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We Fixed It, You're Welcome
The Tipflation Trap – Who Eats the Cost?
00:51:42
Tipping used to be simple: good service meant leaving something extra. These days, tips seem like mandatory surcharges, and customers are fed up. In this episode, Aaron and Melissa unpack the growing cultural frustration around “tipflation” and why it’s becoming an increasing pressure point for all involved. We debate who really bears the cost in today’s hospitality economy and look at this from all sides. Joining us is expert restaurant consultant Mark Moeller, founder of the consulting firm The Recipe of Success, who brings over four decades of experience in restaurant operations and turnaround. Together with Mark, we examine rising labor costs, the psychology of paying, fee transparency, and how to make practices around tipping more sustainable and digestible. Practical Takeaways For Consumers: ● Consider tipping after service is complete ● Speak with management before leaving damaging reviews ● Recognize tipping is tied to systemic wage structures For Operators: ● ...
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- [00:01]
A
This episode is brought to you by Progressive Insurance. Do you ever find yourself playing the budgeting game? Well, with a name your price tool from Progressive, you can find options that fit your budget and potentially lower your bills. Try it at progressive.com, progressive Casualty Insurance Company and affiliates Price and Coverage Match Limited by state law. Not available in all states.
- [00:21]
B
The American Airlines Advantage Business program is changing the way companies book travel and get rewarded. Designed for fast growing businesses, the program makes it easy to earn rewards and it's free to join your company. Earns one Advantage mile for every dollar spent on business travel booked anywhere with American. Use these miles to help offset future travel expenses, transfer to employees and more. You'll also gain access to a suite of tools to streamline travel management, including the ability to view employee activity, manage trip credits and report with ease. And it's a win win. Travelers can earn additional loyalty points on top of what they already earned through the Advantage program, helping them reach status faster. Earn more on business travel you're already taking with the American Airlines Advantage Business Program. Register today@aa.com AdvantageBusiness welcome to We Fixed it, you're welcome.
- [01:17]
A
The show where we take over companies. You come along for the ride.
- [01:21]
B
We try to put them back better
- [01:23]
A
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 and 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 know, 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 and 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? And 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. Chino's not here this time, so we're one short. We're going to need some help here, but not to worry. Joining us today is Mark Moeller. 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 gotta be Mark. Thanks for joining us, Mark. Well, let's, let's hear more about you and your background.
- [03:14]
B
Oh, I appreciate that, Aaron. Thank you so much for having me here. So 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. So I've been an entrepreneur now for the last 27. Well, I'm in my 27th year. The recipe of Success. And we're a national restaurant consulting company. We play in every level of a restaurant. Doesn't matter the segment either. So we focus on operations and training, operation and financial analysis and new restaurant openings. We've been a part of 400 restaurant openings or more across the United States in the last 28, 29 years. So a little bit is in my corporate career as well.
- [03:51]
A
Thank you, Mark. It's really glad, 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, and some unique quirks compared to most other countries. For decades, tipping mostly lived in full service restaurants, bars, resorts, that sort of thing. But cashless systems and digital payment systems have changed the game. Now consumers are prompted to leave a tip in coffee shops, pickup counters, 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 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 pre suggest tips as high as 30%. It's that moment of moral judgment. Was it good service, great service, excellent service? What kind of person am I even if I don't tip? So now workers feel dependent on customers, customers feel squeezed and the one's 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. And, and 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 to 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?
- [06:20]
B
Oh, I mean, the challenges are never ending between competitive wages needing to be paid. All right, you have a lot of people who, because of the. And we all blame this on the pandemic, right? Because this is where it all really came fast forward. So we have in the 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. Right. So they're going to be making around $18 an hour. So 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. Right. They weren't demanded. So because they want to demand, they were able to command these higher pay rates. So we have, that, we have all the cost of goods issues.
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A
Right.
