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DC Restaurants Turn A Profit With No Tips & Higher Salaries

Kelly Phillips is cofounder and hospitality director of DC-based Destination Unknown Restaurants, which includes Destino, Las Gemelas, and Espita. Destination Unknown’s restaurants did away with tipping in 2020—guests now pay a standard service fee, and front-of-house staff are salaried—and staff members earn bonuses based on satisfied customer reviews. In May 2021, President Joe Biden paid Las Gemelas a visit to announce that the taqueria would be the first restaurant in the United States to receive a Restaurant Revitalization Fund grant.

Writing is my first love. I studied journalism in college and started out as an intern at a local paper in Philadelphia. I really fell in love with the food scene, exploring and learning more about chefs and restaurant operators. I got this idea in my head that I would love to open a restaurant one day.

It’s really important that your guests understand what you’re offering, the story that you’re telling. Everybody’s looking at restaurants on Instagram, they’re reading the websites. They care more about chefs and the operators, the people behind them. You’re telling a story from the moment they book a reservation on your website, follow you on Instagram, and then when they enter your door. You have to be good at many different things, telling that story, cooking the food, and making sure it hits the table on time.

Restaurants in DC have always been very influenced by what’s happening in politics, so if Congress is not in session, restaurants might be a little bit slower. That’s changing. You have more people here for different industries, and there’s more of a creative scene. But if there is a big rally, it definitely impacts service. A lot of our guests might not be able to get to us because of traffic. We’re always tuned in to what protests are happening. If there is an important hearing and people want to be in front of the television at home, they might order from Ghostburger that night instead of having dinner at Destino.

Photo: Reema Desai.

Receiving the first Restaurant Revitalization Fund grant was actually crazy. We got a call the day before that somebody from the White House would be coming in. We had no idea why. They did background checks on all of the partners. Then an hour beforehand, we learned that President Biden would be awarding us the grant in person. I took his order. He ordered very well, by the way—four tacos and two quesadillas.

We were all just completely in shock and surprise. It was the busiest day we’ve ever had.

We had signed the lease for this new restaurant before the pandemic. All of our investors pulled out. We had just a handful of people who were willing to back us, and we had to get creative with how we built the restaurant. Normally when you open a restaurant, you want to have a buffer, you want to have some money in the bank because your first year is usually not profitable. You need to have savings so that you can survive your first year. With Las Gemelas and Destino, we opened with nothing. We barely made it to our opening.

There were two people on our team, Rogelio Martinez and Yesenia Neri Díaz, who were both from Mexico and had been with us since 2016 when we opened our first restaurant Espita. We wanted them to become partners with us in Las Gemalas and Destino to showcase their skills and highlight Rogelio as a butcher and Yesenia as the head of our tortilla program.

We got this idea with the new restaurant opening—what if we offered a salary for full-time employees? This was mainly meant for front of house, because we were already paying the back of house as much as we could, trying to be very competitive and make it worthwhile for them. So for front of house, if you’re full time you’re eligible for a salary with a monthly bonus incentive for excellent reviews. Every month, if the restaurant has a certain score on Google and Yelp, the server or bartender would receive a bonus. Everyone receives the same bonus if we hit our goals for reviews, which keeps it simple and encourages teamwork, and doesn’t make it feel competitive.

On Yelp, the bonus target is 4.5 stars, and on Google it’s 4.7. They can also receive additional bonuses for a Michelin star or Washington Post review.

Every month, they report the scores to me, and we distribute the bonus in the first paycheck of the month. The self-reporting is an important way to make them feel involved in checking and paying attention to our improvement and feedback. That helped us to attract and hire higher-talented people over time—people who want to work in a team environment, and who want to have a stable, reliable income, and a path to growth.

We did away with tipping during the pandemic. We wanted to make sure that people were being paid fairly. This is a scary time to work in a restaurant, and we wanted to remove a lot of that stress and fear. They’re showing up to work and risking their lives to feed people, so they deserve to be paid well. We chose 20 percent for the service charge because that’s on average what most people were tipping anyway.

