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Wednesday, March 3 Front Page >> Random Rants >> The Real Reasons for Olympics Auto Gratuities

Feb 19, 2010, 7:20pm

I think it's time to document a bit of clarity on the real reasons so many downtown restaurants are going to a full on auto gratuity policy during the Olympics. I also wish the mainstream media would do a bit more investigative work into this - because it's not entirely pretty, and in some cases, pretty shocking.

A Caveat: I fully acknowledge my assumed gross numbers may be way off in the following numbers. I present them as assumed numbers to round out the income scenarios - and to be honest, the assumed numbers don't matter much. It is the percentages, the percentages on house take, and the increases in house take that matter, and I'm pretty confident the percentages and Olympic seating increases are pretty accurate. end caveat.

First, let me set up a typical tip-pool scenerio for two types of restaurants - the busy chain restobar in Yaletown or Robson area, and the smaller, indie style casual-fine dining type place. I am also trying very hard to err in favour of the restaurant's numbers - ie I went with numbers that are maybe optimistic pre Olympics, and pessimistic during Olympics - this does not help my argument - it hinders it, but as you'll see....

Big Chain Casual Dining Restaurant with Heavy Bar Sales
- assume 150 seats spread across 50 tables, plus 30 bar seats
- assume average server has 5 tables, turned over twice during regular season, 3 times during Olympics
- assume bar turnover is 3x during regular times, 4x during Olympics
- average sales per seat per seating is $50 for food, $30 for bar regular season, $60 for food, $35 for bar Olympics.

Even if these numbers are optimistic, the balance between regular times vs Olympic times is quite low - word is many Yaletown restaurants are doing at least three covers solid per seat per shift during the Olympics, and pre Olympics was 1.5 covers per seat (accounting for empty tables)

So before the Olympics, assuming the 18% gratuity (that restaurants are trying to enforce now during the Olympics), here's how the numbers break down: 1 server x 15 seats x 1.5 covers x $50 per seat = $1,125 sales take per shift per server. 18% gratuity on that is $202.50 in tips generated.

During the Olympics, here's how two numbers factor out - one with enforced gratuity, and one with overall gratuities dropping from 18% to 10% (accounting for many Euro, Australian travelers tipping lower / not tipping at all compared to Canadians, Americans tipping as per usual).

Enforced automatic gratuity scenerio: 1 server x 15 seats x 3 covers x $60 per seat = $2,700 sales take per shift per server. 18% enforced gratuity means $486 in tips generated.

Voluntary gratuity scenario: 1 server x 15 seats x 3 covers x $60 per seat = $2,700 in sales. 10% average gratuity means $270 take in tips - higher than pre Olympics take by $67.50.

Let me break down bar sales quickly - and I should point out the average in Vancouver for bar tabs is actually around 10-12%, not the 15-20% that sit down food service tables enjoy, so I will factor that in.

Prior to Olympics: Assume 1 bartender per 10 seats (3x); 1 bartender x 10 x $30 per seat x 3 seatings = $900 sales take per shift per server. Go with the established 12% tip and the take per bartender per shift is $108.

During Olympics, with auto gratuity enforced: 1 bartender x 10 seats x $35 per seat x 4 seatings = $1,400. 18% enforced gratuity delivers $252 per server per shift, or higher by $144 compared to pre Olympics.

During Olympics, with voluntary gratuity - let's assume it dips from 12% to 8%: 1 bartender x 10 seats x $35 per seat x 4 seatings = $1,400 sales take per bartender; tips take would be $112, higher than pre Olympics by $4.

Now some final numbers for this type of restaurant.

Pre Olympics total tip take per night (10 servers 1.5 covers per seat, 3 bartenders, 3 covers per seat): $2,350 (rounded up).
Olympics with enforced 18% gratuity total tip take per night (10 servers 3 covers per seat, 3 bartenders, 4 covers per seat): $5,615 (rounded down).
Olympics with voluntary gratuity, total tip take per night (same servers, bartenders as previous): $3,035 (rounded down).

It's quite clear that even in worst case tipping scenarios, restuarants in high-traffic Olympic areas (like Yaletown) that are packed all day and eve are completely cleaning up on tips when auto-gratuities are enforced - more than double their take pre Olympics. Even with voluntary gratuities, they'd be making as much as $700 or more in tips per shift - but with auto gratuities enforced, they stand to make over $3,000 more, per shift in tips.

Do I even have to break down the smaller, 30-40 seat indie restaurant?

Where it gets BAD - Industry's dirty little secrets

Here's where things get particularly bad - and I'm betting most consumers and many foodie-bloggers don't have a clue about this.

Did you know that management, and in some cases, the owners, take a cut in the tip pool that is sorted every night? In the case of many of the downtown chains (especially those with a big alcohol/bar focus), this is especially true. I'm not saying every restaurant has this policy, but you'd be shocked to find out how many actually do - some of Vancouver's top restaurants, globally recognized, have this policy in place.