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B
When you have the two worldwide leaders of weak production at war together, Right. That just, that comes down and affects every aspect of this industry. Raising rising rents are there as well. So there's just so many compounding issues that are going on that restaurateurs, naturally, they're struggling.
- [07:19]
C
Yeah. 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, right. And 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. So I had no problem adding a, a tip, so to speak, hoping that I was keeping 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 and these new fancy point of sale systems which I love, right then had these fixed amounts, right? And I was like, wait a minute, what happened to 15% as being a pretty good tip? Now that's not even offered, right? And it's 18, 22, 30 and they're standing there holding the thing and you're, you know, and I don't have great eyesight. I'm old, you know, I'm like, can I put in a different amount? That looks weird. You know, people are waiting and you know, 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. Right. But now I'm like, really? And so I do think that this is an interesting question. And I also think to Aaron, 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. And so 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, you know, and I'm happy to have it shared with back of house, I'm happy to have it shared with the dishwashing staff, whatever. But it's not clear to me where's that money going, Right?
- [09:43]
A
Yeah. And I wanted to start this with righteous indignation as a consumer and a customer, you know, that's how I first thought about this topic is, right, 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. And 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, you know, you're not, you're not playing your role and doing what's expected of you. So, and that can add 15, 20, Melissa, like you said, 30% automatically off the bat as a transactional engagement, not as a recognition of service. So 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, you know, by the time you eat a $10 sandwich, could be $15, you know, so let's, that's what we're dealing with is like, why do we feel so squeezed and why do we feel like there's something unnatural about it?
- [10:42]
B
Well, because it is unnatural, especially in the quick serve and the fast casual restaurants. Look, I'm a consumer too, right? And yes, I've been in this business a very long time, so I've seen it all. But in this industry, you know, we now have a tipping culture for the industry and not the segments of the industry. You go to a full serve restaurant, you're expecting to leave a tip. Right? That's the way we were raised, that's the way we grew up. It's natural for us. But right when you come to the restaurants, the fast casual quick serve, you start to wonder, you know, Melissa, to your point is where's this money even going? So, you know, here in Connecticut and a few other states, you are able to share the tip across, you know, to the back of the house if you're not claiming the tip credit for your taxes. So if you're like here in Connecticut, if you are claiming the tip credit back, house doesn't get anything. But here's the other issue that because now 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 upfront work and maybe never orders any food is get working 20 hours a week. They actually ate less the pie. So 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. Right. Even though back of house really does 50% of the work.
- [11:58]
A
Right, Right. Well, and Mark, when you're talking about QSR or fast casual or part of the reason that it feels unnatural, I think is that or you're used to tipping after the Fact, you know, so if we got excellent service or a great meal, or even if you're doing it transactionally as an engagement, okay, we all, everyone tips. It's, it feels more like a closure. But when you're tipping upfront at the counter especially this happened to me this week, you know, where someone's standing over you and they're watching you and you're judging them and they're judging you and you know, and you haven't even gotten your service yet. Does that impact what happens next? Like, do you, do they make your food slower? Do they make it fat? You know what I mean? Like, it feels less natural to do something premature to. As a pre evaluation of service rather than after the fact.
- [12:44]
C
That's a good point because I think that lends into the digital prompt psychology, right? The behavior that is being. They're nudging us at this point of those point of sale systems are nudging us into that behavior. So a Survey recently, a 2024 Toast survey, found that 60% of consumers add a tip when prompted, even for self service. So in these situations that we're talking about where you're doing, you know, fast food, whatever it might be, simply because the tablet, that's what it says on there, right? And like I was saying, it doesn't offer you like I used to, 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. So it creates that moment of social friction because like you said, Aaron, people are standing there waiting. It's, it's confusing for us because this isn't the, the psychology of tipping that we're used to where you, you tip for good service after the fact. You're tipping before you even received your food or your drinks. And what if they're wrong, right? What if they're not even right? You know, you've already tipped them, so what's the point there? So again, I feel like there's a lot of psychology behind it and it's really kind of transformed the way we all think about things because it's interesting to think about like a coffee shop, for example, putting a tip thing on here when you know, you're standing there waiting, right? They're not necessarily doing, you know, like the full service kind of thing, but if they were just to raise their price a little bit, that's going to cause a problem for us, right? Because we don't want to see those types of margin optics where they're having to raise their prices Like Marcus mentioned, all the things that have to be paid for, we don't want to see that. So we're not willing to pay 525 for a coffee, we're willing to pay 475, but then we tip them. So it's kind of a weird dilemma that we're in.
