busy happy hour, so I'm excited. Then there'll be two more people coming in. We will split the tips between 4: 00 PM and 6: 00 PM, and then I'll still be here till whatever time. She's I was like, so whoever's here from 6: 00 PM until 10: 00 PM, we'll split whatever's coming in. I was like, oh, that's really cool because you're the only person here from 2: 00 to 4: 00, so you should get everything. She's like, I will. That's how it works. I do appreciate that technology allows there to be, and then there's data from that. Erin, we've talked about data a lot on this podcast, but learning from the data to be able to say, Okay, do I have the right amount of staff here? Am I overstaffed at these times? Do I need to raise our prices? Because even with the tips coming in, we're not covering getting to that minimum wage or whatever the expectation is. I do think there is positives from it. But I think that from the consumer perspective, if we don't really understand, it feels like it's a force tip.

Right. Two important things on the point of sale. First on the tip side, You're 100% right. What the young lady said was 100% right. The technology can actually allow you to choose who was even on the shift when the check was brought in. Because of that, now, if there's three people there, only those three people are going to get a portion. But if we do it for the shifts, whatever that time frame is, then it could be eight people on the shift. Now, all of a sudden, the people that worked maybe three hours are getting an equal or greater share. The other thing that operators love about a point of sale system, and a lot of them change to a point of sale during the pandemic, is the fact that now orders are more accurate. There's less waste, there's more accurate charges going out to the guest because now everything is being captured. So I want extra cheese on something. Now there's an extra cheese button, extra cheese gets charged, and it's harder to slide things through so that they're not losing on that margin because now at least the sale is happening.

Yeah. Mark, do you find paying in cash for tips? If If you pay with the pin pad, and let's say it's just a percentage, it's a little bit arbitrary, it's a little bit monopoly money, sure, throw something on there. If you pay with the pin pad and it gives you the dollar amount. I had a relatively simple meal, and now it's asking for a $12 tip. You feel that's a psychology experiment called the pain of paying. You feel like, It's coming from my soul. When you pay cash, you personally, how does that feel? Versus the paying off of a pin pad system? Because you're taking out cash from your pocket and you're parting with it.

I actually feel great. The reason why I feel great is because I know that the restaurant or the employees are getting what they truly deserve. If I go in and I just hit 18% because it's there, who knows? Maybe then I get a 25% tip instead. In fact, again, I'm on the fube that probably says this to a restaurant, Well, if I go in for a full-serve meal and I've got a party of eight, I ask them, Do not put a tip on. Don't do an auto-gratuitity of 20%, because you're probably not going to get 20%, you're probably going to get a lot more unless you really mess something up. I actually feel really good because they're actually now going to get something that they actually deserve, because I feel like I'm underserving them by giving them an 18% if they should have had 25.

Mark, do you ever relax and just enjoy a meal or your synapses always go?

Now, it's gotten to the where my wife will not allow me to sit facing the dining room. She'll sit against the wall, I have to face her.

Do you run the calculations about the tip as you go? Like the ding and then credit You know what I mean?

I would say yes or no.

How does your brain work on it?

Because when I go to a certain restaurant, I know roughly what I'm going to spend. I already know what I'm going to probably tip on. I know if I'm walking into a restaurant, I'm going to do a $300 check. I have up to $100 to tip wet in my pocket.

I wonder, though, I mean, Mark, because you're in the industry, so obviously, I'm sure that you look at everything from tables close to the kitchen. Why is that? Or the bathroom? You look at everything, cleanliness, all of the types of things. But the nice thing about someone in your position is that you probably at the end of the night can look at the bill and you can discern, Oh, this fee, whatever they hide it under. They're writing it down, but for me, I might not understand, what does that really mean? That you might actually be able to be like, Okay, I can translate that this is probably going to the back of the house, or this is because they don't want to upcharge on the day scalops. The seafood or they've changed their menu. You can see they're testing some new things out, and they don't want it to be over 29. 99 a meal because they know that once it hits 30 to 40, people are like, Oh, this place is too expensive for us. It's the same psychology in real estate with a house, putting a house up for sale. Put 9,99, don't put a million, that thing, whatever.

