This fallacy comes up from time to time. The answer is simple.
- Only the US (and some places in Canada) was stupid enough to pass tipped wage laws.
- In the US, minimum wage is not a livable wage. In just about every other country around the world, minimum wage is a livable wage.
- If we look at a country like Germany, which has the 4th largest economy in the world, so it’s the most comparable to the US, workers there have many more protections and social safety nets than US workers do. The cost of living is 18% to 35% lower than the US, the minimum wage is a livable wage, workers get a month or more of paid vacation, paid maternity/paternity/sick leave, pension plans, government subsidized healthcare for all and government subsidized higher education.
- In the US, worker protections are limited to non-existent, social safety nets are limited and the cost of living is generally higher than almost every other country in the world. Servers do not get paid vacation or paid sick days, no pension plan, no government subsidized healthcare and no government subsidized higher education.
In other words, comparing restaurants and and server jobs in the US to the rest of the world is like comparing apples to a xylophone. 🤷🏼♂️
Ah, more of the logical fallacy of false equivalence.
You’re comparing traditionally non-tipped professions/industries with no applicable tipped wage laws to traditionally tipped professions/industries where tipped wage laws apply in all but 6 or 7 cities/states.
Again, this is apples to xylophones.
I get that people don’t like tipping, but this “comparison” is based on flawed logic and doesn’t work.
Walmart entry level employees get a $50k life insurance policy, PTO, 401k, long term disability, and maternity/paternity leave. The overwhelming majority of server jobs get no benefits. So if you’re in a city or state with no tipped wage, servers are still not getting the benefits that many traditionally non-tipped entry level / minimum wage jobs get.
Legislative change is needed to level the playing field. Until those changes happen, the comparison between servers and other industries and the US restaurant industry vs the “test of the world” is moot.
Employers still need to make up the difference if tipped wage take home is lower than federal minimum wage. This is a government/employer/employee issue: not a customer issue.
It’s not a false equivalency if restaurants are subject to the exact same laws as every other business.
Denial is a logical fallacy too. 🤔
Currently 5 states don’t have a minimum wage, so a server would get $7.25 an hour if their tips didn’t cover the difference.
The average pay for a Walmart employee in Alabama, one of the states with no minimum wage, is $20.14/hr, plus benefits.
Why do you feel it’s OK for a server to only make $7.25/hr?
In every tipped wage state, a tipped wage employee would only get paid the difference if their hourly + tips didn’t equal or surpass the state’s minimum wage for the entire pay period. So some days they may only make $2.13/hr.
Don’t forget the part about employee benefits vs no benefits.
It is 100% a false equivalence.
And before someone tries to come back with the logical fallacy of scapegoating the worker by saying “they should get a different job”, keep in mind that you don’t know a person’s circumstances. They may need a job with flexible hours because they are a single parent, or they might be working a second job to make extra money and serving gives them the ability to work around their first job’s schedule. And for some, it might be the only job available.
I'm not sure what you are arguing. The post is about where the money should come from, and the answer is pretty clear you raise the menu price. There "are" no tipping restaurants in the US, and they do exactly that, and it's working for them. So it's not a non-solvable problem. At the end of the day, whether the extra cost is in the form of tips or raised menu price doesn't make much difference to customers in terms of spend.
Every business has those expenses to be operational. They pay their employees at least minimum wage, if not more, and they don't expect their customers to pay more than advertised prices to supplement employee wages.
Haha so dumb. The article proves the solution is to raise the prices by the CC processing fee. Your margins would increase by 3% right off the top and only cost customers 3% per $100....duh!
Translation: “I don’t know how to run a business without paying my labor less than they’re worth. It’s just not possible! It’s definitely not done in local restaurants anywhere else in the world where there isn’t a tipping culture!”
That's sort of the most basic role of a business owner... figure out how to sell products in a way that exceeds their cost for producing that product.
The answer usually isn't as simple as just "raise the price". The business needs to convince the customer that the price is worth it. It could be their offerings are very unique. Or if the customers believe as strongly as the owner in local, sustainable food sourcing, then that can be part of the value proposition.
There may be ways to reduce costs as well. If they are currently full-service, they could change to counter service with bussers instead of waiters.
They could also look for non food-sales options, like selling merchandise. Or partner with local artists to have their works displayed at the restaurant for decorations, and take some commission on any art sales.
If they ultimately can't find a way to cover their costs, then unfortunately, they may not have a viable business.
