I listened to a fascinating episode of Freaknomics this week, which was about a new way of billing restaurants in New York, spearheaded by Danny Meyer of Union Square Hospitality Group (which has fancy restaurants like The Modern and Gramercy Tavern, but also Shake Shack in its portfolio). Called ‘Hospitality Included’, it aims to do away with tipping in favour of a scheme that pays employees more fairly and removes the ‘how much should I leave as a tip’ guessing game for patrons. It basically means raised prices in the menu – which interestingly patrons don’t mind, and neither do servers who typically get the lion’s share of tips, as the data below and in the episode indicate. Danny Meyer piloted it with The Modern, so this episode is largely about learnings from there.
Key takeaways which prove, as he says, that ‘doing the right things is the most profitable thing’:
- job applications for cooks in the restaurant were +270% from -50% for the previous 7 months (this is because cooks were paid really badly earlier) – their pay was up by 20%
- job applications for servers were up by 25% for the first month of the trial, 100% for the second and 200% for the most recent month they have data for
- the average amount per bill is the same (so no loss)
- customer rating for the restaurant on OpenTable is up 12%
- December 2015 was their most successful month ever (by that time they were about 6 weeks in with Hospitality Included) – this was helped by the fact that they had incredible positive PR as a result of the scheme
- managers of the other restaurants in the group all want to be next to try this out
It’s well worth listening to the whole episode – I actually went back and listened to parts of it again. The purely numbers-led folk can’t argue with a bump in revenues. It’s really interesting to see these behavioural economics experiments in action, and even better to see them succeed.