Scott Barnett & Associates Blog
Tipping: The Dirty is in the Details

April 14, 2022
Like many who live in the 20 mile coastal strip of the Pacific known to the rest of the world as California, I often start my day at Starbucks. My loyalty to the brand is the butt of many jokes from my friends. "How long does it take to memorize that Latte order?" "Did they remember the chocolate sprinkles?" and so on.

But a discussion I had with a local barista this morning caused me to think about this. Like seemingly all their stores, my local Starbucks has been chronically understaffed for the last two years. As I have written in this blog, I have attributed it to the pandemic, the free stuff dispensed by the government(s), the lack of an immigrant working pool, etc.
I had not considered how tipping is contributing to understaffing.
Carving Up Tipping
The popular belief is that the word "tip" originated in old England and meant "To Insure Promptness." It may or may not be true but it has become an integral part of American full service and even semi-full service dining.

In 2015, restaurateur Danny Meyer and some others attempted to eliminate tipping in their restaurants. I have a lot of respect for Danny. He is one of the best in the business but he was simply dead wrong on this one. It was seen as a way to pay his kitchen more (admirable) but on the backs of his servers and bartenders (not-so admirable).

Moreover, tipped employees have been getting their incomes carved up for years. IRS crackdowns and audits, TRAC Agreements forcing servers to declare more tip income, charging them for the credit card fees associated with their tips - all of this have combined to dramatically reduce their income. The latest is giving them their charge tips in their (taxed and recorded) paychecks to make it easier on restaurant operators in terms of petty cash requirements and record keeping.

And restaurant operators complain about the dearth of prospective employees? I wonder why.
Falling Tips & Rising Unions
The 10 years-experienced Starbucks barista with whom I spoke told me that his tip income was less than half of what it was when he began a decade ago. He attributed it to the gradual digitization of payment methods. First with scanning the app at the register and then where the customer doesn't even have to go to the register on a digital pre-order.
In other words, the barista's workload increased over the last decade as his income fell.
There has been a lot of news lately about unions making inroads into Starbucks. The SEIU (Service Employees International Union) has won 2 out of 3 elections in New York and they have plans to organize in over 100 markets this year- including the home market of Seattle(!).

I think my local barista is a prime candidate for that given the workload up, income down conversation. He pointed out to me that Starbucks has added a tipping option on the app but, "It only took them 5 years of our asking for it to happen." Unionization will cause significant harm to restaurant companies. Increased labor and food costs are already forcing them to raise prices but squeezing margins as well. Dealing with a unionized work force could put many of them out of business.
Tipping: Contentious, Problematic & Not Going Anywhere
When we were starting Bubba Gump, I became involved in a big argument with my team. In our previous concept, we had "encouraged" the servers to tip the cooks ten cents per meal. In essence, a server might make $100 in a night while serving 30 people. If all 8 servers tipped ten cents, the three cooks might split up $24. It doesn't sound like much but a cook would make an additional $2,000 per year if she worked a normal schedule. It was Danny Meyer's approach without the drama or fanfare. My team was opposed to doing this at Gump and I eventually relented because of the legal issues involved. Huge mistake…

Tipping has been a contentious issue in our industry since I became involved. Server versus server, "Omigod, I have a station full of Canadians- I will be stiffed," disputes on tipping out to coworkers, arguments for/against tip sharing and tip pools- a seemingly endless list of disagreements.
Tipping creates disagreements among staff, is a headache for operators to manage, and falling tip rates seem to worsen the already bad labor shortage.
For operators, it's just a headache. As cash becomes less and less used, servers have to be paid their charge tips out of petty cash. In a tip pool there are opportunities for theft and mis-allocation.

But today, restaurateurs need good people. Badly. They are more concerned about their landlord who thinks they are paying too little rent or the supply chain issues or the price of a steak. They have bigger survivability issues than arbitrating fairness or being the enforcement arm of the IRS.

Danny Meyer threw in the towel on his "no tipping" policy. It took almost five years and massive front-of-the-house turnover but he finally gave up. I was surprised it took him that long.
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