Tres Gatos, Centre Street Cafe Add 3 Percent Fee for Back-of-House Staff

If you’ve dined at Tres Gatos or Centre Street Cafe this week, you might have noticed an additional 3 percent charge on your bill. The team behind the popular Jamaica Plain restaurants (and the forthcoming taqueria Casa Verde) has begun adding a 3 percent “hospitality administrative fee” to diners’ checks.

The fee will be used for raises, benefits, and more sustainable work hours for the restaurants’ back-of-house kitchen staff, who, unlike servers, do not receive tips.

Tres-Gatos

In addition to improving quality of life for their back-of -house staff, owners Keith Harmon, David Doyle, Maricely Perez-Alershope hope “to serve as test model from which other small restaurants can gain valuable insight,” according to their open letter to the community, which is reproduced below (and can be read in its entirety here):

An Open Letter to the Restaurant Community: Why we are changing our business model, and why you will see an administrative fee on your bill.

We have decided to change the business model of Tres Gatos and Centre Street Cafe in Jamaica Plain in order to be able to pay our back of house (BOH) kitchen staff better in relation to the rest of our team. The disparity between front of house (FOH) and BOH compensation has been growing for many years. What was a gap 25 years ago has become an abyss, and it will only continue to widen. We think that within 5 years the majority of restaurants will have adopted some measure to address this critical issue. We are choosing to do so now for the benefit of our BOH teams, and because we would like to be agents of change and share our results with other restaurants. We are writing this letter for three reasons:

1. To be completely transparent to all of our stakeholders (team, community, guests, vendors, investors/lenders) about what we are doing.

2. To explain why we are doing it and why it is so important to us and our industry. And,

3. To ask for support as we try a new approach.

There are some well-known statistics regarding wage growth among tipped employees vs. non-tipped employees. In our restaurants, tipped/FOH team members make 2.2 to 2.6 times as much as non-tipped/BOH employees. The fundamental issue underlying this widening gap, as we have come to see it, is that tipped employees are tied to top-line revenue, whereas back of house employees are tied to bottom line results.

Every time we increase menu prices to cover inflation somewhere in the expense structure, we cover the expense but we widen the wage gap. While we’ve largely been spared the hiring crisis many restaurants have faced, we feel the wage problem can no longer be ignored. How can we as owners tolerate a scenario whereby half of our team’s compensation is about 60% lower than the other half’s? We’re tired of feeling like our kitchen staff are second class citizens. We’re tired of knowing that they would be financially better off bussing tables or working at a chain restaurant. We need to hitch (at least part of) their star to top line revenue if we want to correct the disparity.

The impasse we’ve reached presents us with a host of difficult choices. Do we live with the status quo and accept stagnant wages in the kitchen? Or, in an effort to pay our kitchen staff more, should we cut total hours and streamline how we operate: stop making our own pasta, bread, and pastry, and buy those things even though we know they’re better if we make them? Should we stop doing our own fish and animal butchery? Should we work with mega-vendors and stop supporting local agriculture? Should we give less to charity and support fewer local events and organizations? Or, finally, should we ask guests to pay more in order to directly benefit the kitchen?

Beginning December 1, 2015 we are making two substantial changes to how we charge at Tres Gatos and Centre Street Cafe: First, all group, prix fixe, and event dining will have a 15% service charge and a 7% hospitality administrative fee added to the bill. Second, all other diners will have a flat 3% hospitality administrative fee added to their bill, and guests may still tip as they see fit.

All of the charged hospitality administrative fees will be used for raises, benefits, and more sustainable work hours for our BOH team. We know many people will ask, “Why don’t you just raise your prices? This is your problem.” Our response is that it is our problem, and that in fact we are raising prices, albeit in a slightly different way that specifically aims to close the quality of life gap between front and back of house.

The FOH/BOH wage gap issue pervades the U.S. restaurant industry. Success and evolution in this industry is our life’s work, and we believe our restaurants – and small, independent restaurants in general – will not be sustainable for much longer without a correction. Quality restaurants cannot function, much less thrive, without quality chefs and cooks. We hope that making this small change will have a sufficiently large effect. Our goal is not only to improve the lives of our BOH employees, but to serve as a test model from which other small restaurants can gain valuable insight. We acknowledge that this is a risk, one that might not work, and if it doesn’t we’re willing to chart another course. But we need to take our best shot at fixing a problem that is growing increasingly difficult and intolerable, and we need your understanding and support.