- [14:50]
A
But Mark, isn't that just kind of a shell game?
- [14:52]
B
Well, you know, it is, but it's one that's been self created. And here's the other thing Melissa just mentioned. Only 65% of the people are using the tip up front. Right. So really, if it's a 20% tip, just for math purposes, so, Right. Somebody's getting 13% of that is the average person then, right. When you go across the entire customer base that's coming into that day or that week or that year. So the question comes down to how do we change that? Which I guess is part of what this conversation is about. And I listen, I have to be honest with you. Obviously doing this a long time, I still now all of a sudden I even I feel obligated in the past casual, quick serve to tip. But here's what I do. What I do is I tip in cash at the end of my, my meal, right? So 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, you know, going out, right? But I want to know that everything was done right to Melissa's point, right? And to probably the majority of the country's point, why tip up front, right? 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.
- [16:04]
A
This episode is brought to you by Progressive Insurance. Do you ever find yourself playing the budgeting game? Well, with a name your price tool from Progressive, you can find options that fit your budget and potentially lower your bills. Try it@progressive.com Progressive Casualty Insurance Company and affiliates. Price and coverage match limited by state law. Not available in all states. This episode is brought to you by Progressive Insurance. Do you ever find yourself playing the budgeting game? Well, with the name your price tool from Progressive, you can find options that fit your budget and potentially lower your bills. Try it@progressive.com, progressive Casualty Insurance Company and affiliates. Price and coverage match limited by state law. Not available in all states.
- [16:46]
C
Support is available 24. 7 with VRBoCare We're Here Day or night, ready whenever you need help. Because a great trip starts with the right support.
- [17:00]
A
Yeah, that's a good way to go about it. If you remember to carry cast around, you have to retrain yourself and recondition yourself. But we're, we're getting reconditioned to the automatic reflex of tipping to the point where if, you know, if I went to buy a, a Coke at a vending machine and it said leave a tip for our distribution driver, I probably would just do it. Right. So, but I like your idea of, you know, tipping after the fact if more restaurants. And so that became more of the social contract, but it's just not, there'd be a lot of unlearning to do to get to that point.
- [17:32]
B
Well, it's because these, these systems are preset this way. And I got to be honest with you, most of the owner operators, right, or managers don't even touch that. It's coming from toast, it's coming from square. Right. Or the other point of sales system, we, we preset it, we've seen that this works really well for the industry. Just, just go with it, leave it alone. So it's done in training so people don't need, it's an afterthought. Right. Until you actually have to now go out to your own, to either your restaurant or somebody else and actually experience it yourself.
- [17:59]
A
Yeah, I, I, I'm with you, but I'm, we're so conditioned. A couple 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 strange. You know, it's, it's so contrary to the common experience now.
- [18:16]
B
Well, that's, that's an owner or you know, a team that says we can go ahead and pay our people. Correct. Right. Where 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 and really employees are looking to be trained. They want to understand what their roles are. And if you're paying them a fair wage, then they don't need the tip. Right. 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. And so we have to make sure that we are understand. I love gratuity free. Right. When you can. And in a fast, casual, quick serve. Again, I shouldn't be saying this, but I will. It should not be expected. Right. And so what are we going to do? Because of the rest of the margins and 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. So take a margin from 15% to 20% at the end of the day. And that's a huge number.
