Understanding the difference between service and hospitality is crucial to the success of a restaurant, or any business, according to acclaimed entrepreneur Danny Meyer. The CEO of Union Square Hospitality Group (USHG), which owns many well-cherished eateries in New York, including Union Square Café and Grammercy Tavern, delivered the opening keynote address at the recent M&A East conference, sponsored by ACG Philadelphia.

“Service is delivering on your promise. Hospitality is making people feel good while you're delivering on that promise,” Meyer told dealmakers. In keeping with the theme of his remarks, Meyer exuded a relaxed and congenial presentation style on stage at the Pennsylvania Convention Center.

“Make your company the favorite company to do business with, make your private equity firm the favorite,” Meyer urged M&A East attendees, including PE investors, strategic buyers, investment bankers, M&A attorneys and accountants. The key to becoming a favorite with customers is to look out for your employees. “Put your customers second and your own team first,” Meyers advised dealmakers.

After the keynote, Meyer spent some time in the exhibit hall, chatting in a friendly, unhurried fashion with attendees, practicing the law of hospitality he preached.

The day after Meyer addressed the M&A East audience, he announced a bold move designed to enhance team spirit at his restaurants. Over the course of the next year, the New York fine-dining establishments owned by USHG will stop accepting gratuities. It’s an effort to pay workers more fairly and consistently.

“We believe hospitality is a team sport, and that it takes an entire team to provide you with the experiences you have come to expect from us,” Meyer said in a letter on USHG’s website explaining the decision and pointing out that New York regulations deem which restaurant workers can share tips, and which can’t. “Unfortunately, many of our colleagues — our cooks, reservationists, and dishwashers to name a few — aren’t able to share in our guests’ generosity, even though their contributions are just as vital to the outcome of your experience at one of our restaurants.”

Prices at USHG restaurants will rise approximately 20 percent, in line with local tipping practices. “The total cost you pay to dine with us won’t differ much from what you pay now. But for our teams, the change will be significant.” The move to eliminate tips was triggered by the need to ensure that compensation for fine-dining workers remains competitive with compensation for fast-food workers. New York Governor Andrew Cuomo in September approved an increase in the minimum hourly wage for fast-food workers from $8.75 to $15, to be phased in over the next three years. Meyer’s new policy will be watched closely by the restaurant industry, and observers expect many fine-dining eateries to follow his lead.

Meyer’s culinary career began relatively modestly 30 years ago in October 1985, when he opened Union Square Café. Meyer funded the endeavor with about $980,000 in personal savings and family loans, he told the M&A East audience. Inspired by restaurants he had enjoyed while traveling in Europe, Union Square Cafe is credited with bringing the farm-to-table movement to New York City and with helping to revitalize the Union Square neighborhood. (Ironically, due to rent increases, Union Square Café will soon move a few blocks away, to the space currently occupied by City Crab & Seafood Company, where Meyer has secured a 15-year lease and has planned a major renovation.)

Initially, Meyer expanded at a snail’s pace. Wary of repeating mistakes made by his father, a hotel owner who declared bankruptcy after expanding too quickly, Meyer waited nine years before opening his second restaurant, Grammercy Tavern, with chef Tom Colicchio in 1994. (Colicchio departed amicably in 2006 to focus on his own restaurants, and Grammercy Tavern’s executive chef is now Michael Anthony).

Today, USHG owns more than a dozen upscale dining establishments in New York, including the jazzy Blue Smoke, Eleven Madison Park, The Modern (at the Modern Museum of Art) and Untitled (at the Whitney Museum of American Art’s new home in the meatpacking district). The company also runs an organizational consulting business, and USHG has begun backing restaurants outside New York, such as GreenRiver in Chicago.

A proponent of “management by walking around,” Meyer’s style is hands-on, and he is a frequent presence at many USHG restaurants, where he stops by tables to greet loyal customers and celebrity patrons. Over the years, Meyer has brought in outside investors. In 2012, Los Angeles private equity firm Leonard Green & Partners LP acquired a 39.5 percent stake in USHG for an undisclosed amount. Today, Meyer also serves on the board of OpenTable Inc., the online restaurant reservation service bought by The Priceline Group Inc. (Nasdaq: PCLN) for $2.6 billion in 2014.

Outside the realm of fine dining, Meyer has played a significant role in the reinvention of the burger joint. In 2001, on something of a whim, he instructed the staff at tony Eleven Park Madison to set up a temporary hot dog cart across the street in Madison Square Park to support the park’s first art installation. In 2004, USHG won a bid to open a permanent kiosk in the park, and Shake Shack Inc. (NYSE: SHAK) was born.

Selling high-quality fast food (including a portobello mushroom-based ‘Shroom Burger for vegetarians), the original Shake Shack stand quickly became a favorite lunch spot for those who worked in the neighborhood. Thanks to web cams and Twitter feeds that enabled would-be customers to monitor the ever-growing lineups remotely, Shake Shack’s popularity flourished among the blossoming New York tech startup community. Grass-roots publicity came from entrepreneurs, such as Tumblr Inc. founder David Karp, and venture capitalists, such as Union Square Ventures co-founder Fred Wilson, who mentioned the outdoor eatery on their blogs and social media accounts.

Continuing the cautious approach, it took five years before Meyer launched a second location, but Shake Shack has been expanding significantly all over the world ever since. Plans are in the works for a Tokyo location in 2016. The company split off from USHG in 2009 and went public in 2014.

Throughout his endeavors, Meyer has maintained the focus on hospitality, as he discussed in his 2008 book, Setting the Table: The Transforming Power of Hospitality in Business. As he told the M&A East audience, his recipe for success consists of “49 parts performance, 51 parts hospitality.”

Photo credits (from top to bottom): Sarah Bones, Union Square Hospitality Group, Madison Square Park Conservancy

Food and beverage industry