For small restaurants that don’t want to sacrifice craft or integrity in order to serve the communities they love, we believe this is a fair, effective, and sustainable approach. We will open Casa Verde with this model as well. Our hope is that by making the compensation more equitable at each restaurant, our teams will be able to achieve more, not less, for many years to come. We thank you in advance for your understanding and support as we attempt to correct this core issue.

Thank you,

We Live to Serve,

Keith Harmon, David Doyle, Maricely Perez-Alers

(Owners of Tres Gatos, Centre Street Cafe and Casa Verde of Jamaica Plain.)

Following an initial Boston magazine report, the issue touched off a passionate discussion on Universal Hub, with Doyle responding to numerous comments, providing additional information on the owners’ business model and rationale for adding the fee.

Would you be more or less inclined to dine at these restaurants because of this 3 percent fee, or does it not make a difference to you?

  • Malena

    I totally agree in principle, but it’s hard to fully accept the owners’ rationale when one considers the amount of money they must be making if they are opening yet another restaurant. Why not take some of the profit they are making and give it to the back of the house ? Actually, I believe it’s called “giving workers a raise”. As for myself, a resident of Jamaica Plain for over 40 years, I can’t afford to go to Tres Gatos or to the new Centre St. Café. So, I guess it won’t affect me.

    • WeLivetoServe

      All of the restaurants are financed by debt and investments from friends and family and of course our own life savings. We did not start wealthy and certainly haven’t become so. The main reason for the restaurants has always been to add something to the neighborhood while providing a livelihood in an industry that we love, flawed as it may be. We have given our BOH employees raises and allowed the bottom line to fall to mid single digits. We also could have reduced our significant donations and contributions to neighborhood organizations and non profits, stopped supporting small vendors and farms, stopped making everything in house, etc… but that is not the restaurant either we or our team want to work in. Plenty of the room in the market for that, but that is not where our passion lies, This is something we have been working on for a long time. This is a fundamental problem inherent to the industry of small, neighborhood restaurants, and it is our sincere belief that within 5 years there will either be more restaurants innovating to solve the wage gap or less small restaurants, period. It is a small but significant change, and we do not expect everyone to take the time to understand it or like it. Our staff is completely behind us and we haven’t had a single guest complaint, this isn’t surprising necessarily as we have a lot of faith in our people, but it is humbling none the less.

    • David Doyle

      Malena: Opening another restaurant doesn’t mean we’re making lots of money; what it does mean is that we have strong connections and support in the neighborhood. We would love to simply “take some of the profit (we’re) making and give it to the back of the house,” but our profit margin is mid single digits, and if we shaved that down to pay our BOH crew more, we would jeopardize our business, and that doesn’t benefit anyone. We are proud of how we treat our employees, and proud of the local jobs we’ve created. Ask our employees how they feel about the new policy.

      • Malena

        Sorry, but I don’t believe you. I have been a small business owner myself and opening a “branch” can’t be done without significant backup. The fact that you are still going strong with not one, but 2 restaurants means that your profit margin is higher than you are saying…I’m old enough to know that numbers can be cooked any way one wants. Plus, how would we know? We don’t have access to your books nor should we. I believe that you are sincere in trying to make it better for your employees but what is bothering people, DD, is the way you are going about it. You (in the plural) are cloaking your business decision in this mantle of righteousness that is frankly, kind of embarrassing. Call it what it is – you are trying a new business model to get the dining public to directly support the people who cook their meals. It’s an interesting concept and I believe you when you say that you will give that 3% to your employees. However, would I believe others who jump in your bandwagon? Not at all. That’s why I try to always tip in cash especially in smaller venues because I don’t really trust that what I write as a tip will actually go to the server.

