Juan Padro, right, and Corey Baker are opening a Japanese restaurant called Kumoya in the former Tony P’s space in LoHi. (BusinessDen file)
You sit down at a restaurant, you order and you eat. When the bill comes, you probably tip something close to 20 percent.
Or maybe you used to.
More and more diners, in Denver and elsewhere, are now getting checks with an additional fee added. The service charge, whose name can vary, is sometimes 20 percent, and sometimes less. Maybe the check still has a tip line. Maybe it doesn’t.
Juan Padro, founder and CEO of Denver-based restaurant group The Culinary Creative, is among those trying to get the industry beyond the tip. He switched to a service charge at his restaurants — which include Señor Bear, Mister Oso and the new Red Top Rendezvous in Jefferson Park — in 2021.
The following Q&A has been edited for length and clarity.
Juan Padro
BusinessDen: How have you tried to replace tipping at your restaurants, with the exception of Aviano?
Juan Padro: We replaced tipping as a main source of income. The difference is we run a service charge amount; we drop 20 percent to the bottom line and that goes 100 percent to our staff and it’s in a point system (Editor’s note: An employee’s share varies based on factors like position and tenure.) Tips you can’t share with the back of the house because they’re not client facing. We put the service charge in, we put a point system in place, we close the gap and pay between the front and back of the house. We leave the tip line in so anybody who wants to tip more can, and that all goes to the front of the house in a pool.
BD: Why did you switch to this model?
JP: We want to minimize sexual harassment, we want to minimize discrimination and that’s the best way. (With tips) you’re suppressing your A talent at the hourly level and you’re not creating a path forward in careers for people. Your best employee … says why would I go into management, take on more responsibility, more hours and make less money? With a service charge, you can create a path forward because you can reallocate that money and incentivize people to grow their careers.
BD: Why have a fee at all? If an entree costs $20 and there will be a $4 service fee on top of it, why not just say on the menu that it costs $24?
JP: As with anything you’re buying there’s a perception of value. So I just don’t see that as a viable solution – it causes confusion and too many problems. No other industry does it that way. Why should restaurants? You go to a lawyer and you get hit with a fee … It’s the same thing when you go to a resort, when you get a ticket from Ticketmaster … We’re a fee-based economy. Where we are as a country, the cost of doing business, we need fees. It’s the only way to survive.
BD: Is it confusing for diners that restaurants have different systems in place? Some have higher service fees and don’t allow tips, while others have small fees not intended to replace the tip.
JP: Over 700 restaurants in Denver use a service charge. However, there’s no uniform way of doing it and that causes a lot of confusion to the consumers. We’re independent because we like to do things our own way, but in this case we’re hurting ourselves and we’re hurting our peers by not having a consistent model.
BD: In June 2021, the Denver Post reported you told them that 50 percent of diners at your restaurants were still leaving a tip on top of the service fee. Is that still a common practice and is that still around 50 percent?
JP: We decided to track it differently. We aren’t tracking how many people are leaving an extra tip. We are now tracking what the average percent on top of the 20 percent base is at every store. (Editor’s note: Padro said it ranges from 4 percent at the Westminster location of Tap & Burger to 11.6 percent at Forget Me Not, a cocktail bar in Cherry Creek.)
BD: Why do you think a service charge model will help the overall economy, not just restaurant workers?
JP: It benefits the city and state. If you’re adding 20 percent to the bottom line, that’s taxable income … that goes to the city and state … which is really important because we’re talking about affordable housing and things like that. One thing no one is talking about – tipped employees hide their income, so no s*** they can’t afford housing because they say they make $13K a year and they’re making $60K.
BD: How do your waitstaff and kitchen workers feel about your setup?
JP: Back of the house loves it. The front of the house in the businesses that are more career-hospitality people love it. Then the kids that are just punching the clock at some of the more casual spots … probably 20 percent don’t. Eight or 10 kids left, and over half of them came back because they realized the grass isn’t greener.
BD: Do you think the service charge de-incentivizes employees to go above and beyond?
JP: No. I think you always have high performers and the service charge actually allows you to compensate them for that performance. It does raise the floor though … What’s great about our industry is that the employees have the ability to self-govern better because they actually see what their peers are doing daily, and if someone’s not carrying their weight it’s very evident to everyone in the room. That’s not the case in most industries.
BD: Do you think this model will last?
JP: At the federal level, there’s a tidal wave at this point, there’s no avoiding it – tipping is going away. Whether it goes completely away or partially away, it’s up for debate. But that’s going to happen, it’s happening in DC, it’s happening in Chicago, you go anywhere in Miami or LA, it’s all service included.
