The CQ: Has Tipping Reached a Tipping Point?
Perhaps you've noticed a prompt to tip in more places; we have, too. Where does the practice go from here?
The CQ is Forerunner’s weekly newsletter covering the most pressing consumer trends and analysis, as well as business-building insights from our investment team. Subscribe now to get the latest edition in your inbox every Saturday.
Buzzing at the Forerunner Office…
Consumers May Start Asking, “To Tip or Not to Tip?”
I read a tweet this week: “Pretty sure most of inflation at this point is just credit card readers pressuring us to tip 25% on transactions nobody ever tipped on prior to 2020.” At first I smiled, and then I scratched my head.
I consider myself to be an upstanding tipper. I leave 20% at restaurants and the barbershop, no question. I opt-in to the app recommended amount for food delivery. I have even given in to leaving tips at the grab-and-go bagel shop or when picking up takeout food. I’m nearing a breaking point, though. The not-so-subtle tip screen on Square at coffee shops (and my bagel shop), a modern take on “salting the jar,” has now gives me pause – should I leave $1 for a $3 iced tea that was poured out of a pre-brewed batch in a jug?
While there’s mixed data this summer on whether tipping has slowed down in this inflationary and recessionary market – Toast quarterly report data shows tip percentages remaining flat year-over-year while a survey by Creditcards.com shows the percentage of people who always tip decreasing year-over-year – there’s no question that consumers are being asked to tip in more places. Of my credit card spent last month (excluding travel and international expenses), ~30% was for goods or services where tips are a norm today. If I leave 20% most of the time, then tips increase my overall spend on the month by 5%.
GRAPHIC: How Often Do Americans Tip Service Providers?
Consumers are finding themselves in a tough position today. I used to leave a tip for cab rides in New York. With rideshare prices up and my spend now far surpassing my cab spend in the early 2010s, I’m questioning if and how much tip I should leave for a driver. For a special occasion, I recently ate at a restaurant that pioneered including tip in the menu prices – my stomach dropped when I found out, post-pandemic, tip was no longer included and the price of the menu had not decreased. As a renter, traditional bank customer, and social media minimalist, I’m aware of but have not had exposure to the now customary tipping for home service marketplaces, neobanks, and creators, but I can only imagine the tips piling up.
So what does this mean for tipping going forward and the people and businesses who rely on them? Price increases cut into consumer spending power. A meaningful portion of consumers are already facing trade offs and another significant portion is no doubt contemplating tradeoffs in the back of their mind knowing change may come to the foreground at any moment. These tradeoffs may come at the expense of tipping if the economic challenges deepen. As the number of situations and modes in which people are prompted to tip has increased, the complexity of the tipping decision-making process has increased and become not as straightforward. There’s a potential that consumers will naturally begin to pull back, and the tips that only recently became the norm seem most at risk compared to situations where tipping has been expected for decades, especially when there’s a relationship or regular interaction between the consumer and service provider. For me, I have decided to continue tipping at an elevated rate – I’m in the fortunate position that I can afford to and I want to do my part to support people who rely on tips, especially for the local stores and people I see weekly.
Businesses who rely on tipping, whether for their staff’s wages, for an alternative way to charge for services, or for increased payment processing volume, should keep a close eye on how sentiment and behavior evolves as consumers stare the deeper economic downturn in the face. Going forward, these businesses may experience headwinds and it would be wise to proactively evaluate how tipping fits into their business model and how impactful a pull back in tipping could be.
This Week’s Top 10 Consumer Insights
Despite a record number of layoffs, people are finding jobs faster than ever amid a strong labor market. There are nearly two job openings per unemployed person, which helps account for the current trend of shorter unemployment periods.
Taking a new step in addressing student loan debt, President Biden announced the administration would forgive up to $20,000 for millions of borrowers making less that $125,000 a year, as well as extend the payment freeze one final time until the end of the year.
Sharing pay data may solve the wage gap. The latest edition of LinkedIn’s Workforce Confidence survey reveals that 53% of women believe that pay transparency will lead to pay equality, contrasted with 42% of men.
As retailers seek to better operationalize their spaces and brands chase affordable ways to raise awareness, shop-in-shops—or small branded experiences nestled within existing retail spaces—are popping up more frequently.
These days, cost centers need to become revenue drivers. Among others pursuing similar initiatives, Gap is transforming its nationwide supply chain into a logistics and fulfillment service for other retailers.
Youtube will reportedly launch a dedicated podcast homepage, finally recognizing and elevating the long-neglected video podcast format that’s gained popularity on its platform.
In a new attempt to expand beyond its grocery focus, Instacart announced that it will now offer same-day and scheduled delivery for large non-food items like furniture, office supplies, and outdoor equipment.
Staying DTC-only is getting harder and harder. After a long history of remaining exclusively direct-to-consumer, Peloton will now sell its products on Amazon to counter slowing revenue growth and a plunging stock price.
Zenni is the latest brand to dive into sustainability with 100% post-consumer plastic eyeglasses, an effort to prevent plastic from entering the ocean.
Maybe you can't tech-enable everything? It appears that using your phone as a hotel key can create more problems than solutions.
“Nobody knows your business better than you do. I don’t care what aspect of your business you don’t think you’re good at. You know your business better than anybody else and you know your vision better than anybody else… If [anyone is] doing something that relates to your business that you don’t understand, ask them what they’re doing and ask them to explain it to you. There’s no shame in that, there’s no harm in that. You understanding what they’re doing is critical. And make them explain it to you until you understand it, even if you feel like the dumbest person in the world.
Eurie was named among the best retail-tech investors by INSIDER. She explained what types of companies excite the Forerunner team: “We're inspired by companies rethinking commerce and reimagining how technology can make shopping more efficient, fun, and engaging…Think livestream platforms like ShopShops and Loupe; B2B e-commerce companies like CoProcure and Faire; or loyalty programs where consumers and retailers both win, like Catch and Kale.”
For a limited time, you can grab a free plant-based Eclipse shake from one of 200+ Smashburger locations nationwide. Eclipse shakes offer a delicious dairy-free option that is more sustainable, healthy, and humane, but does not require any sacrifice; try one as we close out the summer!
Work at a Portfolio Company
As the Manager of Business Development, you will work closely with the VP of Sales to guide and build Ampla’s inside sales best practices. You will also coordinate cross-functionally with the sales, marketing, and product teams to bridge the gap between product and revenue.
Manager, Client Implementation, Calibrate | Calibrate’s mission is to change the way the world treats weight. We’re defining a new category in metabolic health that mirrors what the research shows—that weight reflects our biology, not our willpower.
The Manager of Client Implementation will own the end-to-end implementation of the Calibrate benefit for new clients.
Staff Accountant, Away | Away is a global lifestyle brand that is on a mission to create thoughtful products designed to make travel more seamless.
The ideal candidate will have experience within an AP function and deeply understand controls such as three-way match and invoice approvals.
There are ~916 other openings on our jobs site. Check ‘em out.