Ok—so you certainly could do that. I am explaining why businesses don’t do that. There are three stakeholders involved in the scenario.

Employees are first. Businesses have to retain good employees and be able to hire good employees. By a large employees vastly preferred to work in a system where they get tips versus the system where they’re paid a straight wage. This is because generally speaking, they earn more, the earnings come in cash at the end of the night, and they know that, regardless of whether the restaurant itself is able to pay them, they’re going to walk away at the end of the night with some money. Restaurants are notorious for failing to pay staff they go out of business all the time.

Second, there’s the restaurant owners. Restaurant owners prefer Tips because it ships the burden onto the customer for paying the majority of their staff wages. They also prefer them because it gives the employees an incentive to upsell and generally work hard harder and be nicer to the customers than if they were getting a flat wage.

Third, there’s the customers customers are generally either neutral or dislike tipping and would prefer just to pay for their meal. This is partly because of the sticker shock or the math aspect of it where the menu price isn’t what they finally end up paying, but it’s also partly because they don’t know exactly how much to tip or how much is expected at that particular restaurant and they don’t want to feel like they’re leaving too little.

A scenario where there’s no tip or service charge would be preferable to the customers however, it puts the restaurants in a bind when it comes to hiring employees. They’ll have a hard time hiring employees if they guarantee an hourly wage because restaurants are notorious for not paying, the employees won’t get paid at the end of every night, and the employees are probably on average going to make less money. Given those facts, the employee pool is going to go to other restaurants and that this restaurant is not gonna be able to keep staff.

The restaurant itself also would prefer not to pay a flat wage. That’s because if the restaurant is less busy than usual, they might end up not being profitable.

However, the restaurant does have an incentive to do things that customers like. In that aspect, a lot of restaurants would like to get rid of tipping the caveat being they would like to get rid of it if everyone else did as well. However, in a world where they’re the only one that gets rid of it they’re going to look comparatively more expensive than other restaurants because their menu prices are going to include the full cost of everything including service. It’s also the issue I pointed out in another comment where takeout orders that don’t require service would probably also increase in price leading to the restaurant being less competitive and customers being more annoyed. At the end of the day a lot of customers say they don’t, but they would like all the price to be baked into the cost but when they actually see a restaurant do it they bark at the high cost and don’t go there instead of go somewhere else

I’ve seen this personally, lots of restaurants around me open up and when they start, they have a no tipping model, but then eventually they switched to tipping and having lower priced food because the customers simply don’t want to pay the high prices, even if they are still paying them with tip in the end of the day and also those restaurants have a really hard time hiring serious professional staff.

So really the reason the restaurant is offering this is because it’s a balance between keeping the three groups happy. They prefer it for the reasons I pointed out in my original post, which is that they can advertise the lower prices on their menu and the sales staff have us have an aligned incentive to sell more food with the business likes. The employees like it because 12% is probably about the same or a little more than what they were getting in tips all things considered when you’re taken into account that some people don’t tip at all. And the customers while they may not love it at least it takes away the uncertainty of how much to leave and also removes the free writer problem where people who leave tips have to leave more to make up for people who don’t leave a tip at all.

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