Danny Meyer: From tipping to AI, a new era for restaurants | Rapid Response

I don't think a tip should ever be mandatory. I think that you should, as a customer, you should leave a tip if you feel like that person truly added value to your experience. Back when it was a tip jar, it had a small amount of confusion attached to it because it wasn't a screen stuffed in your face that you knew that the cashier was going to flip back around and see. What I would like is instead of having the choice of 5%, 10%, 20%, or the fourth button, you're a schmuck for leaving nothing. If there were actual behaviors connected to those numbers, 20% would be you actually made my day, 5% would be you accurately fulfilled the order, and 0% might be, you know, a frowning face.

I think interestingly that tipping is almost more of an interesting issue to talk about externally than it is internally. I think that in general, restaurant professionals are okay with the system as it is. I learned that the hard way by eliminating tipping for six years and realizing that very, very few other restaurants wanted to join us. It's a very, very difficult thing to do. It's deeply embedded in the American culture to tip when you go to restaurants, uniquely American I would say, and this has been the case really for 160 years or so when tipping first started happening in restaurants and train cars as a way to not pay any actual salary to porters in trains or waiters who were largely African-American back then. And the thinking was that it's not slavery because we're going to get our patrons to pay a tip instead of us paying them a salary. Well, that's kind of an amazing economic boon for an entire industry if you think about it. It's almost as if you paid for all the manufacturing and none of the sales and merchandising, which is what waiters do. And meanwhile, the restaurant profession has gotten away with actually having synthetic pricing on their menus because we're not really charging you for everything, we're just charging you for part of it and then you're going to pay for the balance. So it hasn't worked in a lot of different ways. Probably historically the biggest way it has not worked is that in many, if not most, states in the country, including our state New York, tips may not be shared between waiters and cooks legally. They're not allowed to. And if they do, the restaurant is on the hook and can be liable for all kinds of damages, which can be really, really huge.

That's exactly right. You guys talk about inflation all the time. You've seen it in the restaurant business, and what does that mean? That means that waiters, I'm happy for waiters, they're essentially making more money than they've ever made by waiting tables. But cooks who may not legally accept tips, the disparity between the two has only grown. And you may say, why don't you just pay your cooks more money? And we have, and we do. As a matter of fact, when we reinstituted tipping, not only did we raise the compensation for our cooks, but we also pay our cooks a percentage of sales, our sales, every single day so that they too can make more money. But I don't think we should have to do that. I think it should be legal for tips to be shared. And it's not fair. Like if it were a football team, it wouldn't be fair to pay your offense 60% more than you pay your defense. I don't think halftime would be a pleasant place to be.

