Decades ago, I cut my teeth in the restaurant industry as a waitress and relied primarily on tips to pay my bills. And because I only made $2.13 per hour, the tips I earned – or didn’t earn – made all the difference in the world, which made my income quite unpredictable at times.
To add insult to injury, my first waitressing job was at Cracker Barrel, which meant that many regulars were senior citizens. And while plenty of them tipped well, others still believed a dollar was sufficient, even when their check totaled $20 or more.
While tipping is as American as apple pie, U.S. diners of all ages are growing increasingly fed up with the practice, with many believing that tip culture has officially gone too far.
Let’s take a closer look at how consumer sentiment toward tipping has evolved.
Tipping the Scales
Since founding a restaurant group 16 years ago in Portland, Oregon, Mindy Crosato told FI that she’s seen tipping habits and patterns change as the economy has.
While she says that tips decreased in 2010 during the recession and then increased in 2020 post-COVID, she’s noticed that they’ve been dropping again recently.
A recent survey by WalletHub may offer some clues as to why this shift has occurred, as 81% of Americans said they feel that tipping has gotten out of control – and more than two in five now believe that the U.S. government should ban tips.
The survey also polled respondents about a variety of related topics – from when people should tip to the manner in which gratuities should be split – and found that:
- 55% of people often leave tips due to social pressure rather than good service
- 64% think businesses are replacing employee salaries with customer tips
- 33% think tips should be split among all employees
Interestingly, one in five respondents also said they tend to tip less when presented with a tip suggestion screen.
Darren Spicer, a hospitality culture consultant and strategic advisor, told The Food Institute that, while tipping has been a part of the culture for a long time – particularly in markets like coffee shops – he’s noticed that the custom has made its way into other realms in recent years, specifically pointing to tip screens at convenience stores in airports, which he feels are “out of line.”
The consultant also noted that the suggested amount of tips on tickets and point-of-sale (POS) systems has also evolved.
“I have noticed that the ‘default’ tip amounts at many restaurants has skewed higher over time – you used to see 10-20%, and now, you often see 18-22% or even higher,” Spicer told FI, which could be partially to blame for consumers’ growing frustration with tip suggestions.
Jodi RR Smith, a human resources professional and nationally known etiquette consultant who’s appeared on the TODAY show and Good Morning America, has noticed the same phenomenon and feels that POS companies have played a role.
“The programmers who work at the POS companies often do not bother to consult with etiquette experts about when tipping is appropriate or the percentages. There are self-service kiosks with tipping options for 20%, 25%, or 30%,” Smith told FI.
And when no human interaction is involved in the transaction, who pockets the tip?
Spicer says that the answer depends on how the business has configured its payment system, but that most commonly, tips are either:
- Distributed to store employees
- Pocketed by the business
He added that this is “controversial and not always disclosed clearly to customers.”
Mandatory Tipping
In addition to the frustration that often stems from tip suggestions and a lack of transparency as to who receives them, many diners are also irked by being forced to leave a tip.
“People want to feel good about tipping, not be forced to tip,” Crosato told FI. “I don’t do mandatory tipping at my restaurant/bakery, but my staff often get ‘stiffed’ out of rebellion to general common mandatory tipping policies of other food businesses in the Portland area.”
Though Spicer feels that automatic service charges should be banned in most cases, he highlighted one exception to this rule: parties of eight or more people.
However, he also noted that this could end up being counterproductive for servers, as some guests would have left a higher tip than what’s required.
“If a server were to deliver great service, an argument can be made that money was left on the table by the gratuity already being determined (at say 18%). Most customers don’t choose to leave an ‘additional tip’ in these scenarios,” Spicer said.
While it’s clear that many Americans are fed up with tipping in general, could restaurants afford to stay in business if they were banned? And would diners be willing to pay higher prices for menu items to offset the increased labor costs?
Impacts of a Tip Ban on Restaurants
It’s no secret to anyone at this point that the foodservice sector has been struggling lately – and labor has been a pressing issue for quite some time.
“A tip ban would likely mean the restaurant would need to increase labor costs to retain great people, which would have a negative impact on the business itself. Having the pass-through financial impact of tips is key for many restaurants to keep functioning,” Spicer said.
“Restaurants already operate on margins of around 3-5% and cannot absorb higher labor costs without majorly increasing prices,” said Milos Eric, general manager at OysterLink.
“Restaurants would need to boost their menu prices by a large amount if tipping vanished overnight because they must create new payment methods for their staff. The question isn’t whether restaurants could adjust – they would – but whether consumers would respond positively to higher menu prices,” added Eugene Johnson, the creator and CEO of Revi, an AI-based restaurant infrastructure system.
“American customers have shown throughout history that they become extremely sensitive when restaurants decide to raise their menu costs. The final meal cost remains unchanged through tip removal, but customers experience demand changes because they encounter larger menu prices,” Johnson told FI.
Rather than banning tips, Eric believes the solution is to “create transparency in how tips are tracked, pooled, and distributed,” noting that customers “need to be aware of where their tips are going.”
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