Photo: Reema Desai.

With the traditional tip model, you’re trying to get the guests to spend more money. The servers are trying to upsell everything. They want to get that fancy bottle of wine on the table. With our new model, the goal is for the guests to have a good time and come back again and again. We’re trying to build long-term relationships with these guests. Over time, they’re going to spend money with us. But our servers are not trying to get giant tips on every table. They’re not focused on that tip, so they’re not worried about how much money they’re going to make. If it’s slow, if it’s raining outside or snowing outside, they know they’re going to get their same paycheck.

For guests, the experience feels nice, it feels authentic. When they get up at the end, they know there’s a service charge. We point it out to them, so it’s seamless. It feels less transactional, it feels more intimate, and they know that our team is being taken care of. If they have questions about our wage model, the servers are like, “Oh, yeah. I’m paid a salary. There’s no need to tip.” If anybody wants to tip extra, they certainly can. That does happen, but there’s no pressure.

So the focus is really on making the guests happy and getting good reviews. We’re one of the highest-rated restaurants in DC. If you look at our reviews for Destino, you’ll see reviewers mention their servers’ names.

One of the benefits is that payroll is easier than ever because you don’t have to worry about tips. What used to take several hours now takes less than an hour. Income can play such a stressful role on a daily basis for many people in our industry, so that feeling in the room has changed with the new model. My team is a lot happier, and they’re not in the corner freaking out about how much money they’re going to make.

Photo: Reema Desai.

Operators are picking up on this very quickly. We all want a healthier workplace environment. I mean, who doesn’t want that? Our guests are seeing it everywhere they go. They’re happy because they don’t have to do math at the end, and they know the server is being taken care of—tipping is so awkward. It puts so much pressure on the guests, too.

I really like this professional wage structure. I’m not sure if it would work for other businesses, but I would like to see more people try it. The crucial part of this for us is our bonus structure and incentivizing good service. I think that’s going to have a huge impact on our industry if we’re able to find a way to attract talented people and incentivize and empower them to do the best job that they can. Right now, I feel like we’re still trying to catch-up in how we support our team and focus on the guest experience. People are struggling to hire right now, so the last thing that they’re thinking about is the guest experience.

Our team is so focused on giving a good experience because it’s part of their bonus, it’s part of what they do. The restaurant’s success is very important for them. That has created more business for us, and so our numbers are up. We are profitable with this model.

I look for people who are serious, who’ve been in the industry for a while. If you’re new, I would definitely hire you as a food runner. Training has become easier because you have these salaried servers who are very good about taking people under their wing and training them—they want to make sure a new person isn’t going to bring down their service standards.

Photo: Reema Desai.

I think our diners are paying attention to this, too. They know what’s happening, they know what restaurants are dealing with. Their comfort level with the service charge has definitely changed. They’re understanding what we’re going through and why we have to charge what we charge. I very rarely get pushback on anything like that. If someone does complain about prices, we certainly would direct them to Las Gemalas for tacos, or they can order from Ghostburger.

We are trying to be very competitive with our wages back of house as well. I would love to be able to give everybody a salary one day. That’s kind of a dream scenario. You have to have a very stable business model to do that. I think right now stability has been tricky with the pandemic and what’s happening in politics.

Recruiting chefs has probably been the hardest part. I can train somebody to be a good server. But it’s really hard to find a very talented chef who is not only good with all of the kitchen tasks, but also all the administrative tasks that would fall under a chef or a sous chef. A lot of them did leave DC during the pandemic.

I would love to be able to get through this year without another wave of the pandemic. The restrictions are always changing here. You just have to think fast. We’ve learned to get creative, react quickly, and make good decisions quickly. We’re definitely very active in our community, and we speak to a lot of other restaurant operators. We all lean on each other and provide resources and advice. We’re always in constant communication here.