I find that curious that you're able to To enjoy it. I know, obviously, you can enjoy it, but I wish that for the normal customer that we could look at this whole tipping ecosystem and feel confident that we knew exactly where things were going. Because there are times when, to your point, I'm like, this was not that great. Even though it's one of my favorite restaurants or it's a place we've come to many times, I still feel obligated to tip over 20%, even though they didn't fill our water glasses, our food was late, it was wrong, they didn't offer us dessert, all the kinds of things. But You feel bullied into it or peer-pressured into it. I feel like maybe I'm not strong enough. I was just saying, Okay, I'm not going to do that. It's interesting that even being in the business, that you're able to look at that. That's something that I think consumers today are much more savvy. We are always checking that out. Even in the big Super Bowl ads for GrubHub, no fees, no fees, all those kinds of things. I think people are getting really tired of all the fees, all the tipping, all the things like that.

We all have to look at what that price value perception means to us. If we walk in and we have a fantastic experience, we're going to leave a little bit more. But if it wasn't so great, we still may tip, and hopefully everybody does still tip, because it's not the third of us fault. Well, I shouldn't say it's not ever just a It's not a service fault. It's usually trickled down. I interact with people both on the personal level and a professional level who says, The food was terrible, so we're not leaving a tip. We're not leaving a great tip. It's like, Wait, what did the server have to do with that? How about you still tipped the server As long as they did a good job. But then you talk to management. See, that's the other thing is we all run to reviews and say, Okay, this place was terrible. Could have been an off night, could have been three people out sick in the kitchen. There's always a reason why something happens. I think if we could all learn to talk to the owners and the managers a little bit more, I think then we start to get that inside a little bit because we do feel bad if we find out there's three people in the kitchen that are not there.

Now you've got two people doing a work of five, and they're doing the best they possibly can. I don't want to leave a bad review on that. I don't want to leave a bad review ever, but I don't want to leave it on that. I need to know that I can ask those questions. A lot of times, the circle will come and tell you that, but at the same time, I think we have to ask more as a consumer base. We have to go in and we have to talk to the manager, talk to the owners to learn and to understand more about what they're going through in their business and what happened maybe on that given night.

Yeah.

That's a really good point.

I respond with curiosity, not just anger and hostility, especially when you take it out Take it out to the streets and put it on the web and do that one-star, all-caps review. You could take down an establishment that way that doesn't deserve it.

I'd like to ask you, Mark, what is your feeling about tax and wage reform for tipped workers. In other countries, they don't have this type of tipping environment. What are your thoughts about closing that gap between tipped and non-tipped minimum wage or eliminating combining the minimum wage for tipped employees and building it into, like Erin has said, building it into the cost of these places so that it's really not part of the ecosystem.

Well, the problem is that because we have such a tipping culture, we have an expectation of what we're going to pay for a certain menu item, whether it's a drink, whether it's a bottle of wine, whether it's a meal. I think it becomes hard It is now all of a sudden, if you add 20%, which it seems to be the average, even 18% to the average menu item, now all of a sudden, you're pricing yourself out of the market. Why am I going to do this? Okay, so yes, I know that I want to get a steak here It's now going to cost me $70, but I go down the street and it's going to cost $50. Yes, it's an inferior cut of meat, but you're not playing on the same level fields. Because of that, it becomes hard. If you take a look at Danny Meyer, who is one of the most well-known restaurateurs there are, he actually eliminated tips in his New York City restaurants and then had to go back. Because it's not sustainable.

Yeah, and from the consumer perspective, it's the question of worth it. I used to eat at this place. We used to eat out more often, and now the prices and the tips on top of it, it's not worth it. But this is a fine dining experience. It's a special occasion place. Whatever it is, we're paying it, it's worth But I do wonder, you're both operations people. If there's consumer pushback and the prices are too high, we're going to eat out less and cook at home more, which maybe is good for us anyway. But there was a consumer day, day with no tips. We've had it or a week with no tips. What happens? Do these restaurants just... Can they last a week? Did we just upset the entire economy?