Also, management and back of house (chefs, cooks, expediters, etc) do not trust servers - or do not trust them to be truthful with their entire tips take for the evening. This is why the end of the shift tip pool is based on sales, and not the server's word on how much tips they've taken in.

It is standard in Vancouver for servers to contribute four percent of their b]sales take into the house tip pool. Bartenders are typically 2% of their sales. Some restaurants have higher percentages - I know of at least 2 famous restaurants with 5% policy, and one with 6%. But let's go with 4%/2% to keep the numbers conservative.

So let's go back to our downtown chain restaurant with a booze focus restaurant - the 150 seat venue with 10 servers, 3 bartenders. The total sales pre Olympics might be $11,250 for all the seated covers, and $2,700 for the bar ($13,950 per full shift). Sales during the Olympics could skyrocket (based on similar pre Olympic cover sales x extra bonus customers) to $27,000 for all seated covers, $4,200 for bar (or $31,200 per full shift).

Those are huge numbers, to start with. Now let's look at what the house expects to take in tips total, and per server / bartender

Pre Olympics: ($11,250 x 0.04 = $450) + ($2,700 x 0.02 = $54) = $504
Olympics: ($27,000 x 0.04 = $1,080) + ($4,200 x 0.02 = $84) = $1,164

That is more than a 120% increase in tips take per shift for the house!

Just based on these numbers, it's quite clear that restaurants could have scaled down their house tip out percentage for the two weeks of the Olympics, and everyone could have still come out ahead - going to 3% / 1.5% would have still brought everyone - house, back of house, servers, ahead with more money each day - even based on lower voluntary tips.

Still - this isn't the full dirty little secret.

The whole auto gratuity thing isn't to protect servers - servers are cleaning up - enforced tip policy or not. It's not even to protect back of house staff.

One of the primary reasons for auto gratuities is to protect, and even enrich management and the house's take in tips.

At most (not ALL, but most) fine dining restaurants in town, management gets to dip their hands into the tip pool. In some cases, I'd say it is highly deserved - I've seen managers and assistant managers at some restaurants to do everything - bus, expedite, serve, fix, clean bathrooms, you name it.

But I've also seen managers who like to boss people around, and not do much else. At one restaurant (one I no longer frequent), I've been told first hand by staff there that the GM's weekly tip pool take is over $1,000. And management sucks at that restaurant.

Even worse is ownership taking a share of the tip pool. This happens much less and as far as I know, is not the practice at any independent fine / casual dining place where management isn't also ownership. But word is, it does happen with few of the chain restos in town (and no, not Cactus Club or Earls, as far as I know). Where it does happen is pretty bad - people who do nothing day to day in the restaurant's success are taking money from the tip pool - and taking money away from the back of house staff. The tip pool is for people who actually contribute to that meal, that drink, that service you got. Not someone sitting at home (or in their box seat at an Olympics Hockey game) during your meal.

That's pretty bad.

It gets worse
At least worse from my perspective. The tipping pool has become so standardized in Vancouver that back of house staff - the amazing chefs who craft your food, the expediters who get it moving on time, the back of house management, etc - even front of house management - all are paid sub-par salaries and told upon hiring "tips will make up your salary".

In other words, restaurants, from management to lowest bussing staff are ALL UNDERPAID. On top of charging you, the customer premium markups on alcohol (wine, beer, cocktails) and competitive prices on food, they fully expect you to pay a sizable portion of their staff's pay, directly (ie, no middlemen).

Now this leads to something very interesting. Revenue Canada has been coming down on servers quite hard the last decade or so - if a server gets audited, RC will look at their restaurant's books to see what the sales take is for the server's average shift, and will calculate a 12% amount for declared gratuities based on that audit.

However - Revenue Canada does not regularly investigate managers, assistant managers, section managers, etc at restaurants in the same way. And you can be pretty safe in betting that the $1,000 tip-take a week manager I mentioned earlier isn't declaring $52,000 in extra cash income, over and above his salary, to Revenue Canada.

A lot of numbers

It'll take a much better writer and researcher than me to better present these numbers and the dirty little industry secrets to a wide audience.

I also fully admit my numbers may be way off in one regard - my assumed takes per seat per shift. But the totals don't matter here - it's the percentages that do - and I can safely guarantee the percentages expressed are accurate for many Vancouver restaurants.

It is a safe bet that every restaurant / bar, be them part of a chain or independent, that has an auto gratuity policy in place for the Olympics is a business that practices the above described scenarios - including the "dirty little secrets". And it is a safe bet that restaurants with auto gratuities during the Olympics are doubling their per shift tip income for everyone who dips their hand into the tip pool.

That, my friends, is gouging. And that is why restaurants with auto gratuities made the #2010profiteer listing. And that is why you should consider not supporting any restaurant with an auto gratuity policy - ever again.

10 comments | reply

Previous Ten Daily Rants
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The continued fallout on auto gratuities  5:35pm, 08/09  3
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Vancouver Olympics - Nice Prices, Profiteer (gouger) Restaurant Listings  12:15am, 02/18  9
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