- [19:09]
A
Absolutely. And when I saw the gratuity free, it, number one, it made me feel like I was doing something wrong. You know, we just pay and leave. But number two, it made me question either what are your margins? You know, I started thinking like the, like the owner operator or what's your subsidy? Like is someone else, do you have someone else backing you? Like where's. How can you pull this off when other places can't? I had a lot of questions.
- [19:35]
C
Well, I think it ends up being operationally you need to have total pay transparency and fee transparency. Right. So move to posting those fair price menus with no tipping and clear wage statements. Talking about how they actually do that. Right. Tried with, you know, and it's, it's. I like it. It's like no. Instead of saying no tipping, it's, it's all included. Right. You know, so that you're feeling that from a consumer perspective you're still feeling taken care of. And 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. So to, to Mark's point, you know, 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 ab and beyond for you based on whatever you know, then you could leave them an extra tip. And that's actually something that is emotionally makes you feel good because it's actually what it's all about is gratitude. So I, I agree Aaron, that because it's so convoluted and it's very hard to understand how the money's go, you know, where the money's actually going. I think that's really something that's important. I mean, I appreciate we have a local restaurant that is, is fairly pricey and they actually have in there that they add a gratuity kind of a 4. It's like 5% or something. And they tell you exactly what that covers and they say any other on top of that is not necessary. And if you would like to, great. But this is what we already cover. You know, the, the guys, the bus boy, bus people, we already cover the hostess stand. You know, we already cover all of that. So I really appreciate, appreciate understanding that so that you can feel like the tipping component is really customized to your experience. But I, I do feel that we have a problem in today's world where I also feel bullied. Like sometimes I don't want to leave a tip because it's, I'm just grabbing a coffee to go, but everybody's standing there and the screen comes up and I feel like I have to, I can't not pick one of those. Right. And they make it so hard to find the like no tip. It's like somewhere weird. So it's very obvious that you're, you know, picking something that's not on the screen. So.
- [22:04]
A
Well, Mark, you, you're saying the, the tipping, it comes pre configured in the software and, and the, the owners and franchisees don't necessarily have a say in it. But they're not pushing back on it, right?
- [22:16]
B
No, of course not. Because they're, they're being sold on the fact that this is a great way of, of attracting great people. Right. Because you're, you're, we're going to have a tip forward culture mentality. And then if somebody can make an extra 3, 5, $10 an hour. In fact there's a, a franchisee out there that I happen to know who guarantees a certain amount. So they'll pay them under minimum wage, but they're going to guarantee them. I think it's a $3 tip. So because of that now you, you're actually at or just above minimum wage. Right. So. But most people don't know that, but they still accept gratuity. Right?
- [22:51]
A
Right.
- [22:52]
B
It's still set up that way. So it's a way of them to attract better people. But at the same time it's, it actually can hurt them in the long run because if you don't make the, the minimum with that guaranteed tip, now all of a sudden the restaurant, the company is paying out anyway.
- [23:07]
C
Yeah. And I want to say that the point of sale systems and the technology are helpful for the businesses. And I, you know, I did ask someone at a local brewery, I went in, grab some already canned beer to go and the screen came up and she said to me as I was checking out, she's like don't, because I, you know, I just grabbed the cans of beer and then I was swiping My card. And I'm like, oh, are you sure? And then I said, and then I knew we were having this conversation today. So I asked her, I said, can I ask you about this tipping system that you have here? Right? And she said of course. And I said, so do you actually get the tips? And she said she thought that was kind of funny that I asked that question. And she goes, yes, but we split them with whoever's on staff at the time, da da da da. And when I came in, they had just opened. It was not a busy time at all. I mean it was just her. And so I said, okay, so kind of explain to me how that works. Because if you're working, you know, like to mark to your point, an eight hour shift versus somebody comes in for, you know, two hours, whatever. And 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. So she's like, I'm actually getting to work the really busy happy hour, so I'm excited. And then there'll be two more people coming in. And so we will split the tips between 4pm and 6pm and then I'll still be here till whatever time. And she's like, so Whoever's here from 6pm until 10pm will split whatever's coming in. And I was like, oh, that's really cool because you know, you're the only person here from two to four, so you should get everything. And she's like, I will, that's how it works. And so I, I do appreciate that that technology allows there to be. And then there's data from that and, and you know, Aaron, we've talked about data a lot on this pod. 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, you know, the tips coming in, we're not covering getting to that minimum wage or whatever, you know, the expectation is. So 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 forced tip, right?