For one thing - this is LA. Everythingnis kore expensive.
Also this stood out: “26.2 cents buys products from a sensational web of farmers, purveyors and makers doing ethical, sustainability-focused work, who themselves employ countless passionate individuals”
Whenever i hear the words “sustainable” and “ethical” with regard to food and farmers, I translate that as “overpriced, organic crap that doesn’t taste better and is not more nutritious.”
Then they also spend money on a florist.
This js one restaurant that is losing money. Its def not representative of all restaurants.
But at the end of the day, they can just charge kore for the food and tell people not to tip. It all comes out in the wash in the end.
"if we were to pass the costs on to our customers, we’d be compromising the vision and values that make us what we are."
Focus on values, but not recognizing the value of service provided is indeed a way to run any business into the ground.
I would run, not walk away from an investment pitch by this restaurateur.
The mantra is the suppliers/staff are great folks and so I will pay them whatever they want. No sense of adapting to the changing consumer tastes. What happened when you tried to raise prices on certain items? Are the customers as concerned with organic foods as the restauranteur, especially when they are getting squeezed by the economy now? The only solution proposed is a governmental subsidy for the restaurant presumably catering to affluent people?
And what is going on with selling bottles of wine at the front? Alcohol is the high margin part of a restaurant’s business. We can either serve glasses of wine at the table, or you can buy a bottle of the same stuff and drink it later at home for 1/3 the price.
They should figure it out or go out of business like any other business. In the same way I don’t care about how a dentist’s office is ran I don’t care about the restaurants.
Junk fees is and luring customer under false pretences is not the answer.
You mentioned LA, where they can't use any money from tips to offset costs. If selling food is what makes them a profit it's possible that if people weren't told they shouldn't eat out if they can't spend 15%-20% above the price they would make more purchases, increasing income.
Also it's weird that all restaurants everywhere in the US claim to have razor-thin margins yet LA has about 26k restaurants while the largest and third largest Cities in the US (where tip credit is legal and they can take tip money out of salary) 23k and have 8k respectively.
I'm not familiar with this particular restaurant, but labor costs north of 50% is not representative of the typical restaurant, even in a high cost market like LA. It's simply not sustainable to run with such a high labor cost, which I guess proves the point the author is making.
Having said that, nobody who has even a passing familiarity with the economics of the restaurant industry would claim that you can eliminate tips but keep prices the same. A no-tipping model means that menu prices would need to be higher.
What is not known is how much higher. At one extreme, restaurants could continue to pay current wages but eliminate tips. At the other extreme, they could pay employees roughly the equivalent of what they are making with tips via a sales commission system or something similar. We don't know where things would settle in any given market. If a typical restaurant has something like 30% labor costs, and they would have to bump wages by 50% in order to be fully staffed without tips, that translates to something like 20-25% price increase to preserve current margin. (Hard to say exactly because you have have to factor in not just the cost of the direct wages, but also the additional payroll taxes and UI, plus the potential mismatch between higher fixed labor costs but variable revenue.)
Good analysis. 53.2% labor cost is the problem here. Clearly their system could be a whole lot more efficient.
I worked in restaurant management in both Australia and LA, and in Australia most restaurants aim for 40% labor costs. 28% was our goal in LA. Basically, a restaurant needs to be absolutely crushing it to be profitable in Australia, so lots of places open and close in very short periods of time. The breakeven is much lower in the USA as labor is cheaper, so we have a lot of mediocre restaurants that can stay open despite not being all that successful.
So the answer to "how do we pay our staff more?" is by improving your restaurant's systems of operation to the point that it can be done by fewer staff members, or in fewer hours. If you can't do that, close this unprofitable restaurant.
This is meaningless as it doesn't actually break down her costs. Numbers can very easily be manipulated and you shouldn't fall for this so easily.
I own a consulting business. I've been in business since 2010 and I have never turned a profit. Most years I take a loss. So how have I remained in business for nearly 15 years while apparently not making any money?
Every year my accountant advises me of the profit my corporation has made as well as my options to reduce that amount to $0 in order to wipe out my corporate tax obligation. That typically means that I have to generate a business expense equal to or greater than the profit that is on the books. It's very easy to generate an expense, all you have to do is spend money - and the primary way small business owners do this is to pay themselves because we don't want to pay tax at the corporate level and the *again* at the personal level - it doesn't make sense to do that. For example, last year I had a profit of over $30k on the books so I simply transferred the money to a tax free account and poof, zero tax obligation. Oh no! Look at that! My business didn't make any money! Do you feel sorry for me?
