Why Tipping Is So Out Of Control In The U.S. — Transcript

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1. 0:02When was the last time you purchased something
2. 0:04and you weren't asked for a tip?
3. 0:07Yeah, I can't remember either.
4. 0:11Tipping culture has gotten out of control.
5. 0:14I get up to the pay window and she's like,
6. 0:15How much do you want to tip? What am I going to
7. 0:17tip you for?
8. 0:18I'm in the drive through.
9. 0:20Oh my God. Tips have been on the rise for
10. 0:22decades. During the 1950s, people commonly
11. 0:25tipped 10% of the bill.
12. 0:27By the 1970s and 1980s, that jumped to 15%.
13. 0:32Today, people tip anywhere from 15% to 25%.
14. 0:36According to one 2022 survey, consumers said
15. 0:39they tipped more than 21% on average.
16. 0:43Nowadays, there are people who argue 20% is
17. 0:46kind of a cheap tip.
18. 0:47While the percentage that consumers are tipping at
19. 0:50full service restaurants in the past couple of
20. 0:51years has remained about the same, in the fourth
21. 0:54quarter of 2022, the number of tips provided
22. 0:56at full service restaurants grew 17%.
23. 0:59Meanwhile, the tip frequency at quick
24. 1:01service restaurants such as coffee shops and fast
25. 1:03food chains rose 16% during the same time
26. 1:06period.
27. 1:07What we're seeing now nationwide is something
28. 1:10that is known as tipflation.
29. 1:13At every opportunity, we're being presented
30. 1:16with a tablet that's asking us how much we'd
31. 1:20like to tip.
32. 1:20In many cases, not only replacing the old
33. 1:23fashioned tip jars that you could feel good about
34. 1:25throwing some spare change into, but actually
35. 1:28suggesting tip amounts, often right in front of
36. 1:31the employee receiving that tip, not to mention
37. 1:34also your dinner date and the dozen or so
38. 1:37people standing behind you in line.
39. 1:38And it's gone beyond just the tablets.
40. 1:40The other day I was using the Hopper app to
41. 1:42book a hotel, and it wasn't until I confirmed
42. 1:45my payment that I realized my hotel was $10
43. 1:48more expensive.
44. 1:49It turns out, Hopper assumed I wanted to add a
45. 1:51tip and I had to go back to a prior page in order
46. 1:54to opt out. Tipflation refers to not just that
47. 1:58we're tipping more, but we're tipping everyone
48. 2:01for everything.
49. 2:02You're being guilted into tipping on something that
50. 2:06is not technically a service.
51. 2:08Someone simply doing their job.
52. 2:09In those situations, consumers are feeling
53. 2:12resentful. Where do you draw the line?
54. 2:30Tip stands for "to ensure promptness." Tipping may
55. 2:34go back as far as the Roman era, but according
56. 2:36to most experts, the practice likely has its
57. 2:38origins in medieval Europe.
58. 2:40Noblemen taking passage on roads would throw
59. 2:44coins to the rubble to ensure safe passage.
60. 2:47One theory is that it evolved in eating and
61. 2:50drinking establishments as a way to forestall
62. 2:52envy that when you're eating and drinking,
63. 2:55you're having fun and the people who are
64. 2:57serving you are not.
65. 2:58Fast forward to the 19th century when waiters who
66. 3:01received a full wage went on strike demanding
67. 3:03higher wages. They were replaced with women who
68. 3:05employers could pay less. A decade later,
69. 3:08there was the population of newly freed slaves.
70. 3:12The idea from these restaurant owners was
71. 3:14that they were giving the luxury or privilege
72. 3:16of a white person's tips .
73. 3:18That was without a full wage.
74. 3:21Ironically, as tipping exploded in the United
75. 3:25States, it became less common in Europe and was
76. 3:27replaced with service charges.
77. 3:30While the first federal minimum wage law was
78. 3:32passed in 1938, it wasn't until almost three
79. 3:35decades later when the tip minimum wage was
80. 3:37established. In 1991, the federal minimum wage
81. 3:40for tipped employees was set at $2.13, which is
82. 3:44what it remains at as of March 2023.
83. 3:48As far as I know, the United States is the only
84. 3:51country that exempts tipped workers from
85. 3:55having to receive the full minimum wage.
86. 3:58In 43 states, it is legal to pay tipped workers
87. 4:01less than the standard minimum wage because tips
88. 4:03presumably make up that difference.
