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Peak pandemic spending led to 'tip inflation' for B.C.'s service industry

"We are just in love with tipping in Canada and the U.S. It's a Western thing," says the president and CEO of the BC Restaurant and Foodservices Association.
Simple coffee shops and counter service fast food restaurants are notable places where tipping has expanded — often driven by digital payments, as the use of cash declines.

The pandemic, coupled with a higher cost of living pressures, has led to a renewed appreciation for service workers and expansion of tipping and higher tips, B.C. experts in retail services and consumer behaviourism say.

And while inflation may soon take a bite out of that tip growth and uptick, the pandemic likely further entrenched tipping practices against any notion of ending the practice altogether.

David Tikkanen, head of the tourism marketing program at BCIT, says anecdotally that he's seen a "sort of tip inflation" as a consumer since COVID.

"The pandemic, I think, has increased pressure on consumers to be asked to consider increasing their tips. And I think as a consumer — definitely, as restaurants started to open again and essential services — I was happy to tip; I can go out to a restaurant and can sit down and have a meal, or I can go to a craft brewery and have a beer; whereas, for so long, I wasn't allowed to do that.

"And so, I think that was sort of a generosity of heart and spirit, where people were glad to be out again and also recognizing that restaurants were under extreme financial pressures because of COVID," says Tikkanen.

Darren Dahl, an Innovate BC professor in the marketing and behavioural science division at the UBC Sauder School of Business, likewise says customer empathy drove tipping higher in the service industry — either by tipping more at places that typically take tips or by tipping at places that would otherwise not have seen tips before the pandemic.

Simple coffee shops and counter service fast food restaurants are notable places where tipping has expanded — often driven by digital payments, as the use of cash declines precipitously.

Ian Tostenson, president and CEO of the BC Restaurant and Foodservices Association, says there are more reasons than the pandemic to tip more. Still, he acknowledges it is a driving factor.

"[People] say, 'You know what, I had great service, a great time, so why not increase that benefit,'" he said of pandemic tipping.

A 20 per cent tip is about standard for a good sit-down meal, says Tostenson. If you're unsatisfied by the service or food, you should try to get staff to solve the problem and not feel pressured to tip, he says.

Less cash being used means some feeling the pinch

While restaurants and food services are the most obvious places people tip, the pandemic has also helped shift the goalposts elsewhere — not always in favour of the tip receiver.

Experts observe how the acceleration of cashless customers has required people to adapt to more digital payment options.

The Bank of Canada noted in 2017 that cash accounted for 33 per cent of all transaction volume, whereas in 2021, Payments Canada found only 10 per cent of all transactions in Canada are now made in cash.

In Vancouver, workers and employers have adapted to electronic payment options to obtain tips from the cashless masses.

In Vancouver, Glacier Media spoke to hotel door attendants who reported losing thousands of dollars per year relative to 10 years ago. To compensate, some hotels now offer tipping for concierge services via the bill at the end of each stay.

Meanwhile, some buskers can be observed with signs accepting e-transfers. Salvation Army volunteers now employ a touchless digital payment method serviced by tiptap, which processes debit and credit payments from the street.

$2.3B in tips in B.C. alone

While there is no exact measure of how much we tip on average, tips are "big business," says Dahl.

According to Statistics Canada, B.C.'s full-service restaurants, caterers, cafes, coffee shops and drinking places are on pace to bill British Columbians about $14 billion this year. An estimate of taxes based on industry standards of alcohol sales brings the total bills close to $15 billion. And since it is customary to tip on the total bill, with taxes, if British Columbians tipped 15 per cent, on average, across all establishments, it would amount to about $2.3 billion in tips.

Tipping is entrenched 

The higher and more ubiquitous tips appear to have also quelled any lingering debate on ridding tipping in the restaurant industry.

In 2016, Earl's restaurant attempted no tipping at a Calgary location. The experiment quickly failed.

Tim Silk, associate professor of teaching, marketing and behavioural science division at the Sauder School of Business, says despite some griping about tipping and suggestions to move to a no-tip model like Australia, doing so would be “very complex.” According to Silk, restaurants would need to charge more to compensate staff, and it would be a giant effort to find that balance.

“There's that argument that it would be simpler and arguably better for consumers, but many of us are also service employees," he said.

If anything, tipping may be more entrenched now. For example, whereas tipping on pickup orders was not normative before the pandemic, many people may maintain the practice.

“Behavioural science would say, if it's become habitual and normative, you may not be metacognitive in your own thoughts to be like, ‘Hey, I don't need to do that anymore.’ It just becomes part of what you do. So, you might have all these people that are continuing to tip on pickup orders, even though the restaurants are back at full scale," says Silk.

Tostenson says tipping still incentivizes good service.

"We are just in love with tipping in Canada and the U.S. It's a Western thing; it's certainly not in parts of Europe. In Japan, it's rude, and in Australia, they don't have it," he asserts.

"I just think that we like the transaction where we can have a little bit of control."

Inflation could lead to fewer or less costly tips

But if tipping has risen recently, Silk says current high inflation may dampen it.

“As we have negative shocks to our income or the spending power of our income, we're going to be more careful in how we tip, which might be a reduction in frequency or a reduction in the magnitude of tip size or both,” he said.

Dahl notes that while inflation may reduce tip percentages, the higher menu prices may offset some of the losses service workers could experience in the coming year.

And regardless of whether they receive elevated tips or tips at all, Tikkanen thinks that inflation will mean more and more places ask for tips.

“I don't think that we're going to see tip deflation. People are seeing the cost of everything going up, whether it's gas or bread. And people are seeing that in requests for gratuities as well,” he said.

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