As I explained our intention of eliminating tips from the compensation structure for our staff at the Delta Diner, my good friend and confidant responded: “This is a pretty dramatic change after 13 years when things seem to be going so well”. To a degree, he was right. Why rock the boat? But then we have always embraced the philosophy of “if you are not growing, moving forward with your model based on your best judgement … you are actually regressing”. Yet his question was a good one and was the catalyst to take one more critical look at this intended decision. The result was a “Q&A” between me, myself and I that went something like this:
Question:
What is it about TIPS that you don’t like?
Answer:
There is much I do not like about the tipped system. But the highlights are:
1. The Delta Diner is defined by selfless effort, with everyone on staff that day working together to execute our business model in world class fashion. We serve the model and the model serves our customer base. While floor staff take the lead with customer interaction, all staff contribute to the successful execution of our model, even if the floor staff are front and center. Success leads to a great customer experience. By law, tips can only flow to floor staff and cannot be shared with food production staff. This potentially can lead to inequity in compensation across job functions due to how it is regulated. It is also the only process in our culture that could emphasize selfish individual decision making over that of the team, or model.
2. Working under the TIP model we have no control over the fair and equitable distribution of a significant portion of the income flow that funds staff compensation. Make no mistake about it, in the restaurant industry, tips are a significant part of the monetary flow that funds staff compensation. Overall compensation is funded by a percentage income from goods sold and by tips. In most other industries a company just charges for its products what is necessary to fund costs, including payroll, while having some profit left at the end of the day. Somehow the restaurant industry is differentiated by going to market with deflated pricing relative to real costs combined with an arbitrary and ambiguous supplemental source of funding called tips or gratuities. Add to this the fact that governmental regulation restricts how this supplemental source can be distributed and managing your business model can become challenging if we are truly an employee first business.
3. The Delta Diner product is the experience we provide our customers. It encompasses the destination, the greeting, the ambiance of the setting and building, the people we fill the room with, our food concepting, development and execution, our service systems, attitude and execution, …. and so much more. The point is we take a very complicated product to market in a very systematic way every day we are open. And it is done in a real and authentic way. This requires that we hire staff who buy into a demanding culture and are capable of executing highly involved systems of operation with precision. We are not only competing for the best hospitality staff available, but are competing with other industries for staffing needs of this level. It is essential that we offer a compensation model that reflects this reality and the tip model doesn’t cut it.
Question:
Won’t the lack of “tip incentive” reduce the level of service our customer can expect to receive?
Answer:
The Staff and Ownership of the Delta Diner work each day to execute our business model in world class fashion. Currently, great tips are a result of this execution. The execution results in the success. The daily motivation to execute at a world class level will not change and the financial compensation rewarded will come in a more fair, equitable, and predictable fashion for all staff.
Question:
Will this change hurt any of our staff financially?
Answer:
Because of the way we are structuring the model, all staff actually move forward from the “tipped” model. Also, complementary adult seasonal staff will make a minimum of $15/hour with students making a minimum of $10/hour.
Question:
How will the 20% price increase be received by customers?
Answer:
I cannot say for sure. But my strong sense is that the vast majority of our growing customer base will see the benefits this move provides our staff, the sustainability of our business model, and ultimately their own enjoyment of the Delta Diner experience. At the register, most of our customers will find that the overall amount they are paying, including the price increase, is less than they were generously paying with tip included.
So, June 1st begins a new “No Tip” era for our little Diner. The bottom line seems to be that making this change is in the best interest of all involved; staff, Delta Diner, and most importantly our customer base. This change defines our culture and I feel strongly reflects the values of not only the ownership of Delta Diner, LLC, but also it’s like minded patrons. Feel free to contact me on email via this website with questions. I have attached a link to our press release covering this move.
Thank you!
Todd
Link: http://www.deltadiner.com/delta-diner-embraces-no-tip-policy-as-of-june-1st/