        • David Doyle

          I applaud Chris Helms, co-publisher of Jamaica Plain news, for jumping in on this thread and urging everyone to act like neighbors. My partner and I (and our teams) are happy to continue this discussion with anyone and everyone interested in an honest debate. Our goal is not to convince everyone that we’re right, and as I’ve said before, we’re happy to entertain alternative approaches. But we’re not going to passively sit back and let ourselves get attacked or slandered. Malena, if you don’t believe me, you don’t believe me. What matters to me is that my teams, and most of our guests, DO trust my partners and myself, based on a solid record of running businesses in JP that are committed to the betterment of our neighborhood. Finally, I’m not sure where you’re seeing a “mantle of righteousness,” we’re not claiming to have found the golden key to the palace, we’re just trying to explain the philosophy and numbers behind our decision.

        • WeLivetoServe

          Ff we tell you the truth and you just don’t believe us then there isn’t much more to say, except that I’m sorry we couldn’t get your support. The market tends to identify and punish dishonest businesses, usually led by their employees which is exactly how it should be. Proud to report we didn’t have a single guest complaint in our first week. We know there will be bumps and were always entirely dependent on our staff, guests, and neighborhood.. that is true now more than ever and we wouldn’t have it any other way.

  • patty

    I have to agree. Why are customers being charged extra to pay the owners labor fees? I think all the extra fees will drive away business and will make customers seek other venues when dining out. There are plenty of other restaurants in Jamaica Plain that customers can utilize that are not asking customers to pay for labor costs. Employee benefits are part of the cost of running a business and customers should not have to fund what the owners employees are entitled to. Business is robust at both of these venues so it looks like the owners are making a good profit from which they can afford to pay their employees a decent wage. In addition, if one comes with a group or dines from the prix-fixe menu then they will be charged a 23% service fee. That will make the cost of dining out for many too steep and I think your business will fail rather than blossom. As a customer, it is not up to me to ensure that as an owner you are giving your employees a decent wage. Eating out is a choice and I think this “new model” will turn people off and they will eat elsewhere. Your prices are already steep.

    • David Doyle

      Patty: all the expenses that a restaurant pays, including “labor fees,” are paid by our guests. That is our only source of income. We’re choosing to add this fee instead of raising all of our menu prices because it helps solve the problem long-term. Raising menu prices is a one-time fix, and will not solve the problem because we’ll have to raise prices again and again in the future to cover inflation. We’re sorry you feel our prices are too expensive; our menu prices are based on the quality of our ingredients and the amount of time required to prepare our made-from-scratch dishes. Please don’t confuse “robust” business with huge profits. We are fortunate to be busy, but neither restaurant makes a large profit.

    • WeLivetoServe

      Every restaurant inJP and on the planet asks it’s guests to pay it’s employees. There is a problem unique to restaurants- two fundamentally different types of employees working in the same business model. I don’t mean different positions, I mean entirely different sets of wage laws. Different industries have different challenges and this is absolutely the biggest challenge ours faces. Many, many restaurants have tried many, many solutions to correct the problem. So you can dislike our approach but respectfully it is not possible to dismiss the existence of the problem If it were an easy fix, it wouldn’t be a thing and none of this would be happening. Our prices reflect razor thin margins, but I’m sorry you don’t see the value there.

  • Ryan

    The growing gap in wages is because of not paying BOH employees a fair wage to begin with. Instead of just paying them a good salary that is built into expenses or tip sharing (which plenty of successful businesses do) a fee will be charged to the customer on the final bill? That doesn’t make sense to me.

    • WeLivetoServe

      Respectfully that is a gross oversimplification. We pay above “industry standard,” but that standard is not something that we think is enough. Wage growth for tipped restaurant staff has grown 200% over the last 30 years, but non-tipped kitchen staff wage growth is only 25%. Having 2 distinct typed of employees in the same business model is the main structural issue that leads to the gap in earnings that continues to widen. This is a problem with our whole industry but we’re choosing to address it in our restaurants for the benefit of our staff. It’s not an easy problem, if it were no one would be talking about it. We knew there would be a lot of internet vitriol going into it, we just want to make sure the people who come through get our side of it as well. There is zero upside for us. This is a one time price increase to close the wage gap slightly and to create a mechanism by which our ENTIRE team will benefit as sales go up or prices increase due to other factors (cost of goods, insurance, inflation) in the future. So far, so good internally with our team 100% behind us and zero complaints in the restaurants.

