Tipflation – The Customer’s Perspective

By: Rebecca Hardin

Exceptional service has been traditionally recognized by customers paying a percentage of the bill as a tip for a job well done. Over the last few years, there has been a shift at the POS where customers began to see a tipping option added to non-traditional services, think liquor store, quick service restaurant, automated kiosk, or your local coffee shop. When this was first introduced, customers seemed generally open to the idea as it gave them a way to recognize the team member who may have gone above and beyond. Now, in a post-COVID world of price hikes, extraordinary inflation, increased tip percentages of 18% and above, and the massive onslaught of non-traditional businesses seeking tips without added services has pushed some consumers too far and they are growing annoyed. This is detracting from the overall shopping experience and if not managed appropriately, will eventually impact the owners’ bottom line.

The Data

Within the last two years, the perception toward tipping in general has started to shift. An Angus Reid article on Tipflation dated Feb 2023, outlines “59% of Canadians surveyed say they would prefer to see a “service included’ model, which would see an end of tipping and higher base wages for employees.” This is a significant shift as the article compares data from 2016 when 40% of Canadians surveyed preferred the service included model.

“59% of Canadians surveyed say they would prefer to see a “service included’ model.”

With unprecedented price increases in both goods and services due to inflation, customers are being asked to pay an increased percentage on their items and are feeling squeezed in all directions. The same survey found that 64% of Canadians believe they are being asked to tip more often and to leave larger tips. When broken down by province, BC had the highest consumer perception, with 74% of British Columbians believing they are being asked more often and for higher amounts.

The Experience

The data coming out of consumer surveys is reflecting a negative impact to customer experience. The payment is the last point of contact a customer has at the store and there seems to be a growing annoyance at the end of the transactions when a tip request for 18% or 20% of the purchase price pops up. Some customers are feeling social pressure to comply even if the employee has not added any additional service because everyone in line including the employee, can often see the screen! The inadvertent negative pressure placed upon a shopper right at the end of the transaction is detracting from their overall shopping experience, which makes them think twice about returning. The culture shift in tipping is directly impacting consumer shopping experience and purchasing behaviour. A Toronto Sun article dated Jan 28, 2023, found some customers are quicker to post a negative comment on social media or issue a negative Google review on a business. This could ultimately reduce foot traffic to a business and impact the bottom line.

Finding Balance

Employers in non-traditional businesses really need to consider all aspects of their business including customer satisfaction and employee retention. Employees in these businesses have now grown accustomed to tips because their wages have not kept up with inflation hikes.  Rather than massive sticker price hikes, employers have simply added the tip function to offset wage increases to retain their team and potentially save on remittance tax.

“Customer satisfaction is declining as guests believe they are subsidizing wages.”

The balance comes with finding the middle ground. Tipping within a non-traditional business seems to be here to stay; however, the management of those tips needs to evolve, or ownership groups need to make an internal change and simply decide to pay their team more. At Folke Restaurant in Vancouver, they have implemented a no tipping policy. Their website reads, “We offer a hospitality included style of service. What this means is that we have a hospitality included pricing model that includes tipping. We aim to create a sustainable model for work and pay for our team.”

“The time has come to reinvent the tipping model.”

In recognizing the customer dissatisfaction, some store owners within the non-traditional space, have begun to propose a reduced percentage. Rather than a standard restaurant fee of 20% or more, percentage rates of 2%, 3%, and 5% are being used. It’s just enough to retain an employee, however it’s not so high where the customers are leaving with a negative experience.

Store owners are realizing tipping requests are getting out of hand and ultimately impacting the business. New ideas such as flat fee tipping, where an option of $2 or $3, or a rounding up model within a POS can replace the “countertop coin jar” for a digital coin jar within these businesses.

The time has come to reinvent the tipping model. Fantastic service should continue to be rewarded, but tipping for no added customer value needs to be examined and refined as it is negatively impacting the consumer shopping experience.

Rebecca Hardin, lead advisor of Thrive Liquor & Cannabis Advisors, specializes in regulatory licensing and retail operations.