Backhaus eliminates tips, raises prices. Will customers accept it?

At one of the Bay Area’s top bakeries, customers paying for fresh bread and croissants no longer see a touch screen prompting them to tip.

Backhaus in San Mateo and Burlingame got rid of gratuities last month and raised prices by an average of just under 11% to cover the cost of higher wages and benefits for employees. An entry-level employee now starts at $23.50 an hour, compared to California’s $16-per-hour minimum wage. The bakery offers complete health insurance coverage for all full-time staff, in addition to previous benefits that aren’t standard in the food industry such as paid parental leave and a 401(k).

Tipless models aren’t rare in the food industry, but most restaurants charge an automatic service fee rather than increase prices. (Backhaus follows the approach at restaurants including San Francisco’s Zazie and Petaluma’s Pearl.) Backhaus’ change also comes at a time of heightened sensitivity to the cost of dining out. And under a new law that takes effect July 1, California restaurants will no longer be able to use surcharges to offset the cost of wages, benefits and local mandates, and must instead fold them into menu prices. While many consumers are celebrating this change, restaurateurs are worried that the sticker shock could alienate diners and result in lower sales at an already challenging time in the industry.

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Yet so far at Backhaus, the reaction has been mostly positive, said co-owner Anne Moser. Some customers don’t even notice that their croissant got more expensive until they ask about tipping and an employee explains the change. (A sign posted next to the payment tablets announces that Backhaus is now tipless.)

“We believe it’s only fair to provide stability to our team and those kinds of benefits and a fair level of wages so they can afford to live in the community that they serve,” Moser said. “That’s part of the cost of doing business around here, so we need to price our products accordingly.”

Moser and business partner Robert Moser never wanted to accept tips at Backhaus. But when they opened the bakery in San Mateo in 2019, it felt too risky. They watched Bay Area restaurants that had implemented service charges revert to tips after backlash or staffing issues. They decided to compromise by pooling gratuities among all workers to cut down on the historic pay disparity between servers, who often make more through tips, and cooks and dishwashers.

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But recently, customers started to tip less — dropping from about 8% of Backhaus’ overall revenue to 6% to 7% — as the business’ costs, from ingredients to utility bills, rose sharply. Gratuities are unpredictable and vague, Moser said: “When tips are not good or very good, we don’t necessarily know why.”

Rather than hike menu prices across the board, Backhaus’ management team analyzed each item. They considered labor and ingredient costs, and looked at competitors’ menus. They used a Massachusetts Institute of Technology “living wage calculator” to assess what a full-time worker would need to be paid to afford their basic needs in San Mateo County. They also thought about customers’ emotional reactions to pricing: How would someone feel about paying $23 for a plate of rye bread and smoked salmon?

The highest increase was Backhaus’ breakfast sandwich, available only at the new Burlingame location, which went from $13 to $15.50. Almost every ingredient on the sandwich is made from scratch, including the poppy seed brioche roll, sausage patty and aioli. Backhaus’ most expensive pastry is now a $9.50 seasonal galette (previously $8.75). Other pastries went up for 25 cents.

On a recent morning at Backhaus in Burlingame, customers shared mixed reactions to the model. One man bristled at the prices and decided to eat somewhere else, while others said they didn’t realize anything had changed. Several supported the new model.

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“It’s refreshing,” said Melissa Basso. A former server, she said she knows “how hard people work for that money.” The higher price “comes with the territory of living here,” Basso said.

Preeti Deb also said she likes patronizing a business where she feels the workers are better taken care of. “They shouldn’t be dependent on tips,” she said.

Both said they dislike the awkward dance of being shown a screen and deciding how much to tip in front of an employee. Moser is hopeful customers appreciate that change, “removing the expectation and uncomfortable ambiguity about tipping for customers.”

Customer Kerri Hampton, who recently moved to California from Ireland, is still adjusting to American tipping culture and Bay Area prices. She questioned why “it all comes back to the consumer,” whether through tips or higher prices — a common complaint, although operators have no other ways to bring in extra revenue.

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One Yelp reviewer complained about being saddled with increased prices at a bakery where many customers take their purchases to-go. “By the same reasoning, if I go buy a pack of gum at Walgreens, am I expected to pay a gratuity?” the reviewer wrote. “Backhaus has made a business decision to force a gratuity upon all its patrons. “I have made a personal decision to not patronize any establishment that chooses to do so.”

Moser understands that Backhaus is not an inexpensive place to eat. She knows there’s a risk of dropping sales. But she hopes it helps people think about “what is attached” to the cost of a croissant.

“If your rent is expensive it means that the baker who bakes bread for you has really expensive rent. The bakery that is in your local community has really expensive rent,” she said. “We’re all in the same boat.”

Reach Elena Kadvany: [email protected]

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