The State of the Messy-Ass Restaurant Industry
An interview with Chef Jennifer Zavala of Juana Tamale
Hey there! Skip straight to listen to my interview with Jennifer Zavala here. Or read on for a deep dive on the hot mess that is restaurant economics :) Thanks for reading.
I did a little experiment recently where I tracked all the different ways I interacted with service fees and tips in my day to day. Even though I’m aware that tipping is a thing I frequently do, I was surprised at how frequent and how diverse these financial exchanges turned out to be in just a short period of time.
There were plenty of Point of Sale screens— those now ubiquitous coffee shop and to go counter service systems that have pre-programmed suggested tips. Some offered me percentage options, other’s flat dollar amounts.
I declined some of those screen prompts, and instead, old school style, stuffed dollar bills into countertop jars.
And then there were a few meal’s out— Drinks and small plates one night, where the 20% gratuity was automatically included.
A birthday dinner with my girlfriend’s family, Brazilian’s who order with abundance and make great dining company, where we paused at a 3% “kitchen fee” added as a check item amongst our food and drinks— I don’t think I’ve encountered this structure where the service is hidden amongst menu items, and it wasn’t totally clear what it was for.
And I’m just telling you about the coffee and food so far.
Unless you don’t interact with the outside world much, I know you’ve encountered some sort of service fee or tip lately. And possibly types of fees and forms of gratuity that you haven’t encountered before the past year or two.
Which is to say, the rules of how to pay at restaurants and eating establishments have been changing lately, with lots of push back, confusion, and, if you take a scroll through restaurant Yelp reviews, truly wild levels of belligerence from patrons.
I’ve been interested in digging into what’s happening here, mostly because the economics of the restaurant industry have always been pretty weird and rife with inequity.
Tipping has never not been a contentious topic. Both because the practice here in the US comes out of the legacy of slavery and certainly facilitates racism and sexism, but also because ultimately, the tipped wage model shifts a portion of compensation obligations from employers directly to customers— it’s virtually the only industry where customers are responsible for making sure employees are paid fair wages.
At the root of the experiments with service fees, dining fees, and gratuity, are a lot of people figuring out to how to hold together a broken industry and model. An industry with legendarily slim margins, built on long hours put in by low-waged workers— I double checked while working on this episode, and the sub-minimum waged for tipped workers is still 2 dollars and 13 cents1.
TWO DOLLARS AND THIRTEEN CENTS AN HOUR.
And while there are plenty of shitty operators out there— just google “restaurant wage theft” for a sampling— I, of course, wanted to talk to folks that are trying their best to break the model in the direction of care.
To push back against the intense hours and low wages. The abusive kitchen culture. The lack of benefits and paid time off. The class divisions between front of house and back of house. And yes, even the low margins.
So I’m excited to bring you this conversation with Jennifer Zavala, owner of Juana Tamale, a Philly restaurant that’s been described as a “punk rock Pee-Wee’s playhouse” and whose tacos have been voted best in the city.
Juana Tamale started as a popular pop up at a music venue, before Jennifer took the mid-pandemic-leap of opening her own spot in South Philly. And she’s been doing things differently from the start, including setting the business up to pay her team a living wage.
And because she’s taken a stance, she’s caught a lot of flack. We chatted after the recording about some of the press she’s gotten recently, that seemed more interested in raising a ruckus than treating her choices and message with the seriousness they deserve.
Jennifer would be the first to say she hasn’t figured it all out, and no one restaurant owner is going to be able to change a broken system. But while that’s true, we still need examples of folks pushing back against inequitable norms, because they also show us what else might be possible.
“Why are they upset at that price?”
There’s a few immediate structural things that Jennifer did from the start.
First, Juana’s tacos, at $18 per order, are relatively expensive.
Second, there’s a mandatory 20% gratuity on all checks, 100% of which goes to staff wages.
And finally, Jennifer’s set boundaries with customers: no extensive order customization, and no abusing her team.
I want to point out that none of these are wild ideas or choices. For a tiny spot, every time someone wants to customize their order, that adds time and cost to the kitchen. I walked by a taco truck earlier today that had Birria tacos scribbled on the peeling white board for $15 an order. Eating out is more expensive everywhere.