Juan Padro, right, and Corey Baker are opening a Japanese restaurant called Kumoya in the former Tony P’s space in LoHi. (BusinessDen file)
You sit down at a restaurant, you order and you eat. When the bill comes, you probably tip something close to 20 percent.
Or maybe you used to.
More and more diners, in Denver and elsewhere, are now getting checks with an additional fee added. The service charge, whose name can vary, is sometimes 20 percent, and sometimes less. Maybe the check still has a tip line. Maybe it doesn’t.
Juan Padro, founder and CEO of Denver-based restaurant group The Culinary Creative, is among those trying to get the industry beyond the tip. He switched to a service charge at his restaurants — which include Señor Bear, Mister Oso and the new Red Top Rendezvous in Jefferson Park — in 2021.
The following Q&A has been edited for length and clarity.
Juan Padro
BusinessDen: How have you tried to replace tipping at your restaurants, with the exception of Aviano?
Juan Padro: We replaced tipping as a main source of income. The difference is we run a service charge amount; we drop 20 percent to the bottom line and that goes 100 percent to our staff and it’s in a point system (Editor’s note: An employee’s share varies based on factors like position and tenure.) Tips you can’t share with the back of the house because they’re not client facing. We put the service charge in, we put a point system in place, we close the gap and pay between the front and back of the house. We leave the tip line in so anybody who wants to tip more can, and that all goes to the front of the house in a pool.
BD: Why did you switch to this model?
JP: We want to minimize sexual harassment, we want to minimize discrimination and that’s the best way. (With tips) you’re suppressing your A talent at the hourly level and you’re not creating a path forward in careers for people. Your best employee … says why would I go into management, take on more responsibility, more hours and make less money? With a service charge, you can create a path forward because you can reallocate that money and incentivize people to grow their careers.
BD: Why have a fee at all? If an entree costs $20 and there will be a $4 service fee on top of it, why not just say on the menu that it costs $24?
JP: As with anything you’re buying there’s a perception of value. So I just don’t see that as a viable solution – it causes confusion and too many problems. No other industry does it that way. Why should restaurants? You go to a lawyer and you get hit with a fee … It’s the same thing when you go to a resort, when you get a ticket from Ticketmaster … We’re a fee-based economy. Where we are as a country, the cost of doing business, we need fees. It’s the only way to survive.
BD: Is it confusing for diners that restaurants have different systems in place? Some have higher service fees and don’t allow tips, while others have small fees not intended to replace the tip.
JP: Over 700 restaurants in Denver use a service charge. However, there’s no uniform way of doing it and that causes a lot of confusion to the consumers. We’re independent because we like to do things our own way, but in this case we’re hurting ourselves and we’re hurting our peers by not having a consistent model.
BD: In June 2021, the Denver Post reported you told them that 50 percent of diners at your restaurants were still leaving a tip on top of the service fee. Is that still a common practice and is that still around 50 percent?
JP: We decided to track it differently. We aren’t tracking how many people are leaving an extra tip. We are now tracking what the average percent on top of the 20 percent base is at every store. (Editor’s note: Padro said it ranges from 4 percent at the Westminster location of Tap & Burger to 11.6 percent at Forget Me Not, a cocktail bar in Cherry Creek.)
BD: Why do you think a service charge model will help the overall economy, not just restaurant workers?
JP: It benefits the city and state. If you’re adding 20 percent to the bottom line, that’s taxable income … that goes to the city and state … which is really important because we’re talking about affordable housing and things like that. One thing no one is talking about – tipped employees hide their income, so no s*** they can’t afford housing because they say they make $13K a year and they’re making $60K.
BD: How do your waitstaff and kitchen workers feel about your setup?
JP: Back of the house loves it. The front of the house in the businesses that are more career-hospitality people love it. Then the kids that are just punching the clock at some of the more casual spots … probably 20 percent don’t. Eight or 10 kids left, and over half of them came back because they realized the grass isn’t greener.
BD: Do you think the service charge de-incentivizes employees to go above and beyond?
JP: No. I think you always have high performers and the service charge actually allows you to compensate them for that performance. It does raise the floor though … What’s great about our industry is that the employees have the ability to self-govern better because they actually see what their peers are doing daily, and if someone’s not carrying their weight it’s very evident to everyone in the room. That’s not the case in most industries.
BD: Do you think this model will last?
JP: At the federal level, there’s a tidal wave at this point, there’s no avoiding it – tipping is going away. Whether it goes completely away or partially away, it’s up for debate. But that’s going to happen, it’s happening in DC, it’s happening in Chicago, you go anywhere in Miami or LA, it’s all service included.
