Auto-Gratuity and Tip Creeping Will Ruin America’s Retail and Hospitality Business

Auto-Gratuity and Tip Creeping Will Ruin America's Retail and Hospitality Business

Tip creeping is a term used to describe the increasing expectation that customers will tip for services that were not traditionally tipped for. This trend has been driven by a number of factors, including the rise of the service economy, the decline of unions, inflation, and the resulting increasing cost of living.

Starbucks recently decided to pioneer a new policy in tip creeping, but before we get into it, let’s compare tip creeping and auto gratuity to get some perspective on the new widely used practice.

Auto Gratuity and Tip Creeping

In the past, tipping was primarily associated with the restaurant industry. 

However, in recent years, it has become increasingly common to tip for a wide range of services, including:

  • Hairdressers
  • Manicurists
  • Delivery drivers
  • Rideshare drivers
  • Hotel housekeepers
  • Valet parking attendants
  • Baristas
  • Retail store clerks
  • Personal trainers
  • Dog walkers

The amount of a tip can vary depending on the service and the customer’s discretion. However, in general, a tip of 15-20% is considered standard.

Auto Gratuity

Auto gratuity is a policy where a business automatically adds a tip to a customer’s bill. This is often done in restaurants, but it can also be seen at other businesses, such as hair salons and spas. It’s often called a “service charge” and is automatically added to parties of six or more guests at restaurants.

While auto gratuity has been around for some time, a new type of auto gratuity has expanded into retail environments where you pay and pick something up at the counter, suggesting you leave a tip on top of the bill. This often comes without any exceptional service or product, but rather the same level of service and satisfaction you would have gotten anyway. 

The practice is often referred to as tip creeping.

Starbucks Establishes Tip Creeping as Official Policy

In September 2022, Starbucks began rolling out a new feature at its US stores that asks customers if they would like to leave a tip for their baristas after every transaction. Previously, customers could only tip at Starbucks using cash or the Starbucks app. The new feature is available on both the company’s registers and its drive-thru ordering systems.

The decision to add a tip screen to all transactions was made in an effort to increase pay for Starbucks baristas, who are currently paid the federal minimum wage of $7.25 per hour. Starbucks CEO Howard Schultz has said that he believes the company should pay its employees a “living wage,” and that the new tip feature is one way to achieve that goal.

The new tip feature has been met with mixed reactions from customers. Some customers have welcomed the opportunity to show their appreciation for their baristas, while others have expressed concerns about the pressure to tip and the potential for tipping to become mandatory.

It remains to be seen how the new tip feature will impact Starbucks’ bottom line and the pay of its baristas. However, the move is a significant departure from the company’s previous policy of only allowing customers to tip at their discretion. Some baristas are making an additional $200/week from the new policy, according to Business Insider.

What are some pros and cons of the new suggested auto tip feature at Starbucks?

Pros:

  • The new tip feature could help to increase pay for Starbucks baristas.
  • It could also encourage customers to tip more often.
  • The feature could make it easier for customers to tip, as they will no longer have to carry cash or use the Starbucks app.

Cons:

  • The new tip feature could put pressure on customers to tip, even if they do not feel that they have received good service.
  • It could also lead to tipping becoming mandatory, which could erode the value of tips.
  • The feature could be inconvenient for customers who do not want to tip, and could result in a loss of regular business from people not wanting to be hassled.

Pros and Cons of Autograt and Tip Creeping

There are both pros and cons to auto gratuity, or suggesting customers leave a tip on the checkout screen (tip creeping):

Pros of Auto Gratuity or Suggesting a Tip

  • It ensures that servers are paid a fair wage. In the United States, servers are often paid below minimum wage with the expectation that they will make up the difference in tips. Auto gratuity can help to ensure that servers are paid a fair wage, regardless of the number of customers they serve or the amount of their tips.
  • It can help to reduce the number of arguments between customers and servers about tipping. Tipping is a social custom, and there is no one-size-fits-all rule for how much to tip. This can lead to arguments between customers and servers, especially when customers feel that they have been undertipped. Auto gratuity can help to eliminate these arguments by removing the decision of how much to tip from the customer.
  • It can make the payment process more efficient. When a customer is not required to decide how much to tip, or the amount is suggested, the payment process can be more efficient. This is especially true in busy restaurants where there is a long line of customers waiting to pay.
  • It allows customers the opportunity to tip. A small number of people might not tip because they’re shy, come from a different culture, or they don’t feel the opportunity is right. 