- [25:37]
B
And so two important things on the point of sale. So first on the tip side, you're 100% right. What the young lady said it was 100% right. The technology can actually allow you to choose who was even on the shift when the check was started, right? So because of that, now it's if there's three People there. Right. Only those three people are going to get a portion. But if you do it for the shifts, whatever that timeframe 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 fair greater share. The other thing that operators love about a point of sale system and a lot of them changed 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 being captured. Right. 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 we're, they're, they're not losing on the, on that margin because now at least the sale is happening.
- [26:37]
A
Yeah. Mark, do you find. So you paying in cash for tips? If you, if you pay with the pin pad and it's, if it's, 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. So I had a relatively simple meal and now it's asking for a $12 tip. You feel the psychology experiment called the pain of paying, right. You feel like it's coming from my soul. When you pay cash, do you how you, you personally like what, how does that feel versus the paying off of a, you know, a pin pad system because you're, you're taking out cash from your pocket and you're, you're parting with it.
- [27:19]
B
I actually feel great. And the reason why I feel great is because I know that the restaurant is or the employees are getting what they truly deserve. If I go in and I just hit 18% because it's there, right. Who knows, maybe they're going to get a 25% tip instead. In fact, again, I'm one of the few that probably says this to a restaurant, but 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, don't do an auto gratuity at 20% because you're probably not going to get 20%. You're probably gonna get a lot more unless you really mess something up. So I actually feel really good because they're actually now gonna get something that they actually deserve because I feel like I'm underserving them, right by giving them an 18% if they should have had 25.
- [28:04]
A
Mark, do you ever relax and just enjoy a meal or you always, your synapse is always going, no.
- [28:09]
B
It's gotten to the point where my wife will not allow me to sit with my, you know, facing the dining room so she'll sit against the wall. I have to face her.
- [28:20]
A
Do you run the calculations about the tip as you go like these ding. And then credit and you know what I mean?
- [28:26]
B
Well, I would say yes.
- [28:28]
A
How does your brain work on it?
- [28:30]
B
Because when I go to a certain restaurant, I know roughly what I'm going to spend. So I already know what I'm going to probably tip on. So I know if I'm walking into a restaurant, going to do a 300 check, you know, I have, you know, up to $100 to tip what in my pocket.
- [28:46]
C
I wonder though, I mean, Mark, because, because you're in the industry, so obviously I'm sure that you, you look at everything from like tables close to the kitchen. Why is that? Or the bathroom, you know, like all. You look at everything, you know, cleanliness, you know, all, all of the types of things. But, you know, 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, you know, and they're not, they're writing it down. But like, 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, right? Or this is because they don't want to upgrade charge on the day. Scallops, you know, the seafood or what, they've changed their menu. You can see they're testing some new things out and they don't want it to be over 29.99ameal because they know that it, once it hits 30 to 40, people are like, oh, this place is too expensive for us. Right. I mean, it's kind of the same psychology in real estate with a house, you know, putting a house up for sale, like put 9999, don't put a million, you know, that kind of thing, whatever. So I find that curious that you're able 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. And 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, you know, da, da, da da. They didn't offer us dessert, you know, all the kinds of things. But you know, you kind of feel like bullied into it or peer pressured into it. I feel like maybe I'm not strong enough like you guys. I was just saying. Okay. I'm not going to do that. Right. It's interesting that you, you know, even being in the business that you're able to like kind of look at that. And that's something that I think consumers today are much more savvy. So we are always kind of checking that out. And you know, and you know, even in the big super bowl ads for like grubhub, like no fees, no fees, you know, all those kinds of things. I mean, I think people are getting really tired of all the fees, all the tipping, all the things like that.
