Wage hike will reshape dining experiences in Minneapolis

With Minneapolis charging ahead with a $15 per hour minimum wage last week, Minneapolis restaurant owners are already well down the road to figuring out a new model for the table service segment of the local industry.

The restaurant service we have long known — friendly people taking our order and providing other help at our table and getting paid largely with tips — seems on its way out. It must be said, though, that after talking to a handful of owners of casual restaurants last week, there doesn't seem to be one single best idea for what replaces it.

It's risky to change the way a business is organized to deliver service, yet few in the industry seem to think there's any real choice. The first couple of increases in the minimum wage in Minneapolis, on its way eventually to $15 an hour, could likely be made up with price increases on the menu or maybe assigning more tables to each server, as a way to eliminate a job.

Beyond that, after the increase slated for 2019, it probably can't remain business as usual.

The casual dining segment is a big chunk of the restaurant industry in Minneapolis, in neighborhoods and in the downtown area. These are not the fine dining, white tablecloth places. A casual, full-service restaurant sells beer, wine and food, with a typical guest check that might come to $16 or $18.

What the owners will explain is that what they are really selling, with full tableside service, is hospitality. Consistently delivering that experience takes a good crew of well-trained and hardworking staff.

For these kinds of restaurants labor costs as a percentage of sales had already been inching up, in the neighborhood now of roughly 40 percent. And even without a minimum-wage hike the owners already had a challenge fairly dividing the payroll dollars, with a sales force in the front of the restaurant working in large part for cash incentives (customer tips) and an operations staff in the kitchen working for wages.

That might not seem fair looking in from the outside, but the owners can easily defend letting more money go to servers. Being friendlier, funnier, quicker to the table and just better at what's called "building the check" by selling more stuff to the same customer is the kind of behavior that owners think should be rewarded.

The servers are basically the business owner's commissioned business generators, paid more for the same reason the best enterprise software salespeople should be able to make more than the folks developing the software.

But that pay structure is why the city-mandated minimum-wage increases present such a problem in a restaurant. It's going to increase labor costs, but mostly for people who are all generally collecting far more than the minimum wage right now. Given the politics of minimum wage in Minneapolis this year, what may seem like common sense — counting tips when checking for compliance with the minimum wage law — didn't come close to being adopted.

Reliance on their salespeople is one reason why there's not much enthusiasm among restaurant owners for the two most likely options to replace the tip-for-service model, using technology like a smartphone or tablet for guests to order or simply charging maybe 15 percent for service on a separate line on the bill and eliminating tipping.

Both options seem to make it harder to deliver the same hospitality experience for customers.

If the owner decides instead to implement a service charge of maybe 15 percent in lieu of tips, and provided that the customers accept the change and keep coming back, the service charge collections would go to the house. That would give the owner the opportunity to direct more of that money to the kitchen staff.

Servers' hourly wages would also go up, but there would also be a need for some sort of sales commissions or other incentive payments for servers.

There could also be some sort of combo-platter of the available options, with a small service charge, some gadgets for ordering or paying and a tip line on the check, too, to be spread around the staff.

It's important to note that if restaurants let go of their servers or get rid of tipping, it's entirely possible that a higher city-mandated minimum wage would eventually result in lower total pay for the wait staff that remains. It would also change the culture of the business, in which managers often distribute the tip money in cash.

It was surprising to hear that cash is still common in this business, even as by far most guests pay with a debit or credit card.