Cons of Tip-Suggesting and Auto Gratuity

  • It can be seen as a form of mandatory tipping, which some people may not agree with. Some people believe that tipping should be a voluntary gesture, and they may not be happy with the idea of being forced to tip.
  • It can lead to servers providing lower quality service. If servers know that they will be paid a certain amount regardless of their performance, they may be less motivated to provide high-quality service.
  • It can be difficult to calculate the correct amount of a fair suggested auto gratuity. If you buy a Starbucks drink for $5.00 and tip $1.00, you just tipped 20% without knowing it. 20% used to be what a good server at a restaurant could expect. Now companies like Starbucks just put part of their payroll responsibility directly onto you.

Ultimately, the decision of whether or not to use auto gratuity is up to the individual business. Businesses should weigh the pros and cons of auto gratuity and decide what is best for their business and their customers.

It’s the Economy: Causes of the Rise in Tip Creeping

There are a number of reasons why tip creeping has become so prevalent. 

One reason is the rise of the service economy. In the past, many jobs were in the manufacturing or agricultural sectors. However, these industries have declined in recent years, and the service sector has grown. This shift has led to an increase in the number of jobs that rely on tips.

Another reason for tip creep is the decline of unions. Unions have historically played a role in negotiating for higher wages and better working conditions for their members. However, the number of union members has declined in recent years, which has left many workers without the protections that unions provide.

Finally, the increasing cost of living has also contributed to tip creeping. As the cost of living has risen, many people have found it difficult to make ends meet. As a result, they may feel pressure to tip more in order to help service workers make a living wage.

Tip creeping is a complex issue with no easy solutions. However, it is important to be aware of the trend and to make informed decisions about when and how much to tip. It’s just odd to see as a potential recession unfolds in 2023.

What are some tips for dealing with tip creeping?

  • Be aware of the tipping norms in your area.
  • Consider the quality of service you received when deciding how much to tip.
  • Don’t feel pressured to tip if you don’t feel that the service was worth it.
  • If you are unable to tip, be polite and explain your situation.
  • Support businesses that pay their employees a living wage.
  • Advocate for policies that will help to protect the rights of service workers.

Conclusion: Tip Creeping and Autogratuity

Suggesting you pay more for the same thing you did last week in the form of a tip is strange, to say the least. Especially in a non-service intensive environment. 

Tip Creeping in Real Life

I recently used my card to pay on the point-of-sale screen at 5 Guys Hamburgers, and it asked if I’d like to leave a tip for ordering a single cheeseburger and a cup of tap water. No one brought my food out. No one made my drink. But the business still wanted me to tip their employees.

And the businesses make a pretty compelling argument…

“You do care about the workers, though, don’t you? And I mean, the business owner must too as now they’re making a living wage for their employees your direct responsibility, complete with an all-inclusive guilt trip and potentially reduced service level or bad vibes if you don’t tip.”

Both the Past and Future of Tip Creep is Charity Begging and Lazy Donating by Corporations

Now get ready to be asked to make a donation by a large corporate grocery store who is not donating anything themselves, but is asking you to do that at a time when maybe money is low or you’re homeless, and all you wanted was to buy some food so you don’t die.

How dare you be so selfish and uncharitable.

Well, don’t mind me. I went to a Starbucks today and walked out before I could order, the service was so terrible and there wasn’t even anyone in line.

1 Comment

  1. Farhan

    Thanks for the helpful post.

Comments are closed