- [31:36]
B
Yeah. We all have to look at what that price value perception means to us. Right. If we walk in and we have a fantastic experience, we're going to leave a little bit more. But if, if it wasn't so great, you know, we still may tip and hopefully everybody does still tip. Right. Because it's not the server's fault. Well, I shouldn't say it's not ever just the server's fault. Right. There's usually a trickle 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 tip 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. Right. There's always a reason why something happens. And 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. Right now you've got two people doing 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 the bad review ever, but I don't want to leave it on that. So I need to know that I can ask those questions. Right. And a lot of times the circle will come and tell you that. But at the same time it's just, I think it's, I think we have to ask more as a consumer base. We have to go in and we have to talk to the managers, talk to the owners to learn and to understand more about what, what they're going through in their business and what happened maybe on that given night.
- [33:03]
A
Yeah, that's a really good point. Yeah. Respond with curiosity, not just anger and hostility, especially when you take it out on the, you know, 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.
- [33:20]
B
Right, right.
- [33:21]
C
I'd like to ask you, Mark, what is your feeling about like tax and wage reform for tipped workers? Like, you know, in other countries they don't have this type of tipping, you know, environment. So what are your thoughts about closing that gap between tipped and non tipped minimum wage or eliminating this, you know, wait, the minimum wage for tipped employees and building it to, like Aaron has said, you know, building it into the cost of these places so that it's really not part of the ecosystem.
- [33:58]
B
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. Right. Whether it's a drink, whether it's a bottle of wine, whether, you know, whether it's a meal. So I, I think it becomes hard because now all of a sudden if you add 20%. Right. Which 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, get a steak here and it's now going to cost me $70. But I go down the street, it's going to cost $50. Yes, it's an inferior cut of meat. Right. But you're not playing on the same level fields. So because of that it becomes hard. And if you take a look at, you know, 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. Right. Because it wasn't, it's not sustainable.
- [34:52]
A
Yeah. And from the consumer perspective, it's the question, like it's the question of worth it, you know, So 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, a fine dining experience, a special occasion kind of place. Whatever it is, when we're paying it, it's worth it. But I, but I do wonder, you're both operations people, if there was, you know, there's consumer pushback and the prices are too high and 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. You know, we're, we've had it or a week with no tips. Like what happens? Do these restaurants just, can they, can they last a week? What, did we just upset the entire economy?
- [35:34]
B
I 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 the servers and the bartenders and maybe their back servers because they have to. Right? 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, you know, 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 coming out less. Right, right. Because of that. That's where the real impact comes is when people start going out less. And that's why in the pandemic when people 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. And we all thought this was only going to be a couple months to maybe a year. We didn't expect it to be five.
- [36:31]
A
Right. Well, and you hate to see your favorite regional chain go under or those signs at the 75 year old mom and Pop Restau 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, these restaurants and, and keep them going. But to like 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. And we've seen these reforms happen in other industries. We talked about Ticketmaster and others that, you know, eliminate the hidden fees and the post checkout fees and all those types of, you know, like 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 free transparency. We're going to build tips in tip a little bit more if you want, you know, as the, the extra thank you recognition. But let's call prices what they are. And we'll pay our from there, we'll pay our employees fairly and all this. There, you know, there has to be a give and take kind of situation. There has to be restraint on behalf of companies to not pocket that difference. But you know, could we reach, we'll build toward a fix, but can we reach some new type of social dynamic that makes that all acceptable?