      • Ryan

        I don’t discredit the motivation. It looks like we agree that even “above industry standard” isn’t fair. I just think (and it seems like others posting here and on other sites) think that either tip sharing or no tipping is the way of the future. Who likes a fee?

        • We Live to Serve

          Thank you. It may not be, but it’s a big step in the right direction and I’m proud of that. This is a thorny issue and there are legal requirements for the language. These are in place for good reason and we’re committed to doing everything above board. It’s a tough problem to fix and there are a lot of limits on what the solution can be.

  • JC

    I have been a supporter of the owners since they opened their book store Rhythm & Muse in Hyde Square 20+ years ago. They always seemed like nice, rational guys. But now I think they must have lost their minds. The greed of these guys is horrendous and offensive.
    1). If their is a wage gap for the back of house workers it is because Tres Gatos is paying them a lousy salary.
    2). If they deserve more money why aren’t the greedy owners paying them what they deserve? I have a suggestion to Tres Gatos: if you want to pay your workers more why not LOWER YOUR OWN SALARIES? Sadly I will be boycotting all of their businesses if this is their new business model, because guys…it sucks.

    • WeLivetoServe

      Our margins are in the mid single digits and several of our employees make more than we do. It is not unusual for us to not take any money whatsoever for long stretches so that we can stay on mission and stand by our stakeholders. This is an industry problem that many, many, many restaurants are talking about.. If there were any easy fix, we would never take such a risk exclusively to take better care of our people. I’m actually glad to be really upfront and share actual numbers with people who sincerely want to understand the motivation; you are definitely not one of them. Our team is 100% behind us, as we have a long history of mutual respect and cooperation. Something hard earned but easily doubted and maligned on an internet chat board. Even with this massive 3% price increase, I think we still offer a tremendous value and we work hard to make that the case with every day, every guest, and every plate of food.

    • David Doyle

      JC: Calling us “greedy owners” is kind of silly, since our profit margin is around 5%. We would love to simply pay our kitchen crew more, but our very slim profit margin doesn’t allow it. Suggestion: do some reading about the restaurant industry before judging our attempt to deal with a serious, industry-wide problem in an honest way. Don’t assume we’re making huge profits when we’re not. If you see this as an act of greed, you’re seriously missing the point.

      • JC

        I think it’s insincere to say that your (likely soon to be former) “guests” won’t or can’t understand your reasons behind your decisions. I think your real reasons are pretty clear. If you wanted your boh staff to receive a living wage (and you haven’t actually stated that any of your staff receive a living wage with or without your new tax), then you would have been paying them a living wage all along, and passed that cost onto the customer by adjusting menu prices accordingly. That your staff is behind you really isn’t a surprise seeing that they’re getting a raise based not on merit or work, but on a sneaky tax levied to customers who have no choice In the matter. If you think the industry standard is too low, then raise it. Your loyal guests will understand.

        • WeLivetoServe

          I think he’s being sincere and really just referring to you. If we tell you the truth about what we are doing and why we are doing it, and you choose to just not believe us then there isn’t much useful dialogue left to be had. We do think the industry standard it too low. We have raised it via a 3% price increase. Our loyal guests have understood it with zero complaints happening at either restaurant. You obviously don’t like it, and that is totally fine and you will not be supporting us, think you could find it in your heart to at least wish us no harm?

  • Monster

    The truly innovative solution would be to abolish tipping altogether. Tipping is stupid. No other Western country does tipping, and Europeans think Americans are fools for subscribing to such a patently dumb compensation system.

    • WeLivetoServe

      Tipping is an institution dearly held by tipped servers and guests alike. It is how 99.5% of all restaurants operate. We realized that we did not have to confront or dismantle tipping in order to achieve the result we wanted- closing the wage gap in a way that will also track into the future and doesn’t cause the servers to make less money or violate the expectation of our guests more than is necessary to achieve the goal. It is hard problem and requires a non-traditional solution, but at the end of the day it is a 3% price increase. I don”t mean to sound corny because I take it incredibly seriously and we’re taking a major risk, but restaurants are the nations third largest employer and for literally pennies on the dollar (top line) we can make a significant difference for almost half of the workers- the kitchen staff.