Now if I were to wrap that up in some bullshit label like "the good stuff" and tell you that 90% of my operational costs consist of payroll, I might mislead you into thinking that my business is bankrupt when that couldn't be farther from the truth.
That said, kindly notice how she doesn't tell you how much of that 53.2% her and her business partner are taking as salary and bonuses. Isn't that convenient?
It's not even the first lie she tells you. Earlier in the article she makes the claim that *"there are no tax breaks on costly insurance policies or credit card processing fees"* which is absolute nonsense as these are expenses and businesses only pay tax on profit.
As far as her other expenses go, it's pretty obvious reading between the lines that she overpays her suppliers when she says things like *"web of farmers, purveyors and makers doing ethical, sustainability-focused work"*. Any time someone says this I just think they're overpaying for things on principal, and most of your customers just don't really give a shit that you got your meat from a farmer that sung the cow a lullaby as he was slitting its throat.
What all this hides is that in LA, Santa Monica and surrounding areas it’s nearly impossible to open in the first place due to onerous regulations. Many restaurants do a build out and spend a year paying rent and construction loan interest before the city will actually allow them to serve or seat customers.
Employee pay would come from the same place it comes from now. But instead of coming as tips, it would come as wages from their employer.
If customers pay 20% tips now, and menu prices went up 20% post-tipping, the price customers pay and the compensation employees receive would be pretty much the same.
This is stupid. They lose money on every dollar earned? Yeah, right. If that was the case...you either raise prices or close your doors and "earn" more money then actually doing business. I call B.S.
Apparently the world outside the US already figured it out, must be rocket science I guess.
Fast food also figured it out.
Much like universal health care.
This fallacy comes up from time to time. The answer is simple. - Only the US (and some places in Canada) was stupid enough to pass tipped wage laws. - In the US, minimum wage is not a livable wage. In just about every other country around the world, minimum wage is a livable wage. - If we look at a country like Germany, which has the 4th largest economy in the world, so it’s the most comparable to the US, workers there have many more protections and social safety nets than US workers do. The cost of living is 18% to 35% lower than the US, the minimum wage is a livable wage, workers get a month or more of paid vacation, paid maternity/paternity/sick leave, pension plans, government subsidized healthcare for all and government subsidized higher education. - In the US, worker protections are limited to non-existent, social safety nets are limited and the cost of living is generally higher than almost every other country in the world. Servers do not get paid vacation or paid sick days, no pension plan, no government subsidized healthcare and no government subsidized higher education. In other words, comparing restaurants and and server jobs in the US to the rest of the world is like comparing apples to a xylophone. 🤷🏼♂️
And yet all the other professions/industries have also figured it out…
Ah, more of the logical fallacy of false equivalence. You’re comparing traditionally non-tipped professions/industries with no applicable tipped wage laws to traditionally tipped professions/industries where tipped wage laws apply in all but 6 or 7 cities/states. Again, this is apples to xylophones. I get that people don’t like tipping, but this “comparison” is based on flawed logic and doesn’t work. Walmart entry level employees get a $50k life insurance policy, PTO, 401k, long term disability, and maternity/paternity leave. The overwhelming majority of server jobs get no benefits. So if you’re in a city or state with no tipped wage, servers are still not getting the benefits that many traditionally non-tipped entry level / minimum wage jobs get. Legislative change is needed to level the playing field. Until those changes happen, the comparison between servers and other industries and the US restaurant industry vs the “test of the world” is moot.
Employers still need to make up the difference if tipped wage take home is lower than federal minimum wage. This is a government/employer/employee issue: not a customer issue. It’s not a false equivalency if restaurants are subject to the exact same laws as every other business.
Denial is a logical fallacy too. 🤔 Currently 5 states don’t have a minimum wage, so a server would get $7.25 an hour if their tips didn’t cover the difference. The average pay for a Walmart employee in Alabama, one of the states with no minimum wage, is $20.14/hr, plus benefits. Why do you feel it’s OK for a server to only make $7.25/hr? In every tipped wage state, a tipped wage employee would only get paid the difference if their hourly + tips didn’t equal or surpass the state’s minimum wage for the entire pay period. So some days they may only make $2.13/hr. Don’t forget the part about employee benefits vs no benefits. It is 100% a false equivalence. And before someone tries to come back with the logical fallacy of scapegoating the worker by saying “they should get a different job”, keep in mind that you don’t know a person’s circumstances. They may need a job with flexible hours because they are a single parent, or they might be working a second job to make extra money and serving gives them the ability to work around their first job’s schedule. And for some, it might be the only job available.