- [37:51]
B
So, you know, 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 also have to realize that, you know, 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. Right. Even if they're making, you know, with tips, they can be making $40 an hour. Right. So 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. I mean, that's one of the things that we do all the time anyway. Right. We want to make sure that our clients and our, our teams are striving. So 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. Right. It takes time and every restaurant has to be willing to invest the time. But it's also a lot of money you're investing into training, developing the program. So there's consistency, there's repetition and it doesn't matter what day of the week I go in or who I go in to see. My Carlo macchiato or my old Fashioned or my steak frites is all made correctly every single time.
- [38:57]
C
Yeah. And you know, 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? Right. So 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 kind of easy comparatively. I think that what feels difficult is how do we make rent, how do we, you know, supplies are skyrocketing and the economy, you know, people don't want to pay. You know, 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. And it wasn't like something crazy, you know, like 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, you know, and everything used to be under $10 and now all of a sudden everything's 20 or above and I'm like, for breakfast? Like that. That doesn't even make any sense to me. So when you are talking about like all of these other components, it just is making me realize that, you know, the tipping culture is like the tip of the iceberg of like everything that goes into running a restaurant, running a coffee shop, any of these types of, you know, running a really nice wine bar, whatever. And so the costs that are inflicted and then the consumers being, you know, we've been habituated into like thinking, oh, I'm only going to Pay, you know, 9.99 for that glass of chardonnay. And it's like, no, you're going to pay more because it's very expensive what you ordered. Right. And so I do think that's one of the things like now I'm sitting there thinking about the tipping and all of the things that I can control, but like the things that the restaurateur can control. It's very difficult. I mean, we're in a difficult tight space. There's not a lot of room for this margin. I mean you're not making a, like you said, you're not even making a ton. So you know, how do we go about that? I don't know what the fix is, Aaron, to be honest.
- [41:17]
A
Yeah, well Mark, you said it can't happen overnight. But if there, 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, you know, would it not? Would it backfire? Well, someone's got to do something.
- [41:49]
B
Yeah, but. So that's a very loaded question because. Because it depends on the real estate, right? What are you paying there? What size is real estate? What are the, how many seats you're putting in? What's. 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 the, for your real estate. Right. Your fixed costs have to come down. You have to do really well on buying your food. Right. 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 restaurateur. Yes. It offsets the front of house labor. Right. It's not helping them in anywhere else in their business except for giving people, you know, enable them to open and make more money. So with one of my clients, I had servers that work 40 hours a week that are making $1,500 a week. Ross. Right. And that's tips and their hourly wage. And then there's other ones that will make $800. Right. Depending on the amount of hours they work, depending on their skill levels. So I'm hesitant to say, yes, it can be done, but 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. Right. So there's a lot of other dynamics that go into this. So, yes, short answer is going to be done. Yes. But it's a little complex on how to make it happen.
- [43:20]
A
Unica.
- [43:20]
C
I also think from a change management perspective, we see this with companies, too. I think, Aaron, that's not a bad idea, but it's a great idea if that's how you start. Right. So like I was talking about the diner, for example, like to see them raise prices and for them, let's say that they decide to do the, you know, all in, no tip needed, you know, strategy, business strategy. Then all of a sudden I'm going in there and for the regular breakfast is $25 and I'm like, Whoa. Because I'm used to paying 8.99 for a grand slam or whatever, you know, I'm like, what, what are you talking about? But like if the restaurant started and said, you know, 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 what, why? Right. And this is it. And it includes your coffee, your juice, everything, you know, whatever it might be. And, and you don't have to tip. And this is, and we're paying this out to, you know, da da da da. I mean, I think it would be easier than Mark to your point that like if you're already an established restaurant, you know, and you're, the expectation is a certain level of care that you're going to be taken care of, a certain level of menu items and diversity within the menu, you know, 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, you're less than what you used to be.