      • Monster

        A 3% increase will not affect my dining choices in any way. If it hadn’t been publicized, I never would have noticed. I appreciate that you are trying to mitigate an unfairness in the compensation model for restaurant employees, but I stand by my original claim: that compensation model is stupid. Tipping, as a model, is DUMB. It allows the restaurant industry to skirt minimum wage laws, presents a needless element of uncertainty into server’s incomes, creates all kinds of tax headaches, and (in upper-scale restaurants such as yours) leads to pointless wage gaps between pretty smiley people working front of the house and talented people working back of house.

        • WeLivetoServe

          In a human way I totally agree with you. As a practical financial manager working in the industry, I think that would be too big a risk to achieve a similar result. We want to do the right thing NOW for our people, but fully believe that in the near future many, most, or all restaurants will have to make SOME sort of change to keep serving their communities. I don’t think guests or the industry are ready to let go of tipping, but I know it will be on the table more and more as time goes on. I hope you will support the restaurants that decide to go the route you believe in, since it will be a big risk for the first few. I also hope you will support ours, and appreciate your engagement here.

          • Monster

            Thanks for the thoughtful replies, here and elsewhere. At the end of the day, I applaud your effort to help BOH staff earn more.

        • WeLivetoServe

          And we thought it was important that everyone know up front exactly what we are doing and why. It’s front and centre on all menus with the full letter printed on the back. It wasn’t for publicity, it was for transparenct.

  • meow meow meow

    Just raise prices 23% and put a note in your menus telling customers not to tip. Then, pay your staff a ‘fair’ wage that you’ve somehow come up with using obtuse math and reasoning.

    • David Doyle

      First, we don’t think that’s fair to our guests, since many of them are in favor of tipping as a way to show gratitude toward their server. The push back we would get from “telling customers not to tip” would, I guarantee it, far outweigh the push back we’ve encountered (on-line) this week. Second, if you sincerely believe that more people would be in favor of an overall 23% increase in prices than our current approach, then I would say that’s a pretty risky bet, as we have had zero complaints from our guests at both restaurants this past week. Third, the approach you recommend actually takes control away from the guests, as that means the house then has total control over how to distribute the revenue from that hefty price increase. Fourth, my partner and I have done our best to explain in numerous posts (and in our published letter) why we believe this problem can’t be addressed with menu price increases alone. Menu prices for our restaurants and all restaurants continually need to be raised in response to inflation, so that’s not a great mechanism for fixing an inherent problem with the restaurant model. There’s nothing obtuse about a flat fee that immediately helps solve a problem with or without menu price increases.

      • Ryan

        Doesn’t this only “fix” the problem if inflation stays low? If the menu prices increase due to inflation every year, say 2%, the gap in pay will still continue to rise if the fee stays at a flat 3%, assuming people tip 20% on average. I’m not saying your’e wrong, I’m just curious how you worked out the number.

        • David Doyle

          Ryan, thanks for the question. We only raise our prices when we have to: i.e., when something we serve, such as shrimp, goes up in price and we have no choice but to pass that on to our guests. The fact that the admin fee is pegged to our total revenue means that, even though the % stays the same, the amount we’re able to direct toward kitchen wages increases as our prices increase. Hope that helps.

          • Ryan

            Thanks for the response, David. I’m having a hard time seeing how this fixes the wage gap, however. If prices rise (and I understand it’s necessary, no complaints here), the amount made on tips (20%) will increase at a higher rate than the 3% fee, creating still a larger gap. The 3% extra is a nice raise for now, but how do you see it helping in the future when BoH employees are used to it, and they still see the serving staff make more money each year?

          • David Doyle

            Good question, Ryan. Our approach narrows the gap but does not erase it, to do that would require very large price increases and put the business in serious jeopardy. The “large price increase” solution has been tried in other restaurants across the country and never been successful to our knowledge, and after much consideration we don’t think it will work for us. As sales or prices increase so does the percentage calculated, both for the servers in the form of gratuities and the kitchen in the form of the hospitality admin fees. It’s a big problem, we think this is the biggest step we can take without putting all of our stakeholders in jeopardy.

