Restaurant chain mostly shelves no-tipping experiment

Joe's Crab Shack, the first national chain to test a no-tipping policy, is sharply curtailing the experiment, saying it cost them customers at a majority of the locations where it was tried.

"We are reducing the no tipping units to four restaurants from the 18 we had previously had done," Robert Merritt, chief executive officer and director of Ignite Restaurants (IRG) told analysts in a call last week. "Our customers and staff spoke very loudly and a lot of them voted with their feet."

On average, foot traffic at the no-tipping restaurants fell 8 to 10 percent, he said.

The no-tipping policy is continuing in the handful of stores "where it actually worked very well," Merritt said. "We're going to try to figure out why it worked in some places and why not in others."

Ignite Restaurants in November said it was doing away with gratuities at 18 of its more than 130 Joe's Crab Shack restaurants in more than 30 states, with then CEO Ray Blanchette calling tipping "an antiquated model" that most American businesses had migrated away from over the past 50 to 100 years.

But Blanchette didn't remain at the helm long enough to see his pilot program through. Six days after unveiling its "forward thinking policy," the company, which also owns and operates Brick House Tavern & Tap, announced that he was departing to "pursue other interests."

In testing its no-tipping policy, the seafood chain hiked menu prices and said it would increased hourly wages for servers, hosts and bartenders at the pilot sites.

But company research found that 60 percent of the restaurants' customers did not like the no-tipping policy because they didn't want to lose control of the experience by removing the service incentive. Patrons also didn't trust management to pass along a share of the higher menu prices to employees, which is supposed to offset the elimination of tips.

The casual-dining chain is not alone in reviving tips. Fedora, a New York City eatery, said this week it was tossing its no-tipping policy four months after adopting it.

But owner Gabriel Stulman held out hope for a gratuity-free system in the future. "We continue to believe that it has the potential to change hospitality for the better," he wrote in a letter to customers. "We hope it's the future for more restaurants, including our own."

Other establishments that have done away with tipping have report more success.

Danny Meyer's Union Square Hospitality Group in November rolled out a no-tipping policy three of its 13 restaurants, including the Modern at the Museum of Modern Art. Meyer said in a podcast that December had been the most profitable month in the Modern's history.