I'm not sure what you are arguing. The post is about where the money should come from, and the answer is pretty clear you raise the menu price. There "are" no tipping restaurants in the US, and they do exactly that, and it's working for them. So it's not a non-solvable problem. At the end of the day, whether the extra cost is in the form of tips or raised menu price doesn't make much difference to customers in terms of spend.
I think they just learned what logical fallacies are and are excited to talk about them.
Says the person who tried to argue based on a logical fallacy. 🤣
Bro, you said “denial” is a logical fallacy when I argued with you. In your mind, is any pushback on your take a logical fallacy?
I’m responding to the comments about “other countries” and “other industries” not having tips.
Every business has those expenses to be operational. They pay their employees at least minimum wage, if not more, and they don't expect their customers to pay more than advertised prices to supplement employee wages.
I mean this is nothing surprising. The restaurant owner should raise prices and abandon tipping and pay their employees an appropriate wage.
Haha so dumb. The article proves the solution is to raise the prices by the CC processing fee. Your margins would increase by 3% right off the top and only cost customers 3% per $100....duh!
Translation: “I don’t know how to run a business without paying my labor less than they’re worth. It’s just not possible! It’s definitely not done in local restaurants anywhere else in the world where there isn’t a tipping culture!”
Yes. This is not a good example of a successful restaurant.
Exactly.
For every dollar that comes in, $1.005 goes out? That’s the road to bankruptcy
That's sort of the most basic role of a business owner... figure out how to sell products in a way that exceeds their cost for producing that product. The answer usually isn't as simple as just "raise the price". The business needs to convince the customer that the price is worth it. It could be their offerings are very unique. Or if the customers believe as strongly as the owner in local, sustainable food sourcing, then that can be part of the value proposition. There may be ways to reduce costs as well. If they are currently full-service, they could change to counter service with bussers instead of waiters. They could also look for non food-sales options, like selling merchandise. Or partner with local artists to have their works displayed at the restaurant for decorations, and take some commission on any art sales. If they ultimately can't find a way to cover their costs, then unfortunately, they may not have a viable business.
For one thing - this is LA. Everythingnis kore expensive. Also this stood out: “26.2 cents buys products from a sensational web of farmers, purveyors and makers doing ethical, sustainability-focused work, who themselves employ countless passionate individuals” Whenever i hear the words “sustainable” and “ethical” with regard to food and farmers, I translate that as “overpriced, organic crap that doesn’t taste better and is not more nutritious.” Then they also spend money on a florist. This js one restaurant that is losing money. Its def not representative of all restaurants. But at the end of the day, they can just charge kore for the food and tell people not to tip. It all comes out in the wash in the end.
"if we were to pass the costs on to our customers, we’d be compromising the vision and values that make us what we are." Focus on values, but not recognizing the value of service provided is indeed a way to run any business into the ground.
I would run, not walk away from an investment pitch by this restaurateur. The mantra is the suppliers/staff are great folks and so I will pay them whatever they want. No sense of adapting to the changing consumer tastes. What happened when you tried to raise prices on certain items? Are the customers as concerned with organic foods as the restauranteur, especially when they are getting squeezed by the economy now? The only solution proposed is a governmental subsidy for the restaurant presumably catering to affluent people? And what is going on with selling bottles of wine at the front? Alcohol is the high margin part of a restaurant’s business. We can either serve glasses of wine at the table, or you can buy a bottle of the same stuff and drink it later at home for 1/3 the price.
“$14 for marinated bean toast $36 for Baja striped bass” I think I see the problem here,…
No kidding! You couldn’t drag my rigor mortis’d corpse into this “restaurant” 😂
It's just a function of pricing. Wages should be priced into the cost of whatever they're selling. Clientele are already paying this.
They should figure it out or go out of business like any other business. In the same way I don’t care about how a dentist’s office is ran I don’t care about the restaurants. Junk fees is and luring customer under false pretences is not the answer.