      • JamaicaPlainNews

        Hi, it’s Chris Helms, co-publisher of Jamaica Plain News. I just wanted to thank all the commenters here, including Jamaica Plain business owners, for the detailed debate on this topic.

        We like sharp debate, but let’s also remember we’re all neighbors as we express ourselves.

        Chris

      • meow meow meow

        Why wouldn’t people be in favor of an overall 23% increase in prices with no tips expected? It amounts to the same in terms of what a guest has to pay. Instead of forcing people to pay extra fees, whether it’s tips or this so-called hospitality fee, just charge what it should cost in order to make your 5% and pay the staff, both BOH and FOH, a decent wage and share the risk with your employees – like these restaurant owners below. Note also the wage and price transparency in regards to Clover and Dudley Dough.

        https://www.cloverfoodlab.com/blog/2015/10/29/much-think-clover-employees-earn/

        http://civileats.com/2015/07/16/goodbye-tipping-hello-living-wage-the-changing-face-of-progressive-restaurants/

        http://www.bostonmagazine.com/restaurants/blog/2015/10/12/dudley-dough-opening-profit-sharing/

        • WeLivetoServe

          It’s up to every business owner and management team to chart the best course. I’ve followed all of these examples and applaud them and the approach that they have decided on. This is a difficult problem that pervades the entire industry, and there isn’t a one size fits all solution. I truly believe this is the best way forward for our teams and guests as well as all of the other stakeholders that rely on us to continue to support them. The fact that many restaurant are tackling this problem in many different ways only confirms how serious and hard to address it is.

  • JamaicaPlainNews

    Hi, it’s Chris Helms, co-publisher of Jamaica Plain News. I’d like to thank all the commenters here, including Jamaica Plain business owners, for the detailed debate on this topic.

    We like debate, but let’s also remember we’re all neighbors as we express ourselves.

    Chris

  • Michelle Carpenter Ellis

    I can appreciate the problem and need for a solution, but I’m wondering why a tip share / tip out isn’t used like at many (most?) other restaurants.

    FOH doesn’t get rich on tips without a high-performing BOH and a tip out system strengthens the team chemistry and is rooted in the humbling idea that FOH isn’t successful without BOH. Good for morale all around and good for customers. If you’re usually a 20%+ tipper like many of us are, you can rest assured knowing that your server is still taking home at least 17% for their service.

    A 3% tip out over the night is kind of a drop in the bucket considering how many times BOH does favors and saves FOH staff over the course of a shift. Obviously you must have considered this, so I ask why the choice to go with tacking on the additional surcharge rather than making a modest tip share a part of the culture at Tres Gatos & Centre Street Cafe?

    • Keith Harmon

      HI Michelle, it is completely illegal for back of house kitchen staff to be included in a tip pool. The wage laws are there for good reason and we are committed to addressing this issue above board. We’re only one week in, but I’m proud to report that the kitchen staff have all received raises, our guests continue to tip our servers exactly the same, and we have not a had a single complaint in either restaurant. We’re just getting started, and we will change course if required, but so far the new policy is working exactly as it was meant to. We expected a lot of internet vitriol, just trying to make sure we’re getting the truth out about our motivation, the mechanics, and the vision.

      • Michelle Carpenter Ellis

        Sound reasoning! I didn’t know that was the law here. Glad to hear the new policy has been well-received in practice.

        Lots of people don’t know how to how to talk about change without vitriol. Kudos for the transparency and responsiveness.

        • Keith Harmon

          Thanks for being willing to listen and open to discussion. WE LIVE TO SERVE 🙂

  • Max Ghenis

    Great to see this kind of move, especially knowing it’s a risk. The FOH/BOH wage gap created by tipping is shameful. Owners: you have a fan in me and the EndTipping subreddit community (http://reddit.com/r/EndTipping).

    Was there consideration given to a fixed service charge on all meals, as you’re doing with prix fixe? While this isn’t yet very popular in Boston, it’s catching on in NYC, Seattle, and SF.

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  • Marty

    A friend recently went to Casa Verde and didn’t know about the extra charge until she got her bill. She told her server that it should be more prominently displayed in the menu. I don’t frequent any of those restaurants so I can’t say that it is or it isn’t. But if it’s not, then it should be.

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