Zahav, the lauded Philly fine dining restaurant mentioned in the interview has a mandatory 20% Service Charge (“A 20% service charge for our entire hourly team is included in your bill. Optional gratuities go directly to your service staff.“). There seem to be more restaurants that have fees of some sort than those that don’t.
After reading through the media around Juana Tamale, and even dipping my toes into the restaurant’s reviews… honestly, the reaction to her choices only seems more and more disproportionate the more I think about it. Jennifer’s rigorously transparent about her policies and why they exist. As she says, she’s not trying to buy a yacht, she just wants her employees to be able to make rent and have a little money left over to live well.
I took a spin through Zahav’s Yelp reviews just to confirm my hunch that I wouldn’t find the same concentrated vitriol about gratuity and fees.
Jenn’s also caught flak for being ‘rude’, but honestly, so are most Philadelphians (he’s called Gritty for a reason2); like, watch an out of towner fumble through a cheesesteak order in this town. Oof.
I’ll let Jennifer speak to what some of the reactivity is about:
Why? Why are they upset at that price? Regardless if they know who I am, why are they upset?
And I really had to think about that, and I came to the conclusion that it wasn't the service. It wasn't the place or the type of food. It was more like people viewing you as a servant, instead of providing a service, and then looking at someone like me, who identifies as a person of color, and saying, Well, you're not that much of a Mexican because I can go to a more authentic place and get it cheaper.
Okay, well, if you undress that, let me tell you what's happening at that place: The mom and pop are working and they don't see their kids. Or their kids are there. Or the whole family works there because they can't afford to [pay] other people to come in.
A Brief Dip into the History of Tipping
The story goes that aristocratic Americans traveling in Europe brought tipping back with them in the mid-19th century, to much consternation and pushback (at least from white bourgeois culture-at-large) and stuck around largely as a way to avoid paying wages to Black workers post-Civil War.
( Of course nowadays, tipping culture has reversed. In Portugal, where I’ve spent significant time over the past several years, servers are salaried and tips are pocket change if you have it. The state provides nationalized free healthcare. And service trends towards— at least relative to the hovering of American dining— blissfully indifferent. Restaurants aren’t trying to turn tables and you’ll never receive a check before you ask for it. Which is to say, the economic structures are different, and so the relationships of exchange flow differently.)
A minimum hourly wage was first officially recognized in 1938 (it was 25 cents!), with the creation of the Fair Labor Standards Act.
The FLSA did good things like regulate child labor and overtime pay, and set a standard hourly wage for the first time. It also excluded farmworkers and domestic workers— deliberately leaving out the primary professions of African Americans in the South.
In 1966 Congress amended the FLSA to set a minimum wage for particular categories of service workers who make tips3: employers can pay a lower hourly wage, because these workers wages will be supplemented by customer tipping. A few states have gotten rid of this structure (instead the regular minimum wage applies to all workers) or have raised it above the federal minimum of $2.13.
If an employer chooses to pay servers sub-minimum, then all tips must go to front of house. They can’t be pooled with workers that are not part of the “chain of service” and the employer is responsible for making up the difference if tips + wages don’t at least equal the state minimum wage.
This is how you end up in wonky scenarios where the back of the house scrapes by on $9 an hour, a front of house server makes $7, but then tips out at $40. Meanwhile the front and the back are equally slammed by the 7pm peak.
For a restaurant to share tips with the back of the house, they must pay all staff at least full minimum wage.
Pooled tips can be a hard sell within the restaurant hierarchy. My brother Elliot, who co-owns Spuntino, a restaurant in Denver, with his wife (the extremely talented chef Cindhu Reddy 😊), shared that they were only able to finally make the switch to pooled tips when the pandemic hit. Before that his FOH staff would have revolted.4
A Fee By Any Other Name
Kitchen fee. Hospitality fee. Service fee. Pandemic Surcharge.
Whatever they are called, service fees and their variations, unlike tips, all share a lack of regulation (though some states have started). Unlike tips, they belong to the employer and count as any other type of revenue5, and may offset operating costs or may go towards wages or benefits. Without the same mandated transparency as tipping, it’s often not totally clear either to staff or patrons where the fees go.
And because terminology and explanations vary and are often vague, fees can complicate relationships with servers.
That 3% added to the dinner bill I mentioned at the beginning of this piece? Our server didn’t even mention it. The last time I dined at Zahav they had recently added a 3% service fee, which our server went to great pains to point out was not gratuity. Which was kinda awkward.
