Although this article from Fortune was published over the summer it highlights an important economic concept: incentives.
The “no tipping policy” introduced by Bar Macro institutes a new incentive structure for the staff by providing profit sharing, health care, stable wages, vacation days, etc…
The immediate effect was an increase in revenue of 26% and decline in costs of 8%
Is this really a surprise though? We teach our MBA students that efficiency wages, profit sharing, and fringe benefits are important motivators for workers. It cuts down on turnover, shirking, and general inefficiency.
So is this model sustainable in the food service industry? I would argue that it is but only for certain restaurants. Since, tipping is generally an ineffective method of judging service it would take an owner dedicated to their customers and employees to institute such a policy.