Noodles & Co. CEO and chairman Kevin Reddy has a "no tip" policy at his restaurants, born from his belief that "respect doesn't cost you anything," and so far it's been a successful business model, the CEO says.
"Being nice doesn't cost you anything, and we don't really feel that folks should have to pay something additional for us to appreciate that they're choosing us over another restaurant," Reddy told CNBC.
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While the company did not share payroll data, Reddy said Noodles mostly pays workers above minimum wage. Since pay is generally higher, potential hikes in the minimum wage rate won't affect the business too much, he added.
The no-tip policy is in place at Noodles & Co.'s 380 locations in 29 states and Washington, D.C. An average meal at Noodles is $8, more than fast-food competitors like McDonald's but less than restaurants like Olive Garden and Applebee's, where guests often tip servers.
"We don't want our guests to feel we're trying to upsell them," Reddy said. "We'd rather have them feel we'd rather upserve them than upsell them. That's why we're really cautious even about the price increases we pass on."
Reddy, a former executive at Chipotle Mexican Grill Inc. and McDonald's Corp., has grown the chain from 284 restaurants in 2006 to 380.
He said he believes his no-tip policy will continue to benefit his chain.
"You can get in and out of our restaurants for 25 percent less than a Chili's or an Applebee's," Reddy told Market Watch.
"Our prices are lower to begin with, and you don’t have to put a 15 percent to 20 percent tip on it."
Reddy said that he prefers to hire genuinely nice people, rather than people who are motivated by tips to be nice.
"Either you enjoy people, and you treat them right, or you don't," Reddy told Market Watch. "You're either genuine, truthful and nice, or you're not. If you would throw somebody under the bus to get ahead, nobody wants to work with you. You’re not going to make it in our culture."
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