If everyone is confused by and hates service fees6, and the tipping model is a broken, this all begs a very obvious sort of question:
Why not just raise prices?
If this all feels uncessarily complicated, I’m with you.
Why have any fee or gratuity at all? Why not just charge more?
It’s a good question, and the answers point to a catch-22:
Customers are price sensitive.
Many service workers prefer tips because they earn more.
Probably the most famous experiment in “hospitality inclusive” pricing was Danny Meyer of Shake Shack, who did away with gratuity at his restaurants for about 5 years, only to reverse the policy in 2020.
The reason?
During the experiment they lost a large percentage of staff and had trouble with retention, and when they were working to rehire after shutdown layoffs, they needed to compete during a tough labor market. Even with high base wages, FOH could go elsewhere and make more with tips.
It’s not that front of house staff prefer that the dishwashers and line cooks make shit pay.
But if you’re a server, would you want to take a pay cut so that your coworkers can earn a bit more?
There’s also plenty of anecdotal evidence that inclusive pricing harms business— businesses reverting to some combo of tips and service fees seeing an immediate uptick in business. Patrons would rather pay $18 for their tacos and grumble about a $4 gratuity than pay a flat $22.
In any case, in an already precarious industry, most operators aren’t willing to risk losing more staff or business. Fees are a bridge, a hedge against riskier seeming choices.
I got a lot of, well, restaurants can't afford to not have, you know, X, Y, and Z, because then they'll close, we can't pay the hourly [staff] more, because then margins are too small, and it's going to break us… If making these small changes is going to cause your business to go out of business? Imagine the whole industry is like that. We are a hairpin away from breaking.
What is clear is that, at best, operators have a contentious set of imperfect tools at their disposal for fixing a broken industry.
Maybe the only solution to this whole mess is just to let it die?
Meanwhile, you should still eat in restaurants.
Yes, eat out with abandon, in all kinds of places.
And yes, I think you should still tip generously.
It’s not possible to discern the ethical employers based on how a restaurant structures pricing (nor is there some perfect model of ethical restaurant operator anyway). So, far from helping anyone, “voting with your feet” risks harming immigrant run establishments or those at the lower end of the price scale who have fewer choices around how to charge or pay.
Some workers have found more options though.
Despite what I just wrote, there actually was a stretch of 2021/2022 as dining reopened where it felt relatively easy to tell who the better employers were: the places that still had many of the same staff as pre-pandemic. The one’s that weren’t clearly short staffed. People in the industry talk.
Ultimately, as things are, the industry is stuck with collective action problems. A few individuals have figured out something that works for them, but that doesn’t help the larger economy of restaurants.
It’s going to take a larger shift, including changes to federal labor and wage laws and maybe even different tax structures before we’ll see more sustainable changes.
I’ll give Jennifer the last word:
I think collectively we all need to take accountability for how we haven't made it better. Instead of being like, it doesn't matter. We all have to work together.
Related from the Archives:
The rate hasn’t changed since 1996. I learned in my reading that we have Herman Cain, pizza franchise CEO and Republican presidential candidate, to thank for divorcing the tipped minimum from increases to the regular minimum wage. It used to be set a 50% of the Federal Minimum Wage, it’s now a fixed amount and only 30% of the full.
Why not do yourself a favor and take a spin through the 2018 City Council resolution extolling the many qualities of the “7-foot tall orange hellion, a fuzzy eldritch horror”?
The sub-minimum also applies to “substandard workers” who were “not up to normal production,” meaning that people with disabilities can be paid $2.13 an hour even in jobs that do not receive tips.
I’ll circle back to my convo with Elliot sometime in the New Year. Spuntino is the only restaurant that I know of that kept their entire team employed at tipped wages or higher the whole pandemic shutdown— a large reason why they could shift to pooled tips without losing staff. Today they still have a tipped model, no service charges, and between pooling and their higher base wages, their dishwashers are pulling in $30 an hour. While they have low turnover, they’ve also never had trouble hiring.
And it’s worth mentioning, potentially very confusing tax-wise.
One of the common complaints about service fees that perfectly illustrates the wackyness of restaurant dynamics: that these fees force restaurant labor costs onto customers. Pause for a minute to contemplate how any other business owner pays for their labor costs ;)