Why Don't Restaurants Just "Include It in the Price"? A Look From Both Sides of the Table

A confession, from the diner's side of the table

Before any of us put on an accountant hat: we eat at restaurants too, and we've all had the moment. The check comes, the iPad spins around, and now you're doing quiet math over 18%, 20%, or 25% while the server stands there. It's a strange ritual when you actually stop and look at it — and it's not surprising that "why don't they just include it in the price?" is one of the most common things people say about restaurants, full stop.

It's a fair question. It's also one restaurants have actually tried answering — repeatedly, going back a decade — and it's worth looking at what actually happened when they did.

The case for just including it

The argument for building service into the menu price is genuinely reasonable, and it deserves to be taken seriously rather than waved off. No math at the table. No guilt about being a "bad tipper." A server's paycheck doesn't depend on whether the table next to them shows up to tip well or not, or on a slow Tuesday versus a packed Saturday. For a lot of diners, that's just a cleaner, more honest way to pay for a meal — you see one number, and that's what the meal costs.

Why most of the restaurants that tried it went back

This isn't a hypothetical. A number of well-known restaurants and restaurant groups have actually run the experiment, and the pattern that shows up across almost all of them is a version of the same story.

Joe's Crab Shack became the first national full-service chain to try it, rolling out a no-tipping policy across 18 locations in 2015. Within roughly a year, the company had walked it back at all but a handful of locations — 14 of the 18 test restaurants saw an 8–10% drop in customers.

Bar Agricole and Trou Normand in San Francisco, run by restaurateur Thad Vogler, tried a straight service-charge model for ten months. The restaurants reverted to gratuity-based pay after roughly 70% of their previously tipped staff left during the trial.

Fedora in New York, from restaurateur Gabriel Stulman, tested "hospitality included" pricing for four months. Menu prices went up to cover it — and diners responded by ordering less food, even as wine spending held roughly steady. Revenue dropped. Rather than raise prices again to protect what servers were making, Stulman ended the experiment.

Ivar's Seafood in Seattle is the interesting exception: by most accounts the switch worked operationally. They brought the tip line back anyway — because customers asked for it.

Four different restaurants, four different outcomes on paper, and the same underlying lesson: this isn't really a menu-design problem. It's an economics problem, wearing a menu-design costume.

Why "just raise prices" doesn't pencil out

People don't realize how many other expenses are based on wages and revenues. It's easy to just say increase your prices and pay people a fair wage. I love that idea. It's also not based in reality. Insurance is based on revenues, so now that we've increased our prices 20% so we can pay fair wages, now our insurance goes up (and that's an expense line that's been skyrocketing for years that no one seems to talk about or ever discuss as something killing independent restaurants — this is a later blog, but seriously, who isn't excited about giving our nameless, faceless insurance overlords more money… what are they gonna do, name another stadium somewhere?). Cool, insurance has increased, but also, many restaurants pay percentage rent to their landlords… now that's gone up too. Payroll taxes are going to go up as well. We currently get a tax credit on the payroll taxes we pay on reported tips — that's not disappearing for restaurants that keep tipping. But the second you swap tips for a flat "fair wage," that money isn't tip income anymore, it's just payroll, so you don't qualify for that credit anymore either. Same law, we just talked ourselves out of it. I'm naming 3 items off the top of my head that are going to increase by just raising prices and paying fair wages, but prices aren't going to go up by 20% to do this, they are going to have to go up 30-35% to cover the costs.

Who actually loses when that math plays out

Who loses there? Everyone. You can't afford to go out to eat as much as you did before and now the restaurants are closing as their revenues decrease and now less people are making money as servers. There's no one that cares as much about restaurant workers making a fair living wage as the owners. If it was as straightforward as raising prices, it would get done.

Tips, reframed

Tips are an artificial way to keep the cost of dining out down for the guests. They just have bad PR. Tips are really "wages paid by the guest to keep the cost of the meal as cheap as possible."

One ask, if you're reading this as a diner

I beg you, tip a minimum of 20% and don't judge a server on bad service by punishing their paycheck. They might have had something bad happen to them that day and can't afford to call out or they might just not be a very good server (they probably know that and won't last too long). Most restaurants tip pool anyway. If the service is bad, maybe you calmly ask to chat with a manager and just let them know the service wasn't what you'd hoped for or expected and maybe next time they can do better. Or vote with your money by not coming back, but remember, many of us are fortunate enough to not have our financial livelihoods reviewed each day with each interaction we have at our jobs. We're lucky for that. What would your Yelp score be?

The collective-action problem

Here's the numbers version of the same point: restaurants run on famously thin margins — full-service restaurants typically net somewhere between 3% and 9%, with plenty running below that. The tipped-wage system exists because it lets a restaurant pay a lower direct cash wage as long as tips bring an employee's total pay up to (usually well above) minimum wage. Unwind that without every restaurant on the block doing it at the same time, and you're either raising menu prices sharply overnight, or you're the one restaurant on the street whose prices look higher than the place next door that didn't change anything. That's a collective-action problem — one owner can't really solve it by opting out alone, which is a big part of why the well-intentioned experiments above kept running into the same wall.

Where this leaves us

Diners aren't wrong that the current system is a little strange to sit inside of. Restaurants that have tried to fix it aren't wrong that it's harder to unwind than it looks from the outside. Both things are true at once, which is probably why this debate hasn't actually gone anywhere in the decade since Joe's Crab Shack first tried to answer it.

I see this from a slightly unusual seat — I run the books and payroll for restaurants and bars across Texas, so I'm one of the people actually watching how tipped wages, tip credits, and razor-thin margins interact in practice, not just in theory.