Danny Meyer's upscale restaurant The Modern had its most profitable month in history after eliminating tipping, the Union Square Hospitality Group head told the Freakonomics podcast. The Modern, which was the first of Meyer's 13 restaurants to do the "Hospitality Included" program, started its new menu with higher prices in late November, and the month that followed crushed profit expectations, Meyer says. December always brings out more people, but last December's profit "was dramatically higher than any other December we've had," Meyer says, partly due to the build up before it happened. He tells the podcast:
[The] only way I can explain it to you — because I never would have guessed we would already be profitable this early on — thought this would be a long slog, and that we would ultimately be more profitable by doing the right thing because we would have less turnover, we would have more applicants, a better product that more people would want to come try. The only answer I can give you as to why this happened so quickly is that The Modern, of all of our restaurants, has been the beneficiary of unprecedented public relations associated with the initiation of hospitality included. ...I’ve got to feel that the just unprecedented amount of notice about Hospitality Included encouraged more people than ever to come road test it.
During that time, service staff received compensation that assumed an average 21 percent tip on bills, manager salary went up to $50,000, and cooks made $2 more per hour.
Aside from increased profits, job applications for the restaurant's kitchen soared, going up 270 percent. The number of applications to be a server also increased, growing by more than 200 percent in the last three months, Meyer says. Meanwhile, turnover decreased for both the kitchen and front-of-house staff, and OpenTable ratings for food and service have gone up.
The Modern's success doesn't necessarily mean Meyer's 12 other restaurants will see the same immediate profitability jumps. Meyer admits that restaurants like Maialino, which got rid of tipping two weeks ago, will not benefit from the same media build-up that The Modern did, especially since the program is being rolled out over time and his restaurants have varying price points. "Maialino is not going to get the same four-month amount of global press coverage that The Modern got," Meyer tells the podcast. "So we’ll find out, but I’m really confident about it."