Tipping Point: The Inflation of Tips in the Foodservice Industry

Tipping has long been customary in the foodservice industry, representing a gesture of appreciation for good service. However, there has been a noticeable shift in tipping trends in recent years, with customers and economic experts saying that tipping has gotten out of control.

The term economists use to describe the growing concern about the inflation of tips in the foodservice industry is tip-flation. Let’s take a look at how we got here.

The History of Tipping in Foodservice

image of person giving someone a one dollar bill | carts and kiosks for food and beverage industry

Tipping is believed to have originated in Europe, where it was common to give small sums of money (tips) to servants and tradespeople as a token of appreciation for their services. This practice was brought to the American colonies in the late 17th and early 18th centuries.

The US economy was shifting in the late 19th and early 20th centuries, and service industries, particularly in urban areas, were growing. Tipping became more institutionalized, and some employers saw it as a way to shift the responsibility of compensating their employees onto customers.

Tipping became an essential part of the income for formerly enslaved people and African Americans who were paid less than their white counterparts. This reliance on tips perpetuated wage disparities, particularly in industries such as restaurants, hotels, and domestic service.

After World War II, tipping became firmly entrenched in American culture, and it was expected in most service industries. Tipping norms gradually evolved, with a customary tip of 10% growing to 15% and eventually 20% or more in some cases.

In the mid-20th century, labor laws were enacted to regulate wages for tipped employees’ leading to the creation of the federal tipped minimum wage. This allowed employers to pay tipped workers a lower base wage, assuming that tips would make up the difference. The federal minimum wage for tipped workers is $2.13 per hour — a rate that has not changed since 1991- and is significantly lower than the standard minimum wage.

The Rise of Tipping

According to a survey, 66% of U.S. adults have a negative view about tipping. – bankrate.com

Historically, a 15-20% tip on the total bill was considered standard; however, today, tipping norms have shifted upward, with many diners feeling pressured to tip 20% or more regardless of the quality of service received. This upward trend in tips can be attributed to several factors:

COVID-19’s Impact on Tipping in Foodservice

During the pandemic, many service industries, such as restaurants and bars, were heavily impacted by lockdowns and restrictions. This led to layoffs and reduced income for foodservice workers. Customers may have been more generous with their tips to help workers and businesses during that challenging period. As the pandemic eased, customer tipping behavior didn’t.

Technology in Foodservice Operations

The pandemic accelerated the adoption of contactless payment methods and digital tipping options. Customers are no longer tipping for good service but for anticipated good service well before a service is rendered. Customers may feel that they need to increase their tips to ensure quality or speed.

image of digital payment | tip inflation | gallery carts kiosk portable food concessions

Many digital payment systems allow restaurants and other foodservice providers to request a tip on the payment screen. Because many of these applications offer designated amounts, customers often feel pressured to select a higher tip amount as the foodservice worker is right in front of them, and a line of people watching may be behind them.

Confusion Over Tipping: To Tip or Not to Tip

15% of surveyed Americans say they are confused about who and how much to tip. – bankrate.com

In the past, customers were expected to tip at full-service restaurants. However, today, customers are asked for tips almost anywhere that food is served, including quick service restaurants, food trucks, kiosks, and food concessions stands. Many customers no longer know when it is (and isn’t) socially acceptable to tip or the suggested tip amount. Are tips for a beer at a bar the same as those you would give a hawker at a baseball game?

To make matters more confusing, some restaurants have introduced service charges or automatic gratuities, leading customers to wonder whether additional tipping is still expected on top of these charges.

Tipping has evolved from a gesture of gratitude to an increasingly complex and sometimes burdensome practice in the foodservice industry. While higher tips may initially benefit workers, they also contribute to wage disparities and customer budget constraints. Finding a balance between fair wages and fair tipping practices is essential to ensure that both foodservice workers and diners can enjoy a positive dining experience without undue financial pressure. As the conversation around tipping continues to evolve, an appropriate solution will promote fairness and sustainability in the industry.