Dining out is about to look a whole lot different

Restaurants across America are teetering on a precipice. Four years after the devastation of pandemic shutdowns, the industry is still in crisis and the experience of dining out is rapidly deteriorating. You may have noticed this the last time you ate out. Was the service slow? Was the staff disorganized? Did they get your order wrong?

The main problem is that restaurants have been struggling to find enough qualified workers, an issue that predates, but was dramatically made worse by, the pandemic. At the start of 2023, the National Restaurant Association found that there were 400,000 fewer people employed in hospitality industries than in 2020, and an estimated 87% of restaurants were operating with insufficient staff. By the end of last year, employment in restaurants finally surpassed pre-pandemic levels, according to the Bureau of Labor Statistics, but there were still nearly 1 million job openings. And according to the online ordering- and reservation-software company Toast, restaurants have an annual turnover rate of 74% — the highest of any industry in America. 

Despite this existential threat, most have seemed stumped about how to save their restaurants. Last fall, I was moderating a panel at a hospitality conference where every leader confessed that they didn’t know where they would find the workers they desperately needed. Some voiced the sardonic hope that a recession would make people desperate enough to want to work in hospitality again. Others said artificial intelligence might be able to help.

A 2023 survey by Toast found the No. 1 reason for staff turnover in restaurants was bad managers, followed by low pay, work schedules, bad culture, and lack of growth opportunities. With these entrenched issues in mind, some have begun to innovate their business to attract talent and turn things around. But as necessary as change may be, many people I’ve spoken with across the industry have told me they’re nervous to try something new. And it’s because of us — the customers.

For decades, American diners have gotten used to a certain kind of experience. Dining out means sitting down and having people serve you. It means ordering food from a waiter, not at a counter — the domain of fast food. And it means you get to decide how much to tip (read: pay) your server based on how good the experience was.

A lot of people don’t like it when things change; when your favorite dish disappears or your favorite server leaves, it can throw off the entire experience. Even when the change is an improvement, it can still leave loyal customers feeling alienated, a 2022 study found. But that becomes a problem when, to survive, restaurants need to evolve.

To stave off oblivion, many restaurants have begun experimenting with removing tipping, reducing waitstaff, and adjusting the price of menu items based on demand. The challenge, however, is that if they’re not done carefully, customers will hate these changes. 

Tipping has long been a problem for American restaurants. Unlike most in rich countries, American restaurant servers depend primarily on tips for their income. (The federal minimum wage for waitstaff in 2024 is just $2.13 an hour.) But this model enables abuse from both customers and managers, who have the power to withhold the most lucrative shifts. Because wages are determined by customers, tipping exacerbates discrimination based on race and age, while suppressing wages for those who work behind the scenes in the kitchen. A 2014 study found that customers tended to tip Black servers slightly less than white servers while rating the quality of service the same. Another study found that the tipped hourly income of servers exceeded the pay for line cooks by 112%. Since front-of-house employees get the majority of their earnings from tips, the best servers typically don’t want to be promoted to management, which often means more responsibility for less money.

To solve these issues, more restaurants are ditching tips for a mandatory service fee or food prices that cover the cost of wages. But service fees can evoke powerful, if irrational, feelings from customers. A pair of 2018 studies by the researchers Michael Lynn and Zachary Brewster found that restaurants that replaced tipping with service charges or service-included pricing received lower online customer ratings, particularly in lower-priced restaurants. A few years ago I asked Lynn, a professor of consumer behavior at Cornell University, why a $10 sandwich plus a 20% tip felt so different to customers from a $12 sandwich with service included. “People are lazy,” he said, “and they particularly hate math.”

Many restaurateurs also worry that if they eliminate tipping, their best servers will leave for a restaurant where they can make the most in tips. But a 2017 study by Lynn found that “tipping does not substantially help to attract and retain more service-oriented workers.”

I think everyone, especially post-COVID, is very careful to not rock the boat.

L’Oca d’Oro, an Italian restaurant in Austin, has found when you remove tipping, waitstaff and customers will still come. In 2016, it launched with a service fee instead of tips. The 20% fee is used to bump hourly pay to between $21 and $30 and pay healthcare premiums. Though its servers earn a little less than they might at the city’s highest-volume, highest-priced restaurants, with its reliable hours and pay equity, it has a markedly low turnover rate: close to 45%. It’s under 20% for the kitchen’s staff. “Once folks get to six months, they stay,” Adam Orman, a co-owner, told me. Customers have also not been deterred. L’Oca d’Oro is breaking even, and with the launch of a second restaurant, Bambino, the owners expect to push the business toward a 5% profit.

To avoid the staffing issue altogether, some restaurants are removing waitstaff and instead asking customers to order at a counter before they sit. The trouble, however, is that we’ve been trained to expect dining out at a nice restaurant starts with someone bringing us a menu. A 2016 study found that customers considered a dining experience satisfying if they received individual attention and didn’t have to wait too long. Plus, counter service is associated with fast food, which makes customers more price-sensitive.