89. 4:13In recent years, you might have found yourself
90. 4:15asking, Do I tip this barista for pouring that
91. 4:17hot coffee? What about when I'm going to a
92. 4:19restaurant and picking up takeout?
93. 4:21And how much do I tip that doorman, driver or
94. 4:24dog walker? When those in the service industry
95. 4:26were feeling the brunt during the coronavirus
96. 4:28pandemic, consumers started tipping for
97. 4:30things they never had before, and the
98. 4:33percentage of remote transactions when tipping
99. 4:35was an option in which the consumer tipped
100. 4:37soared from about 46% before the pandemic to
101. 4:40around 86% in January 2022.
102. 4:44If people were willing to tip the person
103. 4:46delivering food to their home 30%, why not ask if
104. 4:49they'd like to tip when they come pick up?
105. 4:51During the pandemic, businesses who lost a lot
106. 4:55of traditional customers and transactions were
107. 5:01looking for alternative ways to make up that
108. 5:04income. And if asking for tips was one way to
109. 5:08do it, they were willing to try it.
110. 5:10And since then, that ask hasn't dissipated.
111. 5:13Another reason consumers say they feel pressured
112. 5:16to tip more? They're being asked to tip prior
113. 5:18to service completion.
114. 5:20Asking for a tip beforehand is almost like
115. 5:23a bribe, right?
116. 5:25It's, I'm afraid not to tip because would you do
117. 5:29less good work?
118. 5:31Customers might not be concerned about the
119. 5:33barista's perception of their tip before getting
120. 5:34their latte, but what about the mechanic
121. 5:37repairing your car?
122. 5:38I don't know about you, but I'm certainly going
123. 5:40to make sure to tip them well to ensure my safety.
124. 5:49Another reason consumers are tipping more: newer
125. 5:52technologies.
126. 5:53Kiosks and tablets with three large tipping
127. 5:56suggestions that pop up on the screen in front of
128. 5:58you. Three Options chosen by the business.
129. 6:02I have not yet been to the restaurant where they
130. 6:05recommend 5, 10 or 15% for quick takeout.
131. 6:10It normally always starts at 15 as a bare
132. 6:13minimum, sometimes even starting at 20, 25 and up
133. 6:17to 30.
134. 6:18According to a 2022 CreditCards.com survey,
135. 6:2122% of respondents said when they're presented
136. 6:23with various suggested tip amounts, they feel
137. 6:26pressured to tip more than they normally would.
138. 6:28They use those options as an indication of kind of
139. 6:32what the normative range is and feel compelled to
140. 6:35tip within that range.
141. 6:36So the more you ask, the more you get.
142. 6:39The three prominent companies with that
143. 6:41trendy, sleek look are Square, Toast, and
144. 6:43Clover. They launched a bit more than a decade
145. 6:46ago to help businesses run smarter, faster and
146. 6:48easier, all in one point of sale or POS systems.
147. 6:52In some cases, fewer fees so it's less of a
148. 6:55burden to accept multiple credit cards, no
149. 6:57long term contracts and multiple other useful
150. 7:00tools, including inventory and employee
151. 7:03management.
152. 7:03They got credit card processing into the hands
153. 7:06of individuals and very small merchants.
154. 7:08Square did a great job and it's been a
155. 7:10tremendous growth story.
156. 7:11That's half of the business today.
157. 7:13Do you think these companies are responsible
158. 7:16for this turn of events that we've seen with
159. 7:18tipping?
160. 7:18I would say they could take some of the credit
161. 7:20for helping restaurants gather more tips.
162. 7:23Robert Sanchez manages Eli's Essentials in New
163. 7:25York City. One of the business's locations uses
164. 7:28Toast while the other uses this.
165. 7:30He says the storefront that uses Toast sees more
166. 7:33and higher tips.
167. 7:35The Clover, Square and Toast terminals to a
168. 7:39consumer are very easy to use.
169. 7:40Big buttons, big areas to sign the tip, and easy
170. 7:43way to tip a different amount if you don't like
171. 7:46the starting at 20% option.
172. 7:48There are others that do it.
173. 7:50They're just not as cool looking.
174. 7:53We've come a long way from being able to just
175. 7:55throw your spare change into the jar by the cash
176. 7:58register.
177. 7:58The new tablets have turned what used to be a
178. 8:01sin of omission, I simply didn't put money
179. 8:05into the tip jar, into a sin of commission.
180. 8:09I have to hit a button and say no tip.
