Paying Servers a Salary at Destination Unknown Restaurants

 

Destination Unknown Restaurants is a group based in Washington, D.C. and currently has three concepts. Destino, a modern Mexican restaurant, Taqueria Las Gemelas, and Ghostburger, ghost kitchen who counts President Biden and Vice President Harris as recent guests.

Destination’s founder, Kelly Phillips, joined us on the Pre-Shift Podcast to share their employee-first approach, how they’re able to pay a salary to many of their employees, and hopes for the future of restaurants. But before we dive in, Kelly told us how she got into the restaurant business.

“My husband and I, we’ve always worked in the restaurant industry, through college and earlier in our careers. And we just loved restaurants and it was always something… It was always a passion. Whenever we were traveling, we were traveling based on which restaurants we wanted to check out and which cuisines we were curious about learning. With this passion, we started doing dinner parties at home and we started making cocktails for friends, and we quickly became interested in Mexican cuisine.

I am part Mexican, my grandmother is from Northern Mexico, so that’s always been something that I wanted to learn more about and to feel connected to. We started cooking Mexican food at home. We became really interested in agave spirits, such as mezcal and tequila.

And then our first trip to Oaxaca, in Southern Mexico, was in 2014. We were doing a little R&D because we thought maybe we’d open a small cocktail bar highlighting mezcal. We both traveled there and we found this program that would train you to become a master mezcalier. It’s basically like a sommelier but for agave spirits.

We both studied and participated in the program, and then we came back to DC and we found our first location. It was in Shaw, in Northwest DC, not too far from the White House and the Convention Center. And we got started and it was crazy at first. Obviously, the first couple of years you’re figuring out what to do and, better yet, what not to do. We learned pretty quickly. We opened our second restaurant during the pandemic. In 2021 we opened Taqueria Las Gemelas. President Biden came to visit us a few months after opening, on Cinco de Mayo of all days. And it really took off. Obviously, that was a really big deal for us. And so, then we opened Destino, in the winter of 2020.”

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That practice started early in the pandemic but has continued on into 2023 and is not going anywhere anytime soon.

“If you’re ordering takeaway, you don’t really tip, it’s not really a huge thing. A lot of our staff are like, ‘Oh, no. We don’t have tips. What do we do?’ And we really wanted to take care of them. I think everyone in the world, we were thinking about kindness and empathy and really thinking about each other, which was, I don’t know, of all the terrible things that happened during the pandemic, that was something that really did bring people together and it was a huge moment.

Trying to figure out how to pay people fairly and incentivize them to come to work, and just to make it more sustainable, we shifted to what we call a professional wage. And we call it that because there’s this term living wage and whatever, but we want to treat this a career. It’s my career, many of our employees, it’s something they want to do for the rest of their lives. They’re committed, they love it, they’ve been doing it for a long time. We wanted to bring dignity to this job. I know we’ve heard about all the ways that restaurant workers can be mistreated and taken advantage of. And for us, we wanted to show there’s a different way to do it.

Now, doing something so radical does not come easy. Given that it was during the pandemic though, the appetite was there for it among staff. It provided them with stability during pandemic uncertainty. And in 2023, it provides them with more stability against the weather and the ebbs and flows of business.

I think there was a lot of buy-in from them because they needed stability and they were like, ‘Okay, this is weird. We’re used to being paid a tip minimum. We’re going to try it. We really want to see how this works.’ And it stuck. And 2020, we’re now coming up on three years of doing this in 2023.

We also looked at wages across the board. We looked at the back of house, we looked at the front of house, we looked at bartenders and what did everyone make prior to this. And if you look at it, most servers, most bartenders, they do really well on weekends, Fridays, Saturdays, they make a lot of money. Slower days, Mondays, Tuesdays, lunch service, they don’t make anything. It’s really up and down, it’s very unstable.

Your job, just like any other career, if you show up for work, you get paid. If they’re working, they get paid. It’s raining, snowing outside, they’re okay, they’re getting paid. And in the restaurant world, it’s not like that. If it’s raining outside, you’re not making much money and you’re probably going home early.

We really wanted to create stability for people and we thought it would make them even better at what they do because that stress is removed from them. They’re not thinking about how they’re going to pay their rent and they know what they’re going to make. We’re open, we’re transparent. And they feel respected and they feel connected to what we’re doing and they want to stay. And that’s how you get people that stay and become managers or become chefs, and maybe they become partners. And that’s the business I want to run, where we have people that are really growing with us because it makes us better, it makes our guests happier knowing that people are taken care of and they’re going to see the same people when they come in.”

Destination Unknown’s payment structure has had a positive impact on guest experience, as well. And that stellar guest experience helps staff in the form of bonuses based on online review scores. Here’s how it works.

“When we present the bill at the end, there is a service charge included and we are very transparent when we drop the check. ‘We do a service charge in lieu of tipping. Everything is included. There’s no signature needed. Thank you so much for joining us.’ It’s just a little note that we make sure to mention everybody because there’s a lot of confusion now. Some people are doing the service charge and with a tip line, we just removed it from the equation. If somebody wants to leave a little extra in cash, that’s totally up to them. But our servers will say, ‘Oh, no. I’m on salary. Please just come back and see me again.’ Or, ‘Please leave me a review on Google. That would be very meaningful to me,’ because there is a bonus incentive for them. If we uphold our scores on Google and Yelp, they’ll all get a bonus at the end of the month.