But these hesitations haven’t stopped some restaurants from finding success with counter service. For example, at the Los Angeles seafood restaurant Crudo e Nudo, where customers order at the counter, all 12 employees are cross-trained to do everything, rotating between shifts in the kitchen, the dish pit, and the host stand. Despite a small staff, when someone is sick, anyone can fill in. Employees work 10 hours a day, four days a week, and make between $17 and $22 an hour, plus an equal share of tips — quite considerable given the average check size is $70 a person. Customers, meanwhile, are eager to come back. Crudo has had a 15% to 20% profit margin since opening (compared with the industry average of 3% to 5%). More importantly, these innovations have allowed it to hold on to staff: Half the employees are full time and have been with the company for more than a year. It also sprouted a second restaurant, Isla.

Other restaurants have begun to experiment with pricing. You might not know “dynamic pricing” by name, but if you’ve ever booked a flight, hotel room, or gone to the movies on a Tuesday, you understand it intrinsically: Dynamic pricing is when the price of goods or services fluctuates based on demand. In a 2003 paper, Sherri Kimes, a revenue-management expert, wrote that restaurants were ideal for dynamic pricing but that it’s rare to find because of how it could alienate customers. “When confronted with dynamic pricing, customers react negatively,” a 2022 study said. People felt like it wasn’t transparent or fair and that they weren’t getting a good deal.

Some restaurants are beginning to challenge this research, however. Topolobampo in Chicago is a Michelin-starred tasting-menu restaurant run by chef Rick Bayless. In late 2023, after 35 years, Bayless decided to try dynamic pricing, raising the dinner menu on weekends from $165 to $185. The goal was not to increase revenue during peak periods but to stimulate demand at slow times to better manage staff scheduling and inventory. It's been only a few months, but he told me the pricing had already driven up demand for slower weekdays, with no complaints from customers. 

Restaurants have long mistreated their workers. So when many veteran employees had a chance to get out of the industry during the pandemic, they did. And now restaurateurs are left holding the bag.

“We haven’t had a backlash or anybody even commenting on it,” Bayless said. He acknowledged that most restaurateurs might be skittish to change during hard times. “I think everyone, especially post-COVID, is very careful to not rock the boat,” he added. “You don’t want to alienate anyone.”

But Bayless’ radical change isn’t that new to the industry: Reduced prices on drinks or food for “happy hour” is another version of dynamic pricing. “Any place with a fixed-price menu, it would be easy to implement,” said Roger Yang, who has been using dynamic pricing at his plant-based Toronto restaurant, Avelo, since it opened in 2019. Nick Kokonas, who cofounded the reservation platform Tock, also uses dynamic pricing at his Chicago restaurants.

There are also solutions that don’t pose any kind of threat to diners. For 30 years, a collection of 12 food businesses in Ann Arbor, Michigan, known as the Zingerman’s Community of Businesses, has been practicing open-book management to keep workers around. This involves educating employees about the finances and management of the business, exposing them to the decision-making processes and incentivizing them to improve business outcomes. Zingerman’s incentivizes employees with two forms of profit sharing; when the business does well, they are rewarded.

Ari Weinzweig, a cofounder, likens the traditional restaurant model to a basketball game where only the coach is allowed to know the score. “Leaders have to believe that the staff has something to contribute. The staff has to believe that they matter and it’s worth paying attention,” Weinzweig said. “Just like citizens have to believe it’s worth voting or they won’t vote.”

Yang uses dynamic pricing, service-inclusive pricing, and open-book management in his restaurant and has found massive benefits. “We have a team who actually enjoy their work, which financially translates to much less turnover and hiring, onboarding, etc., costs,” he said. “I believe our model is more sustainable financially and socially. In an industry where most restaurants lose money, and successful ones eke out a tiny profit, we're doing a little better than that.” 

The existential crisis of today’s food-service labor market is not going to be solved by a recession or voice-ordering technology. The fundamental problem is that restaurants have long mistreated their workers. So when many veteran employees had a chance to get out of the industry during the pandemic, they did. And now restaurateurs are left holding the bag. To survive, restaurants need to reimagine how they treat their employees. And to do that, everyone who eats at restaurants needs to swallow the pill of change. 

I’d love to see more restaurants adopting innovative solutions to become more sustainable. But they won’t until us diners stop being so entitled by expecting everything to stay the same. The old paradigm of restaurant economics — 30% labor cost plus 30% food cost plus 30% fixed costs equals 10% profit — doesn’t hold water in an era where restaurant profit margins are shrinking. The business model isn’t working and neither is the labor model of 14-hour workdays, last-minute shift changes, and customers deciding how much servers earn. Until restaurants are ready to face that, labor shortages will persist and the experience of eating out will continue to crater.

Corey Mintz is a food reporter focusing on the intersection between food, economics, and labor. He is also the author of "The Next Supper: The End Of Restaurants As We Knew Them, And What Comes After."

Correction: February 22, 2024 — An earlier version of the story misstated which company Nick Kokonas cofounded. It was Tock, not Toast.

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