Joe’s Crab Shack, a national seafood chain, is experimenting with getting rid of tipping in 18 of its locations across the country in a move it expects will improve its bottom line and help out its employees.
On a call with investors last week, Ray Blanchette, CEO of Ignite Restaurant Group, the company that owns Joe’s, said of the new experiment in tip-free restaurants, “We…believe that it reflects our commitment to not only being a great place to eat but a great place to work,” adding that he thinks tipping is “antiquated.” He explained that in the locations testing out a tip-free model, prices will rise somewhere between 12 and 15 percent while hourly wages for waitstaff, bartenders, and hosts will increase to the $12 to $15 an hour range.
Joe’s is the first chain to consider ending tipping, but it’s a trend that has spread nationally. Last month, the owner of a number of high-end restaurants in New York City announced he would end tipping at all of them. That came after other high-end restaurants in the city, lower-end restaurants in Philadelphia, Pittsburgh, Kentucky, and Wisconsin, bars in Portland, Oregon, Fort Collins, Colorado, and Washington, D.C., and coffee shops in Minnesota had all gone with the same move.
Joe’s Crab Shack believes the change will help the company by reducing turnover. “It’s expected to result in improved team atmosphere, a significant reduction in turnover, and greater financial security for the employees,” he said. He noted that employees will have an incentive to stay in their jobs at $14 an hour no matter what shift they get, for example, when other jobs can pay as little as $2.13 an hour plus tips. “You create a reason to stay purely through your compensation model,” he noted.
It will also allow Joe’s to recruit top talent. Blanchette said the company can now “compete for the very best employees in other spaces,” such as other fast casual restaurants and even retailers, particularly for those who prefer a steady wage over tipped work. “We see this as an opportunity to really continue to upgrade the talent within our organization,” he added.
And it allows the company to better weather minimum wage increases, which have been taking place all over the country, by giving it more control over its labor costs. “This gets us way out in front of it,” he said.
He added that he expects it to improve the experience for customers as well. Even with the price increases, those who normally tip 20 percent will actually end up saving money.
The experiment only began in August and the company has no plans to expand it further in 2015. But at some point next year, depending on how the experience goes, it may adopt the model more widely. Blanchette noted that the longer the policy in place, the better it seems to do. “The restaurant that it’s been tested in the longest is gaining the most traction,” he noted. “It seems the longer we do it the better we get at it.”