181. 8:11I have to actively choose not to tip.
182. 8:13Whereas before, not tipping was a kind of a
183. 8:16passive thing.
184. 8:17Glancing at the tip jar could have also been a
185. 8:19way to get a sense of how many others are
186. 8:20tipping on that service and maybe even how much
187. 8:22money. Meanwhile, not only can the tipping
188. 8:25options be customized, but the tipping feature
189. 8:27can be disabled as well.
190. 8:29So it's the merchant's choice to ask or not to
191. 8:33ask for tips.
192. 8:34From the business side, it makes employees want
193. 8:37to perform better and do a better job.
194. 8:39It's seriously significant.
195. 8:41It really pays for the software.
196. 8:43You'd be a foolish business owner not to
197. 8:46install it based on what the numbers display.
198. 8:49Even a mammoth company as large as Starbucks has
199. 8:51decided that they need to sink or swim.
200. 8:54And the best way for them to do that is to
201. 8:56offer the tip screen.
202. 8:58Starbucks rolled out the tipping feature in stores
203. 9:00in September 2022.
204. 9:02It's one thing to have a happy staff.
205. 9:04It's another thing to have customers that are
206. 9:06feeling resentful.
207. 9:08I think it's a calculus that all business owners
208. 9:11really need to make.
209. 9:18Do you think that they're somewhat going to start
210. 9:21seeing that they're getting lower tips
211. 9:23because people are paying tips to so many
212. 9:25services or they're resentful of the act of
213. 9:28tipping in general?
214. 9:30I think that's a very real danger.
215. 9:31Servers in a sit down restaurant, they were
216. 9:34greatly affected during and immediately
217. 9:36post-pandemic by restaurants doing all
218. 9:39sorts of fees.
219. 9:41Their tips were actually going down because
220. 9:44consumers were saying, well, if I'm paying for
221. 9:46their health insurance and I'm paying for
222. 9:48inflation and I'm paying for this and I'm paying
223. 9:51for that, enough is enough.
224. 9:52The more you levy these line items onto
225. 9:55consumers, guess who's being penalized?
226. 9:58It's the one area that's still quasi
227. 10:01discretionary, which is the tip.
228. 10:03I went door to door talking with waitresses,
229. 10:05bartenders and baristas, and while they wanted to
230. 10:08remain anonymous, they told me it's happening
231. 10:10already. With inflation and being prompted for
232. 10:13tips left and right, they say customers have
233. 10:15already started to tip less and sometimes not at
234. 10:18all. A 2022 study found that 17% of Americans are
235. 10:22tipping less because of inflation. However, 10%
236. 10:25report tipping more.
237. 10:27At the same time, more than half of Americans,
238. 10:29or 60%, want to do away with tipping entirely.
239. 10:32The extent of pandemic-influenced
240. 10:34generosity has also gone down.
241. 10:3643% of consumers typically tipped servers
242. 10:3820% or more in 2022, compared to 56% of
243. 10:42consumers in 2021.
244. 10:44Meanwhile, the average tip for full service
245. 10:46restaurants has gone down only slightly during
246. 10:49the same time period.
247. 10:50According to Toast, 19.6% in the fourth quarter of
248. 10:532022, compared to 19.8% in 2021.
249. 10:58However, according to surveys conducted in
250. 11:00those same years, respondents said they're
251. 11:02tipping higher percentages: 21.2% and
252. 11:0618.9%, respectively.
253. 11:08It can genuinely hurt the people who truly, truly
254. 11:12rely on gratuities for their livelihood.
255. 11:16I firmly believe that the tipping invasion we
256. 11:19are experiencing right now, I think it's a net
257. 11:22negative for society.
258. 11:24And with that tablet at just about every counter,
259. 11:27no matter where you go, the question is, where is
260. 11:30the tipping point?
261. 11:31I'm wondering how long before I'm tipping my
262. 11:33doctor after an annual physical?
263. 11:35If you want to seem especially generous after
264. 11:38an exceptional meal, you might decide to go big
265. 11:40and tip 30%.
266. 11:42But it's a cycle.
267. 11:44As more people seeking to make a good impression
268. 11:46then up their tips to 30%, maybe even 35%.
269. 11:51What becomes a generous tip?
270. 11:53I have to believe tips are going to go up from
271. 11:55where they are today.
272. 11:57But I also think there's got to be a logical
273. 12:00ceiling somewhere.
274. 12:02I just don't know where it is.