Well, I think what I said was taken out of context. What I said was I don't think a tip should ever be mandatory. I think that you should, as a paying customer, you should leave a tip if you feel like that person truly added value to your experience. When you're sitting down in a restaurant for a one-and-a-half or two-hour meal, or sometimes more, you actually have an opportunity to develop a rapport with your server and vice versa. And I think that the server has an opportunity to do really thoughtful things for you. And I think for most people, it's not only expected to leave a tip in that situation, but it's actually a pleasure. The word 'tip' I think is connected to gratitude, and I think it's a pleasure to express gratitude. If you have a very quick experience, it's harder to have developed a relationship where you feel like that person made your day. I think what the challenge has been is that for fast casual restaurants, or quick serve restaurants I would call them, their margins have also been compressed dramatically. They can't keep raising the hourly rate over and over and over without raising their menu prices to the point that people go, 'You got to be kidding me.' And so with technology, since so many of these places now have a little touchpad which is how you pay, right, you use your Apple Pay or whatever it is or your credit card, swipe it, and it's real easy to flip that screen around and it's real easy for that to be the tech version of the tip jar. And you know, back when it was a tip jar, it had a small amount of confusion attached to it. I don't really want to put change in there or extra dollars in there. I will if the person did something thoughtful for me, but it was kind of easier to do it when you felt like it and felt like it was warranted. And it was also easier to not do it because it wasn't a screen stuffed in your face that you knew that the cashier was going to flip back around and see what you did afterwards. And I think it has, in fact, it has caused a certain amount of discomfort for patrons. See, what I would like is instead of having the choice of 5%, 10%, 20%, or the fourth button, you're a schmuck for leaving nothing, which is kind of how it feels. I mean, that's invisible, but that's kind of how it feels. I think it would be amazing if there were actual behaviors connected to those numbers. So for example, 20% would be you actually made my day, and 5% would be you accurately fulfilled the order, and 0% might be, you know, a frowning face, you didn't smile at me once, that was just another transaction along the way. But I feel like if there were some words that attached to behaviors so that I, as a customer, would have some understanding about why or what I'm getting for my tip, whatever, as opposed to just feeling a little bit pressured into it. And furthermore, what that would do hopefully would be, as a manager or leader, it would give me the opportunity to encourage even better hospitality from my team because I would be able to collect all the data and I could actually see who and when we are delivering the most happiness. Because that is the thing that restaurants and restaurant patrons have in common: we want you to leave a little happier than however you felt when you came in. And if we're doing nothing to add to that other than taking your money, I guess we made you happier if the product is really good. But what if we made you emotionally feel better while you were doing it? I don't think it would be an awful system if it actually correlated to real behaviors that then, as a leader, I could say, you know, we're trending either the right way or the wrong way, but let's really think about this because we're in the business of making people feel better.

The new restaurants, especially that have opened subsequent to the pandemic, I would say are some of the best, most exciting vintages that I've seen since getting into this business. And for a lot of reasons. Number one, the leases that were signed pre-pandemic by any of us were signed with a set of expectations that are no longer true. How many people come to the city to do business, how many international tourists do we get, all that stuff shifted dramatically. But if you signed a lease after the pandemic, you knew what the shifting landscape was, and so you had a much more accurate foundation for the business you have going forward. The other things are that, and you know this from the conversations we were having during the pandemic, it was exhausting going through the trials and tribulations of laying people off, hiring people back, laying people off again, closing your restaurant, opening it, closing the restaurant again, you know, depending on which strain of COVID we got. And I think that the new breed of restaurants that opened after the pandemic came in with a full head of steam and they hadn't had to go through all that stuff. A lot of them designed their restaurants with more outdoor space. If you can get an extra 10, 15, 20 seats, that can make an enormous difference on your business. So for a whole host of reasons, I think the restaurant industry is healthier now. I think there's probably fewer restaurants today than there were going into the pandemic, therefore the resulting restaurants can capture a little bit more of the market share. DoorDash and GrubHub and Postmates and so on, they provide access to customers, but they also sort of cut into margins and can change the model a little bit for the business. I remember the early days after the pandemic and we just wanted every penny of revenue we could possibly get. It just didn't feel good when Bob had made a reservation to have a real dining experience at Gramercy Tavern or Union Square Cafe to have to jostle with a guy with a big red canvas backpack as he was just trying to be greeted by the maître d'. It just kind of took some of the romance out of dining out. So we stopped doing that altogether. Now as far as fast casual, fine casual, you could look at it as something that cuts into your margins. Not only does the restaurant have to pay a pretty good chunk of change to the aggregator, the delivery company, but there's also the packaging, etc., that go out the door, that's a real cost that adds up over time. So why do restaurants do it? Because it's profitable business.

We did something at the very beginning that I think has worked really, really well, which is we call it DCI. And we were very, very clear: here are the very few topics where Danny still has the ultimate decision, that's the D. Here are the topics where Danny needs Chip to consult with him, it's truly a joint decision, that's the C. Here are the many, many more topics where it's Chip's decision but Danny just wants to be informed, that's the I. So DCI: decide, consult, inform. And it's been a really, really good framework for us.