- [44:58]
A
Yeah. And you have all these, you know, altruistic, well meaning new concepts. If you hear new concept in dining type of thing, there's probably a ticking clock there. Like, like we're, we're a non profit or we're employee owned or we're pay what you want types of things. I'm not saying they don't work or they can't work, but they, A lot of times the business side of the equation just isn't there as much as the, the mission and the, and the good, the well being. You know, we want to do well by you, by our employees. Like the heart's there. But is it a sustainable company? Can it last a year? A lot of them don't. You know, they have a big launch and then they just don't. And the economics don't shake out.
- [45:42]
B
Right. That's key. Right. Those types of businesses need fundraising behind them. They have to be, you know, 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, my money or my energy coming here.
- [46:01]
A
Right, right. Yeah, yeah.
- [46:04]
C
I, you know, I was wondering about those pay what you can kind of places because you know, where they don't charge if you can't pay, you don't pay. Right. You know, but I do think that this is a very interesting dilemma and that we have with tipping because I think that it is cultural issue. It's a business issue. It's, you know, it's very tied to how grateful, how. How good of service you got. You know, it's emotional. And so it definitely is a very, very challenging business issue for us.
- [46:43]
B
Right, Yeah, I agree.
- [46:45]
A
Do 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, you know, 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?
- [46:59]
B
No, absolutely. And again, that goes back to just. I think there are people out there that took advantage of that. Right. Because they felt that they had to or they could. But yes, I think those fees should absolutely go away because they're arbitrary, Right. 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. Right. But that 4% fee, that going someplace else, that doesn't. That's a restaurateur trying to pay his bills or her bills, and that's not what tipping was for. And that along with the fact that we're tipping every other industry, everybody else is looking for a tip. Right. We don't mind the valet getting something, but when the dry cleaner does it, why am I tipping my dry cleaner? Right. And I think that's where some of that deflation has really come in to really affect us in this industry, because now it's like the consumer's getting hit from all over and they're tired.
- [47:52]
A
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.
- [47:58]
C
To fix. Yes.
- [47:59]
B
Yeah.
- [47:59]
A
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 are gone forever. Because you're probably going to have to walk that back. And then everyone, you know, 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. Right. 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. You know, 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. And everyone give her, give everyone a little bit of grace because we're all in this together. You know, owner operators can't pay their staff without tips to the full extent that they deserve. The employees themselves are stuck without the, you know, in sub living wages without tips and consumers are just going to keep getting squeezed. But that's for the time being at least. That's the cost of living. So 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, did we cool it off a little bit?
- [49:16]
C
I think we did and I think we offered some really good ideas. I think that the transparent pricing is really important. And so I love the idea of utilizing the tech and tech LED transparency with the point of sale systems, reducing that kind of social resentment you might have about tipping. If you know exactly where this money is going, 15% goes to the staff pool or whatever it might say. So 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. So I love that. I think it's a little harder to get. Like Mark, you mentioned like the tax and wage reform. I'm not sure that that actually is going to happen across the board and I do love the idea of maybe a hybrid models of restaurants and you know, tipping, 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.
- [50:20]
A
I agree. Yeah. Well, let's throw in one more. What if you said tip, Here's a tip, here's another tip. If you tip this, you get something. Maybe there's, you know, some kind of give and take situation. So if you tip anything above 30%, you're going to get a dessert or you're going to get bonus points or something. You know, let's all, let's all have a stake in this. Maybe there's, 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.
- [50:49]
C
And I also like what Mark's fix, which is don't tip until the service has actually been completed. So then you're getting back to the core of what tipping was all about.
- [51:00]
A
Okay, Mark, did we introduce the right ingredients for this? Did we fix the situation?
- [51:05]
B
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. And that's what this industry is all about.
- [51:16]
A
I love it. Well, that's going to close out our episode about the tipping economy. Once again, big thanks to our guest, Mark Moeller. 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?
- [51:29]
B
My absolute pleasure. Thank you for including me. So 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.
- [51:43]
A
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 onto your favorite podcast player and leave us a nice review and 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 and 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.
- [52:23]
C
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