Part of this was trying to get people used to not tipping and it was a little bonus for them. If we hit our scores on Google and Yelp, they get a bonus at the beginning of the month. It has to be for the entire month. We’ve held this score the entire time we’ve been open. It dropped once for 24 hours and I said to the team, ‘Oh my God. Our 4.8 dropped to 4.7. Let’s just be careful.’ And then they all asked their regulars to leave a review and the next day was back up to 4.8. They take it very seriously and it is fun. We try to have fun with it because just being able to do that, it’s a point of pride for us. For them, I think it’s more pride than… Yes, that extra money is nice, but for them, they really take it seriously.”

If paying a salary to restaurant workers was easy, it’d be commonplace. But the razor thin margins that restaurants operate on makes it difficult to do so. Relying on tips and adapting schedules is how restaurants have stayed in the black often at the expense of employee stability. But Kelly and her team are finding a way to make it work.

“It’s still a sustainable model for us, we’ve been able to do it for three years. But we definitely make more money during the warmer months. And then, in the winter, our team goes down a little bit and it shifts to mainly the full-timers. A lot of our students have fewer shifts in the winter, but they know in the spring and summer they’re going to pick up more shifts.

But we have this core team on salary and we certainly try to run very lean in the winter. But it works for us. And I’d say, if you are going to implement this, you really need to make it work and look at how this works for your team. And I’m not saying you can put everybody on salary overnight, that’s really difficult to do, it’s something we would love to be able to do. But we have a few, we have a small core team that are on salary, and everybody else is paid that professional wage.”

Now, it took a little work to figure out which positions are salaried and which would remain hourly. But once they figured it out, they began to see their business grow with a new rattle as a big reason behind it.

“35 to 40 hours is what that role is. And we really look at you as almost a leader on the team, like a manager in a way. It’s a real position that we’ve created. It is focused on great reviews because that is what gets people in the door. When people see our reviews, they come in, it makes us even busier. And so that feeds into it. That makes our business more predictable, more sustainable.

Obviously, we have the winter season, that is a challenge for us. But we’ve seen growth. We’ve seen growth with this model. We’ve seen more regular guests coming because the servers and bartenders are not trying to get people to spend a million dollars. They just want people to come back again and again. They’re not trying to get a tip, so it’s not a transactional relationship between the employee and guests. It’s more, ‘You’re a regular, let’s make sure you have a great time and come back, and tell all your friends.’”

It’s also had a huge impact on the team as a way of avoiding burnout and leading to a happier staff overall.

“The impact has been more consistency with us. We have the strongest team we’ve ever had, the highest reviews we’ve ever had, the lowest turnover we’ve ever had. And turnover is crushing people, crushing restaurants right now. And we haven’t experienced that. And I have to think that it’s our wage model that is the reason. That’s definitely been the impact. Could we be making more money if we were paying people less? Of course. But would we be struggling to staff? Would we be struggling with reviews? And we would be struggling if we weren’t doing this. By doing the right thing, I actually think it is better for our restaurants in the long term. And over time, I’ve seen the returns, I’ve seen employees that treat the business like it’s theirs.

Actually, one of our employees is a partner now, in the newer restaurants. And then, two of our former employees are now partners who opened the first restaurant with us around that time. In a way, that can happen. And the more restaurants I open, the more opportunities I have to promote people or to make them partners, to create more opportunities for them.”

It’s clear that for Destination Unknown this model works, so why isn’t it something that more restaurants are doing? And is it viable for the industry as a whole?

“It is the future. This is what we need to look at because, right now, restaurants are a little bit broken and people are catching onto it quickly and they’re fed up. And it’s not just restaurants, other businesses too. I think a lot of people are understaffed right now. And you’re seeing workers just stretched too thin and they’re giving bad customer service or bad whatever because of that, because they’re not paid well.

Wages needed to go up. That definitely needed to happen. And I’m really happy that it has happened. But I think a lot of… In the restaurant industry, we’re used to having very thin margins to work with. And I think a lot of people are afraid to change. But if you don’t change, sometimes you don’t make it right. You really have to take that risk and invest in your people. And that’s the advice that I give people. But we all want to be profitable at the end of the day, but if we don’t have happy people, to me, I just wouldn’t feel right not taking care of people in some way, and not being a good employer.”

Recommended Reading: 4 Restaurants Fighting Wage Inequity for their Employees

And Kelly believes that it’s a fear of change that’s preventing many restaurants from exploring this route. In America, it feels so radical to stray from the path. Citing Europe as an inspiration, Kelly maintains that this idea isn’t that radical.

“No, it’s not this wild crazy thing that I’m doing. I’m just trying to make moves to offer people something that’s more stable. And it can work.”

Is it possible for any restaurant to start doing this? Kelly believes so. But you don’t have to jump in with both feet. Kelly’s advice: start small.

“If it’s something that scares you, you can try, maybe you have an employee that has been with you for a really long time and they’re open to this. There’s some trust there already. You can try shifting them to salary and they’ll see. It takes a little time, but they’ll see. You end up making more because everyone thinks, ‘Oh, Friday night I make this much money.’ They’ll say that that’s what they make, everyone wants to inflate what they make. But consistently over time, we looked at what people were making and they’re actually making more now with us than they were before. And that was how we structured our salaries.

I think if you look at what an employee is making in a year on average, and then you add 5% or 6% to that, they will quickly buy into it because they know… Everyone wants to make a little more. And if it’s promised, if it’s guaranteed, why wouldn’t they try it? Why wouldn’t they be open to it?

I think it’s starting small. That’s what we did. We started with one or two people, and then we’ve had four, five, six people on salary consistently since doing this, not including management. That was servers, bartenders on salary. And it worked.”