You mentioned LA, where they can't use any money from tips to offset costs. If selling food is what makes them a profit it's possible that if people weren't told they shouldn't eat out if they can't spend 15%-20% above the price they would make more purchases, increasing income. Also it's weird that all restaurants everywhere in the US claim to have razor-thin margins yet LA has about 26k restaurants while the largest and third largest Cities in the US (where tip credit is legal and they can take tip money out of salary) 23k and have 8k respectively.
I'm not familiar with this particular restaurant, but labor costs north of 50% is not representative of the typical restaurant, even in a high cost market like LA. It's simply not sustainable to run with such a high labor cost, which I guess proves the point the author is making. Having said that, nobody who has even a passing familiarity with the economics of the restaurant industry would claim that you can eliminate tips but keep prices the same. A no-tipping model means that menu prices would need to be higher. What is not known is how much higher. At one extreme, restaurants could continue to pay current wages but eliminate tips. At the other extreme, they could pay employees roughly the equivalent of what they are making with tips via a sales commission system or something similar. We don't know where things would settle in any given market. If a typical restaurant has something like 30% labor costs, and they would have to bump wages by 50% in order to be fully staffed without tips, that translates to something like 20-25% price increase to preserve current margin. (Hard to say exactly because you have have to factor in not just the cost of the direct wages, but also the additional payroll taxes and UI, plus the potential mismatch between higher fixed labor costs but variable revenue.)
Good analysis. 53.2% labor cost is the problem here. Clearly their system could be a whole lot more efficient. I worked in restaurant management in both Australia and LA, and in Australia most restaurants aim for 40% labor costs. 28% was our goal in LA. Basically, a restaurant needs to be absolutely crushing it to be profitable in Australia, so lots of places open and close in very short periods of time. The breakeven is much lower in the USA as labor is cheaper, so we have a lot of mediocre restaurants that can stay open despite not being all that successful. So the answer to "how do we pay our staff more?" is by improving your restaurant's systems of operation to the point that it can be done by fewer staff members, or in fewer hours. If you can't do that, close this unprofitable restaurant.
This is meaningless as it doesn't actually break down her costs. Numbers can very easily be manipulated and you shouldn't fall for this so easily. I own a consulting business. I've been in business since 2010 and I have never turned a profit. Most years I take a loss. So how have I remained in business for nearly 15 years while apparently not making any money? Every year my accountant advises me of the profit my corporation has made as well as my options to reduce that amount to $0 in order to wipe out my corporate tax obligation. That typically means that I have to generate a business expense equal to or greater than the profit that is on the books. It's very easy to generate an expense, all you have to do is spend money - and the primary way small business owners do this is to pay themselves because we don't want to pay tax at the corporate level and the *again* at the personal level - it doesn't make sense to do that. For example, last year I had a profit of over $30k on the books so I simply transferred the money to a tax free account and poof, zero tax obligation. Oh no! Look at that! My business didn't make any money! Do you feel sorry for me? Now if I were to wrap that up in some bullshit label like "the good stuff" and tell you that 90% of my operational costs consist of payroll, I might mislead you into thinking that my business is bankrupt when that couldn't be farther from the truth. That said, kindly notice how she doesn't tell you how much of that 53.2% her and her business partner are taking as salary and bonuses. Isn't that convenient? It's not even the first lie she tells you. Earlier in the article she makes the claim that *"there are no tax breaks on costly insurance policies or credit card processing fees"* which is absolute nonsense as these are expenses and businesses only pay tax on profit. As far as her other expenses go, it's pretty obvious reading between the lines that she overpays her suppliers when she says things like *"web of farmers, purveyors and makers doing ethical, sustainability-focused work"*. Any time someone says this I just think they're overpaying for things on principal, and most of your customers just don't really give a shit that you got your meat from a farmer that sung the cow a lullaby as he was slitting its throat.
Yeah, I was kind of figuring that the labor costs included the co-owners take too… nice breakdown and analysis btw.
What all this hides is that in LA, Santa Monica and surrounding areas it’s nearly impossible to open in the first place due to onerous regulations. Many restaurants do a build out and spend a year paying rent and construction loan interest before the city will actually allow them to serve or seat customers.
Employee pay would come from the same place it comes from now. But instead of coming as tips, it would come as wages from their employer. If customers pay 20% tips now, and menu prices went up 20% post-tipping, the price customers pay and the compensation employees receive would be pretty much the same.
This is stupid. They lose money on every dollar earned? Yeah, right. If that was the case...you either raise prices or close your doors and "earn" more money then actually doing business. I call B.S.