It’s no secret that the Coronavirus pandemic has been particularly hard on the restaurant industry. The National Restaurant Association recently reported that, nationwide, 17% or over 110,000 restaurants have closed, not temporarily but permanently since the start of 2020. The majority of these businesses were not new or undercapitalized as one might expect, but had been in business on average for 16 years. Many of them were the local Ma and Pa restaurants we love so much. Why did they fail? How can we help?
In even the best of times, operating a restaurant can be a tough gig. According to CNBC, nearly 80% of new restaurants close their doors before their fifth anniversary. In this industry, there is a fine line between profitability and loss.
“Restaurants aren’t like other small businesses,” said Sean Kennedy, the association’s Vice-President, “they run on very tight margins, so any change in operating costs jeopardizes their stability.” In America, restaurant personnel costs have been traditionally offset by patron’s tips. This dynamic has helped owners reduce expense, and maintain a workforce adequate to meet customer needs.
But as dining-out has begun to recover, tipping has not, creating a new dilemma for restaurateurs. Some see the solution as simply raising server’s wages, but when expense increases, there must be offsets to maintain profitability. With the “pay more” proposal comes either an increase in food prices, a decrease in food quality, or a reduction in staffing…all of which negatively impact the dining experience.
Another common suggestion is to add the tip to the price of the food, and eliminate tipping altogether. This is the standard in many European countries and has been attempted by some large-scale industry pace-setters in America, but with limited success. Most who have tried it have quickly reverted to the traditional ‘tip-based’ model. Again, we ask why? For starters, the offsetting increase in menu prices has been understandably unwelcome. Although vacationers in Europe are willing to pay more to eat out (and they do), in this country, where dining out is fundamental to most lifestyles, people aren’t.
Perhaps even more worrisome for diners is that eliminating tipping takes much of the control they have over the dining experience away. When a server has the ability to receive a generous tip, he or she generally tries harder, and is more attentive to the customer. Tipping maintains the incentive that guaranteed income eliminates. And lastly, customers enjoy being able to express their appreciation for a good meal and good service. We tip our cab driver, our babysitter, our hairstylist, and our bartender.
As tipping is slow to return, who is it that’s holding back? Is it everyone? A new study conducted by CreditCard.com found that the younger generations were the worst culprits. Specifically, Millennials (ages 25-40) and Gen Zers (ages 18-24). Here is the breakdown:
Age Group % Who Leave a Tip
Baby Boomers 88%
Generation Z 56%
It is also interesting to note that for taxi drivers, 66% of Boomers tip, but only 34% of Millennials and Gen Z do. Why such a difference between generations? Is it a cultural thing? Does the younger crowd have higher expectations that simply aren’t being met? Is it a matter of disposable income…or perhaps something else? Without the support of a tip, the industry will either change (in unfavorable ways) or continue to shutter its doors. You could consider a tip as a cost of keeping your favorite restaurant open and affordable. And if the experience doesn’t deserve a tip, send your message and the server and business owner will both learn from the lesson.
I never thought I’d own a restaurant. When I sold Ensign Toyota Honda in 2013, I had planned to retire early, but my youngest son had other ideas. Working in a local pizza restaurant where the owners were wanting to sell, he convinced me to jump in. I’ve not regretted it, but it’s been no cakewalk. The pandemic has been tough, and I know of a few Cache Valley restaurants that unfortunately didn’t survive. Many, like mine, are still standing, and are better for it. And we are all most grateful for those who kept coming and kept tipping during a difficult time.
The things we learned are invaluable. First and foremost, the food must never be compromised. That’s why people come. Second, it costs nothing to be friendly, attentive, and responsive. Customer service goes hand-in-hand with great food. Although we’ve increased wages to help and retain our staff, we’ve been able to find cost savings elsewhere, so far. Yes, our equipment and our building are old. We conserve the best we can. It’s a Cache Valley discipline…right? We are proud of our employees, and are grateful for good, customer-minded servers who know and trust that a happy diner is a generous diner.
Tipping is a dynamic that’s worked for decades to keep costs down, employees on their toes, and customers happy. After all, these are the very tipping points!
What do you think? Share your comment below.
Marc K. Ensign