I'd like to say, yes, we upset the entire economy. But really, if it's only a day, the owners are going to pay a little bit more to their servers and their and maybe their back servers because they have to. But most of the fast casual quick serve, they're making minimum wage no matter what. So it doesn't really affect their bottom line as much. It does hurt a full serve restaurant a little bit. But at the end of the day, what will end up happening is if you take away tips, you increase prices, people go out less. Now you can't afford all your food. Maybe you can because menu items are supposed to cover that. But your fixed cost, your rent, all of a sudden you can't pay because people are coming out less. Less. Because of that, that's where the real impact comes. It was when people start going out less. That's why in the pandemic, when people are going out less or not at all, that is when tipping became a culture because we want to see those restaurants survive. We want to get out of it. We all thought this was only going to be a couple of months, maybe a year.

We didn't expect it to be five.

Right. Well, and you hate to see your favorite regional chain go under or those signs at the 75-year-old Mom and Pop restaurant saying, We can't do this anymore due to rising costs. We love you, neighborhood. You hate to see that. You want to support these restaurants and keep them going. But to your point, Mark, there's a certain threshold of tolerance of this used to cost something If it gets above a line, arbitrary or not, it's just I'm not doing it anymore. We've seen these reforms happen in other industries. We've talked about Ticketmaster and others that eliminate the hidden fees and the post-checkout fees and all those types of... On the way out type of fees. But we haven't seen that here where restaurants and consumers make a new binding contract that say, Look, everything's costing more already. We're going to just build fee transparency. We're going to build tips in, tip a little bit more if you want as the extra thank you recognition, but let's call prices what they are. From there, we'll pay our employees fairly and all this. There has to be a give and take situation. There has to be a restraint on behalf of companies to not pocket that difference.

But could we reach, we'll build toward a fix, but could we reach some new type of social dynamic that makes that all acceptable?

Listen, I think that's possible. There's a lot of training that has to go into what you have with the staff. You also have to realize that you're not going to get that 30 or 35, 40-year-old who's very mature that wants to go in and enjoys the hospitality because they're not going to be able to survive off of $22 an hour. Even if they're making With tips, they can be making $40 an hour. Now all of a sudden, you're downgrading that staff, so you really have to invest more in training in order for those people to really rise to the occasion. That's one of the things that we do all the time anyway. We want to make sure that our clients and our teams are striving. You teach and you drill down to everybody, and then you have to reinforce it. But it's not something that's going to happen overnight as much as we want it to. It takes time. Every restaurant has to be willing to invest the time, but there's also a lot of money investing into training, developing the program. So there's consistency, there's repetition. It doesn't matter what day, week I go in or who I go in to see, my Carla Machiato or my Old Fashion or my Steak fritz is all made correctly every single time.

Yeah. I think that one of the things that I find so interesting, Mark, as you've been sharing with us, is that the complexity around the operation. Really, to be honest, I know we're here to talk about tipping, but that seems like the least complex thing. I mean, that seems like, honestly, it seems easy comparatively. I think that what feels difficult is how do we make rent? Supplies are skyrocketing, and the economy, people don't want to pay. I have a local diner that I love to go for breakfast, and then I noticed recently, I was like, How is it there's something on here for breakfast that's 1999? It wasn't like something crazy. They have a whole section on eggs Benedict, and all of them are over $20. I'm like, What the heck? What happened to like, and this is a diner. I'm not talking super nice. Everything used to be under $10, and now all of a sudden everything's $20 or above. I'm like, For breakfast? That doesn't even make any sense to me. When you were talking about all of these other components, it just is making me realize that the tipping culture is like the tip of the iceberg of everything that goes into running a restaurant, running a coffee shop, any of these types of running a really nice wine bar, whatever.

The costs that are inflicted and then the consumers being, we've been habituated into thinking, Oh, I'm only going to pay 999 for that glass of Chardonnay. It's like, No, you're going to pay more because it's very expensive what you ordered. I do think that's one of the things. Now I'm sitting there thinking about the tipping and all of the things that I can control, but the things that the restauranteur can control, it's very difficult. We're in a difficult tight space. There's not a lot of room for this margin. You're not making it. Like you said, you're not even making a ton. How do we go about that? I don't know what the fix is, Erin, to be honest.

Well, Mark, you said it can't happen overnight. But let's just say there's a multi-restaurant holding company that says Starting tomorrow, we're doing built-in all-in pricing. Goodbye, tips. We're going to compensate our employees well. They're open and communicative about their planning. They make it clear this is the future and we're adopting it early. Could that be like a seismic wave throughout the industry, or would they just be like, would it backfire? Someone's got to do something.

Yeah, but so that's a very loaded question because it depends on the real estate. What are you paying there? What size is the real estate? How many seats are you putting in? What is that going to generate? What is the meal that you're selling? There's a lot that goes into figuring out these dynamics. Can it be done? It can be done, right? But you have to minimize your loss, which means you have to pay less for your real estate. You have to fix costs, have to come down. You have to do really well in buying your food so that you're not marking this up too much, but just enough. Remember, tips are, I'm going to call it free money to a restauranteur. Yes, it offsets the front-house labor, it's not helping them in anywhere else in their business, except for enabling them to open and make more money. With one of my clients, I had servers that work 40 hours a that are making $1,500 a week, gross. That's tips and their hourly wage. Then there's other ones that will make $800, depending on the amount of hours they work, depending on their skill levels.

I'm hesitant to say, yes, it can be done, because there's a lot more that needs to go into answering that question in order to be able to make that model work properly. Danny Meyer had trouble because his restaurants were a certain size, there were certain fixed costs, and he wasn't able to attract those lifelong servers that were going to be able to make him look fantastic. There's a lot of other dynamics to go into this. Yes, short answer is going to be done, yes, but it's a little complex on how to make it happen.

Unicah.

I also think from a change management perspective, we see this with companies, too. I think, Erin, that's not a bad idea, but it's a great idea if that's how you start. I was talking about the diner, for example, to see them raise prices. For them, let's say that they decide to do the all in no tip needed strategy, business strategy. Then all of a sudden, I'm going in there and for the regular breakfast is $25. I'm like, Whoa, because I'm used to paying $8. 99 for a Grand Slam or whatever. I'm like, What? What are you talking about? But if the restaurant started and said, We're all in. That's our name. We're all in. This is what we're good. And we're transparency, price transparency. So when you buy breakfast for $25, this is why, right? And this is it. And it includes your coffee, your juice, everything, whatever it might be. And you don't have to tip, and we're paying this out to... I think it would be easier than, Mark, to your point that if you're already an established restaurant and the expectation is a certain level of care that you're going to be taken take care of, a certain level of menu items and diversity within the menu, a wine list, whatever it might be, and you can't sustain that, that's going to be a problem.

Because in people's eyes, then you're less than what you used to be.

Yeah, and you have all these altruistic, well-meaning new concepts. If you're a new concept in dining type of thing, there's probably a ticking clock there. We're a nonprofit or we're employee-owned or we're pay what you want type of thing. I'm not saying they don't work or they can't work, but a lot of times the business side of the equation just isn't there as much as the mission and the well-being. We want to be well by you, by our employees. The heart's there. But is it a sustainable company? Can it last a year? A lot of them don't. They have a big launch, and then they just don't. The The economics don't shake out.

That's Katie. Those types of businesses need fundraising behind them. They have to be a not-for-profit in order to be able to generate. But again, you still have to have that experience that says, Wow, this was great. I'm going to come back and support this, not just because it's a great social mission, but I actually didn't waste my time or my money or my energy coming here.

I was wondering about those pay what you can places because where they don't charge If you can't pay, you don't pay. But I do think that this is a very interesting dilemma that we have with tipping, because I think that it is cultural issue. It's a business issue. It's very tied to how grateful, how good of service you got. It's emotional. It definitely is a very, very challenging business issue for us.

Yeah, I agree. Can we at least do away with that 4% mysterious 5% rising costs that gets tacked on? Yes. Because it's not like it works the other way where I had a rough week at work. I didn't get the contract I wanted. I'm just going to take 4% off my bill. Right.

No, absolutely. Again, that goes back to just, I think there are people out there that took advantage of that because they felt that they had to or they could. But yes, I think those fees should absolutely go away because they're arbitrary. Yes, it's helping the restaurateur pay their bills now, which is not what tipping is. Tipping is to reward a server or front office employee for a great job and their experience. But that 4% fee, they're going someplace else, that's a restaurante who are trying to pay his bills or her bills. That's not what tipping was for. That along with the fact that we're tipping every other industry, everybody else is looking for a tip. We don't mind the valet getting something, but the dry cleaner Why am I tipping my dry cleaner? I think that's where some of that inflation has really come in to really affect us in this industry, because now it's like the consumer is getting hit from all over and they're tired.

Okay. Well, Melissa, you said we can't fix it, but we're going to. We have to.

That's the name of our show. I said it's difficult to fix, yes.

Yeah, well, that's what we do. All right, so if you're a restaurant on the service side of things, don't make a big, bold, definitive statement, tips, you're gone forever because you're probably going to have to walk that back. Then you might not last or everyone's going to point at you and say, See, we knew it couldn't happen. If you're a consumer, you're going to just keep tipping. Maybe follow Mark's strategy and do it after the fact and do it based on the actual service received, but don't do it at the mercy of your server. There's a lot of other factors that go into play. If you've had a less than optimal experience, take it up with the management. Don't put them on blast for everyone to hear. That's a last resort. Give everyone a little bit of grace because we're all in this together. Owner operators can't pay their staff without tips to the full extent that they deserve. The employees themselves are stuck in subliving wages without tips. Consumers are just going to keep getting squeezed, but for the time being, at least, that's the cost of living. Let's just stay in this together and let it run its course, and we'll figure this out.

I think that's the best we can probably do. Melissa, did we cool it off a little bit?

Did we fix the tipping? I think we did, and I think we offered some really good ideas. I think that the transparent pricing is really important. I love the idea of utilizing the tech and tech-led transparency with the point of sales systems, reducing that social resentment you might have about tipping. If you know exactly where this money is going, 15% goes to the staff or whatever it might say. You actually know that 4% is based on whatever. I think that that is definitely something that will help in this environment, in the tipping environment. I love that. I think it's a little harder to get, like Mark, you mentioned, the tax and wage reform. I'm not sure that that actually is going to happen across the board. I do love the idea of maybe hybrid models of restaurants and the no-tip type of environments. But I think that there has to be, again, the transparency there so you understand what you're actually paying for and why it's costly.

I agree. Yeah. Well, let's throw in one more. What if you said Tip, here's a tip. Here's a tip, here's another tip. If you tip this, you get something. Maybe there's some give-and-take situation. If you tip anything above 30%, you're going to get a dessert or you're going to get bonus points or something. Let's all have a stake in Maybe there's a way for companies to, businesses, to prompt just a little bit of extra generosity for their employees, and there's a give-and-take dynamic.

I also like what Mark's fixed, which is don't tip until the service is actually been completed. Then you're getting back to the core of what tipping was all about.

Mark, did we introduce the right ingredients for this? Did we fix the situation?

Well, I think you definitely have a recipe that's been laid out, and it takes a little bit of time. But again, it can be fixed. People just have to work together, think outside the box, and be creative. That's what this industry is all about.

I love it. Well, that's going to close out our episode about the Tipping Economy. Once again, big thanks to our guest, Mark Moller. Mark, we really appreciate you sharing your expertise. How do we all keep up with you and your team and all the work you're doing?

My absolute pleasure. Thank you for including me. My website is recipeofsuccess. Com. It's a great place to follow me. I'm not great on social media right now, but you can find me, Recipe of Success on the different platforms as well.

Thank you, Mark. We loved having you. Thanks, Melissa. If you like our show and you had an excellent experience with us, don't tip us. Go on to your favorite podcast player and leave us a nice review in five stars. That's reward enough for us for now. If you're listening at a restaurant or a coffee shop, go ahead and leave a nice tip for whoever helped you. We will see you next time. We hope you enjoyed this episode of We Fixed It. You're welcome. We go into every episode somewhat cold, and nothing we say should be construed as legal advice, financial advice, or anything that would get us in trouble. All trademarks, IP